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our audit included obtaining an understanding of internal control over financial reporting , assessing the risk that a material weakness exists , and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk . our audit also included performing story_separator_special_tag forward-looking statements this annual report on form 10-k including this management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking statements within the meaning of the federal securities laws . all statements that do not concern historical facts are forward-looking statements and include , among other things , statements about our expectations , beliefs , intentions and or strategies for the future . these forward-looking statements include statements regarding our future operations , financial condition and prospects , expectations for treatment growth rates , revenue per treatment , expense growth , levels of the provision for uncollectible accounts receivable , operating income , cash flow , operating cash flow , estimated tax rates , capital expenditures , the development of new dialysis centers and dialysis center acquisitions , government and commercial payment rates , revenue estimating risk and the impact of our level of indebtedness on our financial performance and including earnings per share . these statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements , including but not limited to , risks resulting from the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates , and a reduction in the number of patients under such plans , which may result in the loss of revenues or patients , a reduction in government payment rates under the medicare end stage renal disease program or other government-based programs , the impact of the center for medicare and medicaid services ( cms ) 2015 medicare advantage benchmark structure , risks arising from potential federal and or state legislation that could have an adverse effect on our operations and profitability , changes in pharmaceutical or anemia management practice patterns , payment policies , or pharmaceutical pricing , legal compliance risks , including our continued compliance with complex government regulations and current or potential investigations by various government entities and related government or private-party proceedings , and in compliance with the corporate integrity agreement and the related restrictions on our business and operations required by the corporate integrity agreement and other settlement terms , and the financial impact thereof , continued increased competition from large and medium-sized dialysis providers that compete directly with us , our ability to maintain contracts with physician medical directors , changing affiliation models for physicians , and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates such as accountable care organizations ( acos ) , independent practice associations ( ipas ) and integrated delivery systems , or to businesses outside of dialysis and hcp 's business , our ability to complete acquisitions , mergers or dispositions that we might be considering or announce , or to integrate and successfully operate any business we may acquire or have acquired , including hcp , or to expand our operations and services to markets outside the u.s. , variability of our cash flows , the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations , yet we might not be able to operate them profitably anytime soon , if at all , risks arising from the use of accounting estimates , judgments and interpretations in our financial statements , loss of key hcp employees , potential disruption from the hcp transaction making it more difficult to maintain business and operational relationships with customers , partners , associated physicians and physician groups , hospitals and others , the risk that laws regulating the corporate practice of medicine could restrict the manner in which hcp conducts its business , the risk that the cost of providing services under hcp 's agreements may exceed our compensation , the risk that reductions in reimbursement rates , including medicare advantage rates , and future regulations may negatively impact hcp 's business , revenue and profitability , the risk that hcp may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability , the risk that a disruption in hcp 's healthcare provider networks could have an adverse effect on hcp 's business operations and profitability , the risk that reductions in the quality ratings of health maintenance organization plan customers of hcp could have an adverse effect on hcp 's business , or the risk that health plans that acquire health maintenance organizations may not be willing to contract with hcp or may be willing to contract only on less favorable terms , and the other risk factors set forth in part ii , item 1a . of this annual report on form 10-k. we base our forward-looking statements on information currently available to us , and we undertake no obligation to update or revise any forward-looking statements , whether as a result of changes in underlying factors , new information , future events or otherwise . the following should be read in conjunction with our consolidated financial statements and “ item 1. business ” . company overview the company consists of two major divisions , kidney care and healthcare partners ( hcp ) . kidney care is comprised of our u.s. dialysis and related lab services , our ancillary services and strategic initiatives , including our international operations , and our corporate support costs . our u.s. dialysis and related lab services business is our largest line of business , which is a leading provider 59 of kidney dialysis services in the u.s. for patients suffering from chronic kidney failure , also known as esrd . story_separator_special_tag consolidated net revenues for 2013 increased by approximately $ 3.578 billion or approximately 43.7 % from 2012. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 669 million , principally due to strong volume growth from additional treatments from non-acquired growth and dialysis center acquisitions and from an increase of $ 8 in the average dialysis revenue per treatment , primarily from an increase in our medicare reimbursements , net of the impact of sequestration and an increase in some of our average commercial payment rates , partially offset by a decline in the intensities of physician-prescribed pharmaceuticals that are billed separately . consolidated net revenues also increased by $ 2.719 billion as a result of the inclusion of a full year of operations for hcp , which benefited from an increase in its senior capitated members . in addition , revenue increased by approximately $ 210 million for our ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and from our international operations . 62 consolidated operating income consolidated operating income of $ 1.815 billion for 2014 increased by approximately $ 265 million , or 17.1 % from 2013 , which includes the estimated loss contingency reserve of $ 17 million and $ 397 million in 2014 and 2013 , respectively . in addition , 2013 includes a contingent earn-out obligation adjustment of $ 57 million and an adjustment to reduce a tax asset associated with the hcp acquisition escrow provisions of $ 8 million . excluding these items from their respective periods , adjusted consolidated operating income would have decreased by $ 66 million , or 3.5 % , primarily as a result of a decrease in hcp 's operating income of approximately $ 170 million , principally driven by a decline in medicare advantage rates . adjusted consolidated operating income also decreased as a result of higher pharmaceutical unit costs , an increase in long-term incentive compensation , an increase in hcp 's medical claims expenses from higher utilization and an increase in our dialysis provision for uncollectible accounts of approximately $ 72 million . consolidated operating income was positively impacted by an increase in the dialysis and related lab services net revenues as a result of strong volume growth from additional treatments due to non-acquired growth and acquisitions . in addition , our average dialysis revenue per treatment increased by approximately $ 2. adjusted consolidated income also benefited from improved productivity , lower losses associated with our ancillary services and strategic initiatives and growth in hcp 's senior capitated members . consolidated operating income of $ 1.550 billion for 2013 increased by approximately $ 253 million , or 19.5 % from 2012 , which includes the estimated loss contingency reserve of $ 397 million , a contingent earn-out obligation adjustment of $ 57 million and an adjustment to reduce a tax asset associated with the hcp acquisition escrow provisions of $ 8 million in 2013 , and 2012 also includes the $ 86 million legal settlement and related expenses and the $ 31 million of transaction expenses associated with the acquisition of hcp . excluding these items from their respective periods , adjusted consolidated operating income would have increased by $ 484 million , or 34.2 % , primarily as a result of a full year of operations of hcp which generated $ 385 million in operating income in 2013 as compared to $ 67 million in 2012 , an increase in the dialysis and related lab services net revenues as a result of strong volume growth in revenue from additional treatments due to non-acquired growth and acquisitions , and from an increase in our average dialysis revenue per treatment of approximately $ 8 , partially offset by an increase in our dialysis provision for uncollectible accounts of $ 47 million . adjusted consolidated operating income also increased as a result of lower operating losses associated with our ancillary services and strategic initiatives including our international operations and an overall decline in pharmaceutical costs mainly from a decline in the intensities of physician-prescribed pharmaceuticals and lower pharmaceutical unit costs . however , consolidated operating income was negatively impacted by higher labor and benefit costs , an increase in our professional fees for compliance and legal initiatives and for information technology matters , an increase in our dialysis center level impairments , the write-off of certain obsolete software costs , an increase in long-term incentive compensation and a slight decline in productivity . u.s. dialysis and related lab services business our u.s. dialysis and related lab service businesses is a leading provider of kidney dialysis services through a network of 2,179 outpatient dialysis centers in 46 states and the district of columbia , serving a total of approximately 173,000 patients . we also provide acute inpatient dialysis services in approximately 1,000 hospitals . we estimate that we have approximately a 35 % market share in the u.s. based upon the number of patients that we serve . in 2014 , our overall network of u.s. outpatient dialysis centers net increased by 105 dialysis centers primarily as a result of the opening new dialysis centers and from acquisitions of dialysis centers . in addition , the overall number of patients that we serve in the u.s. increased by approximately 5.9 % as compared to 2013. all references in this document to dialysis and related lab services refer only to our u.s. dialysis and related lab services business . our dialysis and related lab services stated mission is to be the provider , partner and employer of choice . we believe our attention to these three stakeholders—our patients , our business partners , and our teammates—represents the major driver of our long-term performance , although we are subject to the impact of several external factors such as government policy , physician practice patterns , commercial payor payment rates and the mix of commercial and government patients . two principal non-financial metrics we track are quality clinical outcomes and teammate turnover .
| results of operations the following table reflects the results of operations for the u.s. dialysis and related lab services business : replace_table_token_10_th net revenues dialysis and related lab services net revenues for 2014 increased by approximately $ 447 million or approximately 5.8 % from 2013. the increase in net revenues was primarily due to strong volume growth from additional treatments of approximately 5.7 % due to an increase in non-acquired treatment growth at existing and new dialysis centers and growth through acquisitions of dialysis centers and an increase in the average dialysis revenue per treatment of approximately $ 2. the increase in the average dialysis revenue per treatment in 2014 , as compared to 2013 , was primarily from the recognition of certain california medicaid revenue that was previously reserved , an increase in some of our commercial payment rates , partially offset by changes in the commercial payor mix . dialysis and related lab services net revenues were negatively impacted by an increase in the provision for uncollectible accounts of $ 72 million . dialysis and related lab services net revenues for 2013 increased by approximately $ 669 million or approximately 9.4 % from 2012. the increase in net revenues was primarily due to strong volume growth from additional treatments of approximately 7.2 % due to an increase in non-acquired treatment growth at existing and new dialysis centers and growth through acquisitions of dialysis centers and an increase in the average dialysis revenue per treatment of approximately $ 8 , or 2.4 % , partially offset by an increase in the provision for uncollectible accounts of $ 47 million .
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many factors could affect future financial results including , without limitation : the impact of adverse changes in the economy and real estate markets ; increases in non-performing assets which may reduce the level of earning assets and require the corporation to increase the allowance for credit losses , charge-off loans and to incur elevated collection and carrying costs related to such non-performing assets ; acquisition and growth strategies ; market risk ; changes or adverse developments in political or regulatory conditions ; a disruption in , or abnormal functioning of , credit and other markets , including the lack of or reduced access to markets for mortgages and other asset-backed securities and for commercial paper and other short-term borrowings ; changes in the levels of , or methodology for determining , fdic deposit insurance premiums and assessments ; the effect of competition and interest rates on net interest margin and net interest income ; investment strategy and other income growth ; investment securities gains and losses ; declines in the value of securities which may result in charges to earnings ; changes in rates of deposit and loan growth or a decline in loans originated ; relative balances of risk-sensitive assets to risk-sensitive liabilities ; salaries and employee benefits and other expenses ; amortization of intangible assets ; goodwill impairment ; capital and liquidity strategies ; and other financial and business matters for future periods . do not unduly rely on forward-looking statements . forward-looking statements can be identified by the use of words such as “ may , ” “ should , ” “ will , ” “ could , ” “ estimates , ” “ predicts , ” “ potential , ” “ continue , ” “ anticipates , ” “ believes , ” “ plans , ” “ expects , ” “ future , ” “ intends ” and similar expressions which are intended to identify forward-looking statements . these statements are not guarantees of future performance and are subject to risks and uncertainties , some of which are beyond the corporation 's control and ability to predict , that could cause actual results to differ materially from those expressed in the forward-looking statements . the corporation undertakes no obligation , other than as required by law , to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . overview summary financial results the corporation generates the majority of its revenue through net interest income , or the difference between interest earned on loans and investments and interest paid on deposits and borrowings . growth in net interest income is dependent upon balance sheet growth and or maintaining or increasing the net interest margin , which is net interest income ( fully taxable-equivalent ) as a percentage of average interest-earning assets . the corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets , such as loans , investments , or properties . offsetting these revenue sources are provisions for credit losses on loans , operating expenses and income taxes . 24 the following table presents a summary of the corporation 's earnings and selected performance ratios : replace_table_token_8_th ( 1 ) net income available to common shareholders divided by diluted weighted average common shares outstanding . ( 2 ) net income available to common shareholders divided by average common shareholders ' equity . ( 3 ) net income available to common shareholders , as adjusted for intangible amortization ( net of tax ) , divided by average common shareholders ' equity , net of goodwill and intangible assets . ( 4 ) presented on a fully taxable-equivalent basis , using a 35 % federal tax rate and statutory interest expense disallowances . see also “ net interest income ” section of management 's discussion . 2011 was characterized by improving , but still challenging , general economic conditions , a continuation of the low interest rate environment , and increasing regulatory and compliance changes . these factors , along with the corporation 's efforts to control discretionary spending in light of both current and future challenges , resulted in positive earnings growth and an improved capital position . the following is a summary of the significant factors impacting the corporation 's financial performance in 2011 : improved asset quality - the corporation 's provision for credit losses decreased $ 25.0 million , or 15.6 % , to $ 135.0 million in 2011 from $ 160.0 million in 2010 due to improved credit quality metrics and reduced allocation needs . general market conditions stabilized in the corporation 's pennsylvania , maryland , northern delaware and virginia markets , but remained more challenging in its new jersey market . despite improving economic conditions , many of the corporation 's borrowers remain stressed , impacting both the pace of asset quality improvement and the growth in loans . non-performing assets decreased $ 44.4 million , or 12.3 % , in 2011 compared to 2010 due to the continued resolution of distressed assets , including the sale of $ 34.8 million of non-performing residential mortgages and home equity loans in december 2011 to a third-party investor . non-performing assets at december 31 , 2011 were at their lowest level since march 31 , 2010 and delinquencies were at their lowest level since march 31 , 2009. while net charge-offs increased , additional provisions for credit losses were not needed as allowance allocations were considered to be sufficient . growth in net interest income and an improved net interest margin - net interest income increased $ 1.4 million , to $ 560.2 million in 2011 from $ 558.7 million in 2010. the net interest margin increased 10 basis points , to 3.90 % in 2011 as compared to 3.80 % in 2010. the increases in both net interest income and net interest margin were primarily attributable to decreases in funding costs as interest rates remained at historically low levels throughout the year . story_separator_special_tag the decrease in customer certificates of deposit was in accounts with original maturity terms of less than two years ( $ 706.9 million , or 22.5 % ) and jumbo certificates of deposit ( $ 146.9 , or 39.7 % ) , partially offset by an increase in accounts with original maturity terms of greater than two years ( $ 160.7 million , or 15.0 % ) . the decreases in shorter-term and jumbo customer certificates of deposit reflected customer movement of balances to core accounts and longer-term deposits , as well as to the corporation not competing aggressively for time deposit balances . 29 the average cost of interest-bearing deposits decreased 36 basis points , or 30.3 % , from 1.19 % in 2010 to 0.83 % in 2011 due to a reduction in rates paid on all categories of deposits and the repricing of certificates of deposit to lower rates . excluding early redemptions , $ 3.5 billion of time deposits matured during 2011 at a weighted average rate of 1.20 % , while $ 3.2 billion of time deposits were issued at a weighted average rate of 0.66 % . the following table summarizes the decreases in average borrowings , by type : replace_table_token_13_th the $ 79.6 million , or 17.2 % , decrease in short-term customer funding resulted primarily from customers transferring funds from the cash management program to deposits due to the low interest rate environment . the $ 12.2 million , or 9.7 % , decrease in federal funds purchased was due to increases in average deposits , combined with the decreases in investments and loans , the result of which was a reduced need for wholesale funding . the $ 291.9 million decrease in fhlb advances was due to maturities , which were generally not replaced with new advances . 2010 vs. 2009 fte interest income decreased $ 41.1 million , or 5.1 % . a 23 basis point , or 4.4 % , decrease in average rates resulted in a $ 27.5 million decrease in interest income , while a $ 119.5 million , or 0.8 % , decrease in average interest-earning assets resulted in a $ 13.7 million decrease in interest income . overall loan demand continued to be weak during 2010. the corporation continued to manage risk by reducing its exposure in certain loan types , particularly construction loans . increases resulting from new originations were offset by decreases due to repayments and charge-offs . commercial mortgages increased $ 197.9 million , or 4.8 % . geographically , the increase in commercial mortgages was within the corporation 's pennsylvania ( $ 127.8 million , or 5.9 % ) , maryland ( $ 31.3 million , or 8.8 % ) , new jersey ( $ 21.1 million , or 1.8 % ) and virginia ( $ 17.6 million , or 5.4 % ) markets . residential mortgages increased $ 39.7 million , or 4.2 % , largely due to the corporation 's retention in portfolio of certain 10 and 15 year fixed rate mortgages and certain adjustable rate mortgages to partially mitigate the impact of decreases in average interest-earning assets . construction loans decreased $ 222.6 million , or 20.0 % , primarily due to efforts to decrease credit exposure in this portfolio as new loan originations decreased during 2010. in addition , $ 66.4 million of charge-offs recorded in 2010 contributed to the decrease . geographically , the decline was primarily in the corporation 's maryland ( $ 91.6 million , or 31.2 % ) , virginia ( $ 65.8 million , or 23.6 % ) and new jersey ( $ 62.4 million , or 28.6 % ) markets . the average yield on loans during 2010 of 5.33 % represented a 14 basis point , or 2.6 % , decrease in comparison to 2009 , despite the average prime rate remaining at 3.25 % for both 2010 and 2009. the decrease in average yields on loans was attributable to repayments of higher-yielding loans and declining average rates on fixed and adjustable rate loans which , unlike floating rate loans , have a lagged repricing effect . in addition , approximately one-third of the floating rate portfolio is based on an index rate other than prime , such as the one-month libor , which decreased on average from 2009 to 2010. average investments decreased $ 237.8 million , or 7.6 % , due largely to maturities of mortgage-backed securities , state and municipal securities and u.s. government sponsored agency securities , partially offset by an increase in collateralized mortgage obligations . 30 during 2010 , the proceeds from the maturities and sales of securities were not fully reinvested into the portfolio because current rates on many investment options were not attractive . the average yield on investments decreased 37 basis points , or 8.2 % , from 4.50 % in 2009 to 4.13 % in 2010 , as the reinvestment of cash flows and purchases of taxable investment securities were at yields that were lower than the overall portfolio yield . other interest-earning assets increased $ 171.6 million , or 807.5 % , due to a lack of attractive investment alternatives . interest expense decreased $ 78.9 million , or 29.7 % , to $ 186.6 million in 2010 from $ 265.5 million in 2009. of this decrease , $ 52.6 million resulted from a 58 basis point , or 27.4 % , decrease in the average cost of total interest-bearing liabilities . the remainder of the decrease in interest expense , $ 26.3 million , resulted from a $ 392.1 million , or 3.1 % , decrease in average interest-bearing liabilities . total demand and savings accounts increased $ 1.2 billion , or 19.5 % , which was consistent with industry trends as economic conditions have slowed spending and encouraged saving . noninterest-bearing accounts increased $ 256.9 million , or 13.9 % , primarily due to a $ 217.8 million , or 17.5 % , increase in business account balances .
| results of operations net interest income net interest income is the most significant component of the corporation 's net income . the corporation manages the risk associated with changes in interest rates through the techniques described in the “ market risk ” section of management 's discussion . fully taxable-equivalent ( fte ) net interest income increased $ 2.0 million , or 0.3 % , to $ 576.2 million in 2011 due to an increase in the net interest margin . net interest margin increased 10 basis points , or 2.6 % , from 3.80 % in 2010 to 3.90 % in 2011. the increase in net interest margin was the result of a 39 basis point , or 25.3 % , decrease in funding costs , offset by 24 basis point , or 4.8 % , decrease in yields on interest-earning assets . the following table provides a comparative average balance sheet and net interest income analysis for 2011 compared to 2010 and 2009. interest income and yields are presented on an fte basis , using a 35 % federal tax rate and statutory interest expense disallowances . the discussion following this table is based on these tax-equivalent amounts . replace_table_token_9_th ( 1 ) includes dividends earned on equity securities . ( 2 ) includes non-performing loans . ( 3 ) includes amortized historical cost for available for sale securities ; the related unrealized holding gains ( losses ) are included in other assets . 27 the following table sets forth a summary of changes in fte interest income and expense resulting from changes in average balances ( volumes ) and changes in rates : replace_table_token_10_th note : changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component . 2011 vs. 2010 fte interest income decreased $ 51.1 million , or 6.7 % . a 24 basis point , or 4.8 % , decrease in average rates resulted in a $ 38.3 million decrease in interest income , while a $ 331.5 million , or 2.2
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these leases are not significant , but are currently excluded from the right-of-use asset and lease liability balances . the adoption is not expected to impact the company 's results of operations or cash flows . credit losses on financial instruments in june 2016 , the fasb issued guidance that introduces a new methodology for accounting for credit losses on financial instruments , including available-for-sale debt securities . the guidance establishes a new `` expected loss model `` that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information . any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities . this guidance will be effective for the company on january 1 , 2020. the company is evaluating the potential impact of adopting this new accounting guidance on its consolidated financial statements . stranded tax effects resulting from u.s. tax cuts and jobs act in february 2018 , the fasb issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations , or md & a , should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. see “ risk factors ” elsewhere in this annual report on form 10-k for a discussion of certain risks associated with our business . the following discussion contains forward-looking statements . the forward-looking statements do not include the potential impact of any mergers , acquisitions , divestitures or other events that may be announced after the date hereof . overview we provide solutions for delivering , optimizing and securing content and business applications over the internet . the key factors that influence our financial success are our ability to build on recurring revenue commitments for our performance and security offerings , increase media traffic on our network , develop new products and carefully manage our capital spending and other expenses . 21 revenue for most of our solutions , our customers commit to contracts having terms of a year or longer , which allows us to have a consistent and predictable base level of revenue . in addition to a base level of revenue , we are also dependent on media customers where usage of our solutions is more variable . as a result , our revenue is impacted by the amount of media and software download traffic we serve on our network , the rate of adoption of gaming , social media and video platform offerings , the timing and variability of customer-specific one-time events and the impact of seasonal variations on our business . the ability to expand our product portfolio and to effectively manage the prices we charge for our solutions are also key factors impacting our revenue growth . we have observed the following trends related to our revenue in recent years : increased sales of our security solutions have made a significant contribution to revenue growth . we plan to continue to invest in this area with a focus on further enhancing our product portfolio and extending our go-to-market capabilities . we have increased committed recurring revenue from our solutions by increasing sales of incremental solutions to our existing customers and adding new customers ; however , we have also experienced slower revenue growth in recent quarters particularly in our web performance solutions . we expect the trend of slower revenue growth to continue in 2019 as our commerce customers experience financial pressure , we face contract renewals with large media and other customers and we experience the absence of as many large media-driven events in 2019 as compared to 2018. the prices paid by some of our customers have declined particularly in the context of contract renewals , reflecting the impact of competition . our revenue would have been higher absent these price declines . we have experienced increases in the amount of traffic delivered for customers that use our solutions for video , gaming , social media and software downloads , contributing to an increase in our revenue . however , in recent years we have experienced moderation in traffic usage from , and revenue attributable to , large internet platform companies such as amazon , apple , facebook , google , microsoft and netflix that rely on their internal infrastructure to deliver more of their media content . we refer to these companies as our internet platform customers . we do not anticipate their usage of our solutions to decrease at the same rate in the future . we have experienced variations in certain types of revenue from quarter to quarter . in particular , we experience higher revenue in the fourth quarter of each year for some of our solutions as a result of holiday season activity . in addition , we experience quarterly variations in revenue attributable to , among other things , the nature and timing of software and gaming releases by our customers using our software download solutions ; whether there are large live sporting or other events that increase the amount of media traffic on our network ; and the frequency and timing of purchases of custom solutions . expenses our level of profitability is also impacted by our expenses , including direct costs to support our revenue such as bandwidth and co-location costs . we have observed the following trends related to our profitability in recent years : our profitability improved significantly in 2018 as compared to 2017 due to higher revenues as well as the effects of cost savings and efficiency initiatives we have undertaken . we expect to continue to undertake efforts intended to improve the efficiency of operations . we anticipate profitability improvement in 2019 but at a lower rate as compared to 2018. we believe we can achieve additional improvement in 2020. network bandwidth costs represent a significant portion of our cost of revenue . story_separator_special_tag general and administrative expenses general and administrative expenses consisted of the following for the periods presented ( in thousands ) : replace_table_token_8_th 27 the increase in total general and administrative expenses for 2018 as compared to 2017 was primarily due to increases in : a one-time endowment to the akamai foundation , an organization founded by certain current and former employees of the company with a mission of supporting youth education , with a focus on mathematics , as well as other charitable causes ; legal and stockholder matter costs related to a settlement charge from our litigation with limelight networks , inc. , or limelight , and costs related to amounts paid to professional service providers for advisory services provided in connection with a non-routine stockholder matter ; and stock-based compensation , primarily due to performance-based awards which experienced higher achievement in 2018 as compared to 2017. these increases were partially offset by a decrease to acquisition-related costs due to the release of an indemnification receivable in 2017 related to a prior acquisition and a decrease to payroll and related costs as a result of our efficiency efforts . the increase in total general and administrative expenses for 2017 as compared to 2016 was primarily due to increases in : payroll and related costs , specifically in our network infrastructure and information technology functions in support of our security infrastructure growth and network scaling and efficiency efforts ; facilities-related costs and depreciation and amortization due to expansion of company infrastructure throughout 2016 and 2017 to support investments in engineering , go-to-market capacity and enterprise expansion initiatives , particularly expansion of our facility footprint ; and acquisition-related costs due to the release of an indemnification receivable related to a prior acquisition . general and administrative expenses for 2018 and 2017 are broken out by category as follows ( in thousands ) : replace_table_token_9_th global functions expense includes payroll , stock-based compensation and other employee-related costs for administrative functions , including finance , purchasing , order entry , human resources , legal , information technology and executive personnel , as well as third-party professional service fees . infrastructure expense includes payroll , stock-based compensation and other employee-related costs for our network infrastructure functions , as well as facility rent expense , depreciation and amortization of facility and it-related assets , software and software-related costs , business insurance and taxes . our network infrastructure function is responsible for network planning , sourcing , architecture evaluation and platform security . other expense includes acquisition-related costs , provision for doubtful accounts , legal settlements , non-routine stockholder matter costs , the endowment of the akamai foundation , transformation costs and the license of a patent . the increase in other general and administrative expenses in 2018 as compared to 2017 was the result of a one-time endowment to the akamai foundation , costs related to the settlement of litigation with limelight and amounts paid to professional service providers for advisory services in connection with a non-routine stockholder matter . the increase in infrastructure general and administrative expenses in 2017 as compared to 2016 was the result of facilities-related costs and depreciation and amortization due to expansion of company infrastructure throughout 2016 and 2017 to support investments in engineering , go-to-market capacity and enterprise expansion initiatives , particularly expansion of our facility footprint . the increase in other general and administrative expenses in 2017 as compared to 2016 was due to the release of an indemnification receivable related to a prior acquisition . 28 during 2019 we plan to continue to focus our efforts on expanding our operating margins , and in particular , assessing areas of third-party spending and the automation of manual tasks . amortization of acquired intangible assets replace_table_token_10_th the increase in amortization of acquired intangible assets in 2018 as compared to 2017 and 2017 as compared to 2016 was the result of amortization of assets related to our 2016 and 2017 acquisitions . based on acquired intangible assets as of december 31 , 2018 , future amortization is expected to be approximately $ 36.6 million , $ 33.9 million , $ 28.0 million , $ 22.4 million and $ 17.1 million for the years ending december 31 , 2019 , 2020 , 2021 , 2022 and 2023 , respectively . restructuring charge replace_table_token_11_th the restructuring charge in 2018 was primarily the result of management actions intended to re-balance investments to ensure long-term growth and scale . the restructuring charge relates to certain headcount reductions and software charges for software not yet placed into service that will not be implemented due to this action . the restructuring charge in 2017 was primarily the result of management actions intended to shift focus to more critical areas of the business and away from products that have not seen expected commercial success . the restructuring was also intended to facilitate cost efficiencies and savings . the restructuring charge relates to certain headcount and facility reductions and certain capitalized internal-use software charges for software not yet placed into service that will not be completed and implemented due to this action . the restructuring charge in 2016 was primarily the result of changes to our organizational structure to reorganize and consolidate our products and development groups and global sales , services and marketing teams into divisions centered on our solutions . the restructuring charge relates to severance expenses for impacted employees and charges for internal-use software not yet placed into service that will not be completed and launched due to changing priorities as part of the reorganization . in addition to the actions described above , we have also recognized restructuring charges for redundant employees , facilities and contracts associated with completed acquisitions in each of the three years presented . we expect to incur additional restructuring charges of up to $ 12.0 million in 2019 as a result of the action committed to in the fourth quarter of 2018. these charges will include severance and related expenses for terminations in the first quarter of 2019 .
| results of operations the following sets forth , as a percentage of revenue , consolidated statements of income data for the years indicated : replace_table_token_2_th revenue revenue during the periods presented is as follows ( in thousands ) : replace_table_token_3_th the increase in our revenue in 2018 as compared to 2017 was primarily the result of higher media traffic volumes , increased sales of our new product offerings and continued strong growth in our cloud security solutions . cloud security solutions revenue for the year ended december 31 , 2018 was $ 657.9 million , compared to $ 485.5 million for the year ended december 31 , 2017 , which represents a 35.5 % increase . the increase in our revenue in 2017 as compared to 2016 was primarily the result of continued strong growth from our cloud security solutions and from new product introductions . overall , however , the revenue growth rates for 2017 were negatively impacted by the `` do-it-yourself '' efforts of our internet platform customers . cloud security solutions revenue for the year ended december 31 , 2017 was $ 485.5 million , compared to $ 369.0 million for the year ended december 31 , 2016 , which represents a 31.6 % increase . the increase in web division revenue for 2018 as compared to 2017 was due to increased purchases of new solutions and upgrades to existing services by this customer base . increased sales of our cloud security solutions to web division customers , in particular our kona site defender and prolexic solutions , as well as our new bot manager offering were a principal contributor to our overall revenue growth . the increase in web division revenue in 2017 as compared to 2016 was due to increased demand across most of our customer base , particularly for our cloud security solutions .
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the company paid $ 13 thousand and $ 62 thousand in withholding taxes during the years ended december 31 , 2019 and 2018 , respectively , related to earnings repatriated . on december 22 , 2017 , the president of the united states signed into law the tax cuts and jobs act ( the tax reform act ) . the legislation significantly changed the u.s. tax law by , among other things , lowering corporate income tax rates and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries . the tax reform act permanently reduced the u.s. corporate income tax rate from a maximum of 35 % to a flat 21 % rate , effective january 1 , 2018. the company recognized tax impacts related to deemed repatriated earnings and included these amounts in its consolidated financial statements for the years ended december 31 , 2018 and 2017. at december 31 , 2019 , the net deferred tax assets related to the company 's trss totaled $ 4.5 million and the temporary differences between income for financial reporting purposes and taxable income relate primarily to net operating loss carryovers and pre-opening cost amortization . as of december 31 , 2019 and 2018 , respectively , the canadian operations and the company 's trss had deferred 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 funds from operations as adjusted ( `` ffoaa '' ) and dividends per share . our strategy is to focus on long-term investments in the experiential sector which benefit from our depth of knowledge and relationships , and which we believe offer sustained performance throughout all economic cycles . see item 1 - `` business '' for further discussion regarding our strategic rationale for our focus on experiential properties . our investment portfolio includes ownership of and long-term mortgages on experiential and education 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 . we also own certain experiential lodging assets structured using traditional reit lodging structures as discussed in item 1 - `` business . '' 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 item 1a - “ risk factors ” of this report . as of december 31 , 2019 , our total assets were approximately $ 6.6 billion ( after accumulated depreciation of approximately $ 1.0 billion ) with properties located in 44 states and ontario , canada . our total investments ( a non-gaap financial measure ) were approximately $ 6.7 billion at december 31 , 2019 . see `` non-gaap financial measures '' for the calculation of total investments and reconciliation of total investments to `` total assets '' in the consolidated balance sheet at december 31 , 2019 and 2018 . we group our investments into two reportable segments , experiential and education . as of december 31 , 2019 , our experiential investments comprised $ 6.0 billion , or 89 % , and our education investments comprised $ 0.7 billion , or 11 % , of our total investments . 33 as of december 31 , 2019 , our experiential segment consisted of the following property types ( owned or financed ) : 179 theatre properties ; 55 eat & play properties ( including seven theatres located in entertainment districts ) ; 18 attraction properties ; 13 ski properties ; six experiential lodging properties ; one gaming property ; three cultural properties ; and seven fitness & wellness properties . as of december 31 , 2019 , our owned experiential real estate portfolio consisted of approximately 19.2 million square feet , was 99.1 % leased and included $ 36.8 million in construction in progress and $ 24.6 million in undeveloped land inventory . as of december 31 , 2019 , our legacy education segment consisted of the following property types ( owned or financed ) : 72 early childhood education center properties ; and 16 private school properties . story_separator_special_tag if the acquisition is determined to be a business combination , we record the fair value of acquired tangible assets and identified intangible assets and liabilities as well as any noncontrolling interest . typically , fair values are based on recent independent appraisals or methods similar to those used by independent appraisers , as well as management 35 judgment . in addition , acquisition-related costs incurred for business combinations are expensed as incurred . costs related to such transactions , as well as costs associated with terminated transactions , are included in the accompanying consolidated statements of income and comprehensive income as transaction costs . collectibility of lease receivables our accounts receivable balance is comprised primarily of rents and operating cost recoveries due from tenants as well as accrued rental rate increases to be received over the life of the existing leases . we regularly evaluate the collectibility of our receivables on a lease by lease basis . the evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of our tenants , historical trends of the tenant and or other debtor , current economic conditions and changes in customer payment terms . we suspend revenue recognition when the collectibility of amounts due are no longer probable and record a direct write-off of the receivable to revenue . prior to 2019 , we reduced our accounts receivable by an allowance for doubtful accounts and recorded bad debt expense included in property operating expenses when loss was probable . impairment of mortgage notes and other notes receivable we evaluate the collectability of both interest and principal for each loan to determine whether it is impaired . a loan is considered to be impaired when , based on current information and events , we determine it is probable that we will be unable to collect all amounts due according to the existing contractual terms . certain factors that may occur and indicate that impairments may exist include , but are not limited to : under-performance relative to projected future operating results , borrower difficulties and significant adverse industry or market economic trends . when a loan 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 loan 's effective interest rate or to the fair value of the underlying collateral , less costs to sell , if the loan is collateral dependent . for impaired loans , interest income is recognized on a cash basis , unless we determine based on the loan to estimated fair value ratio the loan should be on the cost recovery method , and any cash payments received would then be reflected as a reduction of principal . interest income recognition is recommenced if and when the impaired loan becomes contractually current and performance is demonstrated to be resumed . recent developments reportable segment change during the year ended december 31 , 2019 , we sold the largest portion of our education portfolio , public charter schools , and we are now strategically focused on investing in experiential properties which the company believes is a highly enduring and growing sector of the real estate industry . with this change , we now classify our entertainment and recreation segments as experiential . investment spending our investment spending during the years ended december 31 , 2019 and 2018 totaled $ 794.7 million and $ 572.0 million , respectively , and is detailed below ( in thousands ) : 36 replace_table_token_8_th 37 the above amounts include $ 35 thousand and $ 135 thousand in capitalized payroll , $ 5.3 million and $ 9.9 million in capitalized interest and $ 0.4 million and $ 0.9 million in capitalized other general and administrative direct project costs for the years ended december 31 , 2019 and 2018 , respectively . excluded from the table above is $ 15.2 million and $ 3.6 million of maintenance capital expenditures and other spending for the years ended december 31 , 2019 and 2018 , respectively . dispositions during the year ended december 31 , 2019 , we completed the sale of all of our public charter school portfolio through the following transactions : on november 22 , 2019 , we sold 47 public charter school related assets , classified as real estate investments , mortgage notes receivable and investment in direct financing leases , for net proceeds of approximately $ 449.6 million . we recognized an impairment on this public charter school portfolio sale of $ 21.4 million that included the write-off of non-cash straight-line rent and effective interest receivables totaling $ 24.8 million . see note 4 to the consolidated financial statements in this annual report on form 10-k for additional information related to the impairment . we sold ten public charter schools pursuant to tenant purchase options for net proceeds totaling $ 138.5 million and recognized a combined gain on sale of $ 30.0 million . we sold seven public charter schools ( not as result of exercise of tenant purchase options ) for net proceeds totaling $ 44.4 million and recognized a combined gain on sale of $ 1.9 million . we received $ 27.6 million in proceeds representing prepayment in full on two mortgage notes receivable that were secured by two public charter school properties . in connection with the prepayment of one of these notes , we recognized a prepayment fee of $ 1.8 million . due to the disposition of our remaining public charter school portfolio in 2019 , the operating results of all public charter schools sold during 2019 have been classified within discontinued operations in the accompanying consolidated statements of income and comprehensive income for all periods presented included in this annual report on form 10-k. see note 18 to the consolidated financial statements in this annual report on form 10-k for additional information related to discontinued operations .
| results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 analysis of revenue the following table summarizes our total revenue ( dollars in thousands ) : replace_table_token_9_th ( 1 ) for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , the increase in minimum rent resulted from $ 41.2 million of rental revenue related to property acquisitions and developments completed in 2019 and 2018 , an increase of $ 3.5 million in rental revenue related to our 21 early childhood education center properties that were transferred from cla to crème and an increase of $ 0.2 million in rental revenue on existing properties . in addition , during the year ended december 31 , 2019 , we recognized $ 22.6 million in lease revenue on our existing operating ground leases in which we are sub-lessor , in connection with our adoption of topic 842. these increases were partially offset by a decrease of $ 1.3 million from property dispositions not included in discontinued operations . during the year ended december 31 , 2019 , we renewed 10 lease agreements on approximately 783 thousand square feet and funded or agreed to fund an average of $ 17.25 per square foot in tenant improvements . we experienced a decrease of approximately 6.3 % in rental rates and paid no leasing commissions with respect to these lease renewals . 39 ( 2 ) the increase in percentage rent related primarily to higher percentage rent recognized during the year ended december 31 , 2019 from one of our ski properties , our gaming property and several attraction and education properties .
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the exercise price of each unit option granted under the ltip will be stated in the unit story_separator_special_tag the following discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , liquidity and capital resources and should be read together with “ item 6. selected financial data ” and “ item 8. financial statements and supplementary data ” and related notes included elsewhere in this annual report . on february 8 , 2017 , we completed our ipo of 5,750,000 common units representing limited partner interests , which included 750,000 common units issued pursuant to the underwriters ' option to purchase additional common units . the mineral and royalty interests comprising our initial assets were contributed to us by the contributing parties , including certain affiliates of our sponsors at the time of our ipo . as a result , as of december 31 , 2016 , we had not yet acquired any of such assets . unless otherwise indicated in this “ management 's discussion and analysis of financial condition and results of operations ” the financial information presented for periods on or after february 8 , 2017 refers to the partnership as a whole . the financial information presented for periods on or prior to february 7 , 2017 refers only to rivercrest , the predecessor for accounting purposes , and does not include the results of the partnership as a whole . the interests underlying the oil , natural gas and ngl production revenues of our predecessor represent approximately 11 % of our partnership 's total future undiscounted cash flows , based on the reserve report prepared by ryder scott as of december 31 , 2016 . 68 this discussion contains forward‑looking statements that are based on the views and beliefs of our management , as well as assumptions and estimates made by our management . such views , beliefs , assumptions and estimates may , and often do , vary from actual results and the differences can be material . actual results could differ materially from such forward‑looking statements as a result of various factors , including those that may not be in the control of our management . we do not undertake any obligation to publicly update any forward‑looking statements except as otherwise required by applicable law . for further information on items that could impact our future operating performance or financial condition , please read the sections entitled “ risk factors ” and “ forward‑looking statements ” elsewhere in this annual report . overview we are a delaware limited partnership formed to own and acquire mineral and royalty interests in oil and natural gas properties throughout the united states . as an owner of mineral and royalty interests , we are entitled to a portion of the revenues received from the production of oil , natural gas and associated ngls from the acreage underlying our interests , net of post‑production expenses and taxes . we are not obligated to fund drilling and completion costs , lease operating expenses or plugging and abandonment costs at the end of a well 's productive life . our primary business objective is to provide increasing cash distributions to unitholders resulting from acquisitions from our sponsors , the contributing parties and third parties and from organic growth through the continued development by working interest owners of the properties in which we own an interest . as of december 31 , 2017 , kimbell royalty partners , lp owned mineral and royalty interests in approximately 3.7 million gross acres and overriding royalty interests in approximately 2 million gross acres , with approximately 35 % of our aggregate acres located in the permian basin . we refer to these non‑cost‑bearing interests collectively as our “ mineral and royalty interests. ” as of december 31 , 2017 , over 98 % of the acreage subject to our mineral and royalty interests was leased to working interest owners ( including 100 % of our overriding royalty interests ) , and substantially all of those leases were held by production . our mineral and royalty interests are located in 20 states and in nearly every major onshore basin across the continental united states and include ownership in over 50,000 gross producing wells , including over 30,000 wells in the permian basin . our predecessor is a delaware limited liability company formed on october 25 , 2013 to own oil , natural gas and ngl mineral and royalty interests in the united states . in addition to mineral and royalty interests , the predecessor 's assets include overriding royalty interests . the predecessor also had non-operated working interests in certain oil and natural gas properties . prior to the partnership 's ipo , the predecessor assigned its non-operated working interests and associated asset retirement obligations ( “ aro ” ) to an affiliated entity that was not contributed to the partnership . recent developments 2017 acquisitions in the second quarter of 2017 , we acquired mineral and royalty interests underlying 1.1 million gross acres , 6,881 net royalty acres , for an aggregate purchase price of approximately $ 16.8 million . the partnership funded these acquisitions with borrowings under its secured revolving credit facility . on october 9 , 2017 , we acquired mineral and royalty interests underlying 8,460 gross acres , 983 net royalty acres , for an aggregate purchase price of approximately $ 3.9 million in uintah county , utah . the partnership funded this acquisition with borrowings under its secured revolving credit facility . on november 8 , 2017 , we acquired mineral and royalty interests underlying 71,410 gross acres , 2,757 net royalty acres , for an aggregate purchase price of approximately $ 7.3 million in various counties in arkansas . the partnership funded this acquisition with borrowings under its secured revolving credit facility . on december 13 , 2017 , we acquired a diverse package of mineral and overriding royalty interests for an aggregate purchase price of approximately $ 1.3 million . story_separator_special_tag reserves and pricing the table below identifies our and our predecessor 's proved reserves at december 31 , 2017 , 2016 and 2015 , in each case based on the reserve report prepared by ryder scott . the prices used to estimate proved reserves for the respective periods were held constant throughout the life of the properties and have been adjusted for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . replace_table_token_13_th replace_table_token_14_th factors affecting the comparability of our results to the historical results of our predecessor our predecessor 's historical financial condition and results of operations may not be comparable , either from period to period or going forward , to the partnership 's future financial condition and results of operations , for the reasons described below : no effect given to formation transactions in connection with initial public offering the historical financial statements of our predecessor included in this annual report do not reflect the financial condition or results of operations of the partnership . further , these historical financial statements do not give effect to the transactions that were completed in connection with the closing of the partnership 's ipo . in connection with our ipo , our predecessor assigned all of its non‑operating working interests to an affiliate that was not contributed to us , and all of the membership interests of our predecessor were contributed to us in exchange for common units and a portion of the net proceeds from the ipo . in addition , the contributing parties directly or indirectly contributed to us the other assets that made up our initial assets in exchange for common units and a portion of the net proceeds from the ipo . the combination of the assets contributed to us by the contributing parties was accounted for at fair value as an asset acquisition . the fair value of the purchase price consideration was based upon the fair value of the common units purchased in the partnership 's ipo by third-party investors . the historical financial data of our predecessor included in this “ management 's discussion and analysis of financial condition and results of operations ” does not include the results of the partnership as a whole and may not provide an accurate indication of what our actual results would have been if the transactions completed in connection with 71 our ipo had been completed at the beginning of the periods presented or of what our future results of operations are likely to be . the mineral and royalty interests of our predecessor only represented approximately 11 % of our total future undiscounted cash flows , based on the reserve report prepared by ryder scott as of december 31 , 2016. impairment of oil and natural gas properties accounting rules require that we periodically review the carrying value of our properties for possible impairment . based on specific market factors and circumstances at the time of prospective impairment reviews , and the continuing evaluation of development plans , production data , economics and other factors , we may be required to write down the carrying value of our properties . the net capitalized costs of proved oil and natural gas properties are subject to a full cost ceiling limitation for which the costs are not allowed to exceed their related estimated future net revenues discounted at 10 % . to the extent capitalized costs of evaluated oil and natural gas properties , net of accumulated depreciation , depletion , amortization and impairment , exceed estimated discounted future net revenues of proved oil and natural gas reserves , the excess capitalized costs are charged to expense . the risk that we will be required to recognize impairments of our oil and natural gas properties increases during periods of low commodity prices . in addition , impairments would occur if we were to experience sufficient downward adjustments to our estimated proved reserves or the present value of estimated future net revenues . an impairment recognized in one period may not be reversed in a subsequent period even if higher oil and natural gas prices increase the cost center ceiling applicable to the subsequent period . no impairment expense was recorded for the period from february 8 , 2017 to december 31 , 2017. the substantial majority of our proved oil and natural gas properties that were acquired at the time of the ipo were recorded at fair value as of the ipo . in accordance with sec guidance , management determined that the fair value of the properties acquired at the closing of the ipo clearly exceeded the related full-cost ceiling limitation beyond a reasonable doubt and received an exemption from the sec to exclude the properties acquired at the closing of the ipo from the ceiling test calculation . this exemption was effective beginning with the period ended march 31 , 2017 and remained effective through december 31 , 2017. a component of the exemption received from the sec is that we were required to assess the fair value of these acquired assets at each reporting period through the term of the exemption to ensure that the inclusion of these acquired assets in the full-cost ceiling test would not be appropriate . as of december 31 , 2017 , management determined that the exemption to exclude these acquired assets from the full-cost ceiling test was appropriate . in making this determination , management considered that the value was based on a transaction conducted in a public offering and that the common units issued by the partnership as consideration for the properties were attributed the same value as those purchased in the partnership 's ipo by third-party investors . additionally , the fair value of the properties acquired at the closing of our ipo was based on forward strip oil and natural gas pricing existing at the date of the ipo and management affirmed that there has not been a material decline to the fair value of these acquired assets since the ipo .
| results of operations the table below summarizes our and our predecessor 's revenue and expenses and production data for the periods indicated . replace_table_token_15_th comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 and the year ended december 31 , 2016 to the year ended december 31 , 2015 the period presented for the year ended december 31 , 2017 includes the results of operations of our predecessor for the predecessor 2017 period and our results of operations for the period from february 8 , 2017 to december 31 , 2017. oil , natural gas and natural gas liquids revenues for the period from february 8 , 2017 to december 31 , 2017 and the predecessor 2017 period , our and our predecessor 's oil , natural gas and ngl revenues were $ 30.7 million and $ 0.3 million , respectively , for combined revenues of $ 31.0 million for the year ended december 31 , 2017 , an increase of $ 27.4 million , from $ 3.6 million for the year ended december 31 , 2016. the increase in revenues was primarily due to the $ 247.8 million acquisition of various mineral and royalty interests from the contributing parties at the closing of our ipo , the $ 29.3 million acquisition of various mineral and royalty interests throughout the 2017 period and the relevant production and revenues from those acquired interests .
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this md & a contains forward-looking statements and should be read in conjunction with our consolidated financial statements , accompanying notes , and other financial information included in this report . executive overview first community bancshares , inc. ( the company ) is a financial holding company , headquartered in bluefield , virginia , that provides commercial banking services through its wholly-owned subsidiary first community bank ( the bank ) . the bank operates under the trade names first community bank in west virginia , virginia , and north carolina and people 's community bank , a division of first community bank , in tennessee . the bank has positioned itself as a regional community bank that provides an alternative to larger banks , which often place less emphasis on personal relationships , and smaller community banks , which lack the capital and resources to efficiently serve customer needs . the company provides insurance services through its wholly-owned subsidiary greenpoint insurance group , inc. ( greenpoint ) , which operates under the greenpoint name and under the trade name first community insurance services ( fcis ) in north carolina , carr & hyde insurance and fcis in virginia , and fcis in west virginia . the bank offers wealth management and investment advice through its wholly-owned subsidiary first community wealth management ( fcwm ) and the bank 's trust division . our efforts are focused on building financial partnerships and creating enduring and complete relationships with businesses and individuals through a personal and local approach to banking and financial services . our operations are guided by a strategic plan focusing on organic growth that may be supplemented by strategic acquisitions . while our mission remains that of a community bank , management believes that entry into new markets may accelerate our growth rate by diversifying the demographics of our customer base and by generally increasing our sales and service network . economy the regional economies we operate in have shown positive and stable aspects . the following list summarizes economic activity in the regions we operate : west virginia and southwest virginia these economies have significant exposure to extractive industries , such as coal , timber , and natural gas . central north carolina this economy has suffered in recent years due to foreign competition in the furniture and textile industries and consolidation in the financial services industry . despite these detractions , these economies continue to benefit from large regional and national companies operating in the triad and central piedmont regions . central virginia this economy is highly diversified with a strong commercial and service sector , light manufacturing , education and health services , and tourism . eastern tennessee this economy continues to benefit from the stability of higher education , healthcare services , and tourism . competition we continue to encounter strong competition for growth in loans and deposits and increased market share . many of the markets we target are being entered into by other banks located in nearby and distant markets . the expansion of banks , credit unions , and other non-depository financial institutions over recent years has 33 intensified competitive pressures on core deposit generation and retention . competitive factors that influence our company include pressure on interest yields , product fees , loan structure , and loan terms ; however , we have countered these pressures with our relationship style of banking , competitive pricing , cost efficiencies , and disciplined approach to loan underwriting . recent acquisition and divestiture activity our consolidated financial statements reflect acquisition and divestiture activity from the transaction date ; therefore , comparisons between fiscal years are affected by varying levels of assets , liabilities , income , and expense . on october 24 , 2014 , we completed the purchase of seven branches , six in southwestern virginia and one in central north carolina , from bank of america , national association . at acquisition , we assumed total deposits of $ 318.88 million for a deposit premium of $ 5.79 million . additionally , we purchased the real estate or assumed the leases associated with the branches . no loans were included in the transaction . on december 12 , 2014 , we completed the sale of thirteen branches , ten in southeastern north carolina and three in south carolina , to crescom bank ( crescom ) , headquartered in charleston , south carolina . at closing , crescom assumed total deposits of $ 215.19 million and purchased total loans of $ 70.04 million . we received a deposit premium from crescom of $ 6.45 million . the transaction excluded loans covered under fdic loss share agreements . in connection with the transaction we recorded a net gain of $ 755 thousand , which included a $ 6.45 million goodwill allocation . on october 31 , 2015 , greenpoint sold one insurance agency that resulted in a net loss of $ 8 thousand . in connection with the sale , we eliminated $ 324 thousand of goodwill and $ 61 thousand of other intangibles on our consolidated balance sheet . insurance services we offer insurance services through greenpoint , a full-service insurance agency that provides commercial and personal lines of insurance . revenues are primarily derived from commissions paid by issuing companies on the sale of policies . commission revenue totaled $ 6.90 million in 2015 , an increase of $ 344 thousand , or 5.25 % , compared to the same period of 2014 , which was primarily due to an increase in direct bill property and casualty insurance income and contingency income . commission revenue totaled $ 6.56 million in 2014 , an increase of $ 622 thousand , or 10.48 % , compared to the same period of 2013 , which was also primarily due to an increase in direct bill property and casualty insurance income and contingency income . story_separator_special_tag historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment . individually significant loans require additional analysis that may include the borrower 's underlying cash flow and capacity for debt repayment , specific business conditions , and value of secondary sources of repayment ; consequently , this analysis may result in the identification of weakness and a corresponding need for a specific reserve . third-party collateral valuations are regularly obtained and evaluated to help management determine the potential credit impairment and the amount of impairment to record . internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment . the internal evaluation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs . when a third-party evaluation is received , it is reviewed for reasonableness . once the evaluation is reviewed and accepted , discounts are applied to fair market value , based on , but not limited to , our historical liquidation experience for like collateral , resulting in an estimated net realizable value . the estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve . specific reserves are generally recorded for impaired loans while third-party evaluations are in process and for impaired loans that continue to make some form of payment . while waiting for receipt of the third-party appraisal , we regularly review the relationship to identify any potential adverse developments and begin the tasks necessary to gain control of the collateral and prepare it for liquidation , including , but not limited to , engagement of counsel , inspection of collateral , and continued communication with the borrower . generally , the only difference between current appraised value , adjusted for liquidation costs , and the carrying amount of the loan , less the specific reserve , is any downward adjustment to appraised value that we determine appropriate , such as the costs to sell the property . impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value . based on prior experience , the company rarely returns loans to performing status after they have been partially charged off . impaired credits move quickly through the process towards ultimate resolution except in cases involving bankruptcy and various state judicial processes , which may extend the time for ultimate resolution . management uses an independent third party to assist in determining the changes in cash flows and the amount of possible impairment related to our purchased performing loans and purchased credit impaired ( pci ) loan pools . pci loan pools are evaluated separately from non-pci loans in the determination of the allowance . see note 6 , allowance for loan losses , to the consolidated financial statements in item 8 of this report . business combinations the company may engage in business combinations with other companies . under the acquisition method of accounting , all identifiable acquired assets , including purchased loans , and liabilities are recorded at fair value . fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information about the closing date fair values becomes available . management makes significant estimates and exercises significant judgment in accounting for business combinations . any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill . if the price of the acquired business is less than the net assets acquired , a gain on the purchase is recorded . financial assets and liabilities are typically valued using discount models that apply current discount rates to streams of cash flow . valuation methods require assumptions , which can result in alternate valuations , varying levels of goodwill , or bargain purchase gains , and in some cases amortization expense or accretion income . management must also make estimates for the useful or economic lives of certain acquired assets and liabilities . we review the purchased loan portfolio quarterly for changes in cash flows and possible impairment using input provided from an independent third party . management 's assumptions about purchased loans and intangible assets may significantly influence the allowance for loan losses . see note 2 , acquisitions , divestitures , and branching activity , and note 6 , allowance for loan losses , to the consolidated financial statements in item 8 of this report . 36 the company may also engage in fdic-assisted business combinations . in 2012 , we entered into a purchase and assumption agreement with loss share arrangements with the fdic to purchase certain assets and assume substantially all customer deposits and certain liabilities of waccamaw . under the loss share agreements the fdic agreed to cover 80 % of covered assets , which consist of most loan and other real estate losses . gains and recoveries on covered assets offset prior losses or are paid to the fdic at the loss share percentage at the time of recovery . the loss share agreement for single family covered assets provides fdic loss sharing and recovery reimbursement to the fdic for ten years . the loss share agreement for commercial covered assets provides for fdic loss sharing for five years and recovery reimbursement to the fdic for eight years . under the acquisition method of accounting , the fdic indemnification asset was recorded at fair value using projected cash flows based on expected reimbursements and the applicable loss share percentages . certain expenses related to covered assets are reimbursable from the fdic through monthly and quarterly claims we submit . estimated reimbursements from the fdic are netted against covered expenses in the statements of income . we regularly review the fair value of the fdic indemnification asset with input from a third-party provider .
| results of operations net income the following table presents our net income and related information in the periods indicated : replace_table_token_5_th 2015 compared to 2014 . net income decreased in 2015 primarily due to a decrease in net interest income , an increase in the provision for loan losses , and an increase in the net amortization related to the fdic indemnification asset . these changes were offset by a net gain on the sale of securities and a decrease in federal home loan bank ( fhlb ) debt prepayment fees . 2014 compared to 2013 . net income increased in 2014 primarily due to a recovery of provision for loan losses , a decrease in the net amortization related to the fdic indemnification asset , a decrease in other operating expenses , and a net gain on branch divestitures . these gains and expense decreases were offset by fhlb debt prepayment fees , a net loss on the sale of securities , expenses related to acquisition and divestiture activity , a decrease in other operating income , and a decrease in net interest income . 38 net interest income net interest income , our largest contributor to earnings , comprised 74.16 % of total net interest and noninterest income in 2015 , 75.17 % in 2014 , and 75.48 % in 2013. net interest income is analyzed on a fully taxable equivalent ( fte ) basis , a non-gaap financial measure . the fte basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 35 % . we believe this measure to be the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts . we use this non-gaap financial measure to monitor net interest income performance and to manage the composition of our balance sheet .
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a valuation story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains “ forward-looking statements ” that reflect our future plans , estimates , beliefs and expected performance . we caution that assumptions , expectations , projections , intentions or beliefs about future events may , and often do , vary from actual results , and the differences can be material . some of the key factors which could cause actual results to vary from our expectations include changes in oil and natural gas prices , the timing of planned capital expenditures , availability of acquisitions , uncertainties in estimating proved reserves and forecasting production results , operational factors affecting the commencement or maintenance of producing wells , the condition of the capital markets generally , as well as our ability to access them , the proximity to and capacity of transportation facilities , and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business , as well as those factors discussed below and elsewhere in this annual report on form 10-k , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see “ cautionary note regarding forward-looking statements. ” overview we are an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources primarily in the north dakota and montana regions of the williston basin . since our inception , we have acquired properties that provide current production and significant upside potential through further development . our drilling activity is primarily directed toward projects that we believe can provide us with repeatable successes in the bakken and three forks formations . opna conducts our domestic oil and natural gas exploration and production activities . we also operate a well services business through ows and a midstream services business through oms , both of which are separate reportable business segments that are complementary to our primary development and production activities . the revenues and expenses related to work performed by ows and oms for opna 's working interests are eliminated in consolidation and , therefore , do not directly contribute to our consolidated results of operations . our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe will meet or exceed our rate of return criteria . we built our williston basin assets through acquisitions and development activities , which were financed with a combination of capital from private investors , borrowings under our revolving credit facility , cash flows provided by operating activities , proceeds from our senior unsecured notes , proceeds from our public equity offerings , the sale of non-core oil and gas properties and cash settlements of derivative contracts . for acquisitions of properties with additional development , exploitation and exploration potential , we have focused on acquiring properties that we expect to operate so that we can control the timing and implementation of capital spending . in some instances , we have acquired non-operated property interests at what we believe to be attractive rates of return either because they provided an entry into a new area of interest or complemented our existing operations . we intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives . in addition , the acquisition of non-operated properties in new areas provides us with geophysical and geologic data that may lead to further acquisitions in the same area , whether on an operated or non-operated basis . due to the geographic concentration of our oil and natural gas properties in the williston basin , we believe the primary sources of opportunities , challenges and risks related to our business for both the short and long-term are : commodity prices for oil and natural gas ; transportation capacity ; availability and cost of services ; and availability of qualified personnel . our revenue , profitability and future growth rate depend substantially on factors beyond our control , such as economic , political and regulatory developments as well as competition from other sources of energy . oil and natural gas prices historically have been volatile and may fluctuate widely in the future . crude oil prices have declined significantly since mid-2014 . as a result of sustained low oil prices , we have decreased our planned 2016 capital expenditures as compared to 2015 , and we are continuing to concentrate our drilling activities in certain areas that are the most economic in the williston basin . extended periods of low prices for oil or natural gas could materially and adversely affect our financial position , our results of operations , the quantities of oil and natural gas reserves that we can economically produce and our access to capital . prices for oil and natural gas can fluctuate widely in response to relatively minor changes in the global and regional supply of and demand for oil and natural gas , as well as market uncertainty , economic conditions and a variety of additional factors . since the inception of our oil and natural gas activities , commodity prices have experienced significant fluctuations . the current global oversupply of crude oil has caused a sharp decline in oil prices since mid-2014 . we enter into crude oil sales contracts with purchasers who have access to crude oil transportation capacity , utilize derivative financial instruments to manage our commodity price risk and enter into physical delivery contracts to manage our price differentials . story_separator_special_tag based on the reserve reports prepared by our independent reserve engineers , we had 218.2 mmboe of estimated net proved reserves with a pv-10 of $ 2,022.7 million and a standardized measure of $ 1,914.3 million at december 31 , 2015 , 272.1 mmboe of estimated net proved reserves with a pv-10 of $ 5,481.4 million and a standardized measure of $ 3,981.7 million at december 31 , 2014 and 227.9 mmboe of estimated net proved reserves with a pv-10 of $ 5,486.9 million and a standardized measure of $ 3,727.6 million at december 31 , 2013. our estimated net proved reserves and related future net revenues , pv-10 and standardized measure were determined using index prices for oil and natural gas , without giving effect to derivative transactions , and were held constant throughout the life of the properties . the unweighted arithmetic average first-day-of-the-month prices for the prior twelve months for the years ended december 31 , 2015 , 2014 and 2013 were $ 50.16 /bbl for oil and $ 2.63 /mmbtu for natural gas , $ 95.28/bbl for oil and $ 4.35/mmbtu for natural gas and $ 96.96/bbl for oil and $ 3.66/mmbtu for natural gas , respectively . these prices were adjusted by lease for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . future operating costs , production taxes and capital costs were based on current costs as of each year-end . as of february 8 , 2016 , the spot crude oil price was $ 29.71 per barrel , a 20 % decrease since december 31 , 2015 and a 39 % decrease as compared to an average wti of $ 48.75 per barrel during the year ended december 31 , 2015 . an extended period of low oil prices could result in a significant decrease in our estimated net proved reserves and related future net revenues , pv-10 and standardized measure in the future . forward commodity prices and estimates of future production also play a significant role in determining impairment of proved oil and natural gas properties . as a result of lower commodity prices and their impact on our estimated future cash flows , we have continued to review our proved oil and natural gas properties for impairment . in 2014 , we recorded a proved impairment loss of $ 40.0 million due to lower expected future oil prices , and in 2015 , we recorded an impairment loss of $ 9.4 million to write down our proved properties held for sale to their estimated fair value . no other proved impairment charges were recorded during the year ended december 31 , 2015 , although the difference between the expected undiscounted future cash flows and the carrying value of our proved oil and natural gas properties in the bakken and three forks formations has narrowed to $ 1,264.8 million as of december 31 , 2015 , a decrease of approximately 56 % as compared to december 31 , 2014. the underlying commodity prices embedded in our estimated cash flows were determined using nymex forward swap prices for five years , escalating 3 % per year thereafter effective as of december 31 , 2015 and holding the fifth year price constant thereafter as of december 31 , 2014. effective as of december 31 , 2015 , a 3 % inflation factor was also applied to the future operating and development costs after five years . expected future oil and natural gas prices have continued to decline in early 2016. as of february 12 , 2016 , the average five-year wti strip price was $ 43.70 per barrel , a 10 % decrease as compared to the average five-year wti strip price as of december 31 , 2015 , which reduces the excess of the expected undiscounted cash flows over the carrying value of our proved oil and natural gas properties in the bakken and three forks formations to $ 327.2 million . if expected future oil prices decline by 13 % as compared to december 31 , 2015 , holding all other factors constant , the expected undiscounted cash flows may not exceed the carrying value of our proved oil and natural gas properties in the bakken and three forks formations , and as a result , we may recognize additional proved impairment charges in the future , and such impairment charges could exceed $ 2,500.0 million assuming a discount rate of 10 % . 2015 highlights we increased average daily production by 11 % to 50,477 boe per day in 2015 from 45,656 boe per day in 2014 . we completed and placed on production 80 gross ( 62.4 net ) operated wells during 2015. as of december 31 , 2015 , the company had 85 gross operated wells awaiting completion . capital expenditures were $ 610.0 million for the year ended december 31 , 2015 , a 61 % decrease as compared to 2014 capital expenditures . we had estimated net proved oil and natural gas reserves at december 31 , 2015 of 218.2 mmboe , of which 85 % consisted of oil and 68 % were classified as proved developed . we ended the year with a leasehold position of 484,745 total net acres in the williston basin , primarily targeting the bakken and three forks formations . in addition , we increased our acreage that is held by production to 442,292 net acres as of december 31 , 2015 . at december 31 , 2015 , we had $ 9.7 million of cash and cash equivalents and had total pro forma liquidity of $ 1,199.4 million , including adjustments for the current borrowing base and the net proceeds from our public equity offering in february 2016 ( see “ liquidity and capital resources ” below ) .
| results of operations revenues our oil and gas revenues are derived from the sale of oil and natural gas production . these revenues do not include the effects of derivative instruments and may vary significantly from period to period as a result of changes in volumes of production sold 50 or changes in commodity prices . our well services and midstream revenues are primarily derived from well completion activity , tool rentals , salt water pipeline transport , salt water disposal and fresh water sales for third-party working interest owners in opna 's operated wells . intercompany revenues for work performed by ows and oms for opna 's working interests are eliminated in consolidation . the following table summarizes our revenues and production data for the periods presented : replace_table_token_17_th ( 1 ) for the year ended december 31 , 2013 , average sales prices for oil is calculated using total oil revenues , excluding bulk oil sales of $ 5.8 million , divided by oil production . ( 2 ) realized prices include gains or losses on cash settlements for our commodity derivatives , which do not qualify for and were not designated as hedging instruments for accounting purposes . cash settlements represent the cumulative gains and losses on our derivative instruments for the periods presented and do not include a recovery of costs that were paid to acquire or modify the derivative instruments that were settled . ( 3 ) natural gas prices include the value for natural gas and natural gas liquids . year ended december 31 , 2015 as compared to year ended december 31 , 2014 total revenues . our total revenues decreased $ 600.5 million , or 43 % , to $ 789.7 million during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 , primarily due to lower realized oil and natural gas sales prices , partially offset by increased production volumes sold .
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at the effective time of the avista merger , 75,073,548 shares of orgo class a common stock were issued to the equity holders of organogenesis inc. in addition , all outstanding options and warrants ( other than warrants that expired , were exercised or were deemed automatically net exercised immediately prior to the avista merger ) exercisable for common stock in organogenesis inc. were exchanged for options and warrants exercisable for orgo class a common stock with the same terms and conditions except adjusted by the aforementioned exchange ratio . f-8 the avista merger was accounted for as a reverse merger in accordance with accounting principles generally accepted in the united states ( gaap ) . under this method of accounting , ahpac was treated as the acquired company story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with the section entitled selected consolidated financial data and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations , intentions and projections . 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 risk factors section of this annual report on form 10-k. unless the context otherwise requires , for purposes of this section , the terms we , us , the company , organogenesis or our company refer to organogenesis holdings inc. and its subsidiaries as they currently exist . overview organogenesis is a leading regenerative medicine company focused on the development , manufacture , and commercialization of solutions for the advanced wound care and surgical & sports medicine markets . our products have been shown through clinical and scientific studies to support and in some cases accelerate tissue healing and improve patient outcomes . we are advancing the standard of care in each phase of the healing process through multiple breakthroughs in tissue engineering and cell therapy . our solutions address large and growing markets driven by aging demographics and increases in comorbidities such as diabetes , obesity , smoking , and cardiovascular and peripheral vascular disease . we offer our differentiated products and in-house customer support to a wide range of health care customers including hospitals , wound care centers , government facilities , ascs , and physician offices . our mission is to provide integrated healing solutions that substantially improve medical outcomes and the lives of patients while lowering the overall cost of care . we offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care . we have and intend to continue to generate data from clinical trials , real world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products . the majority of the existing and pipeline products in our portfolio have pma approval , bla approval or 510 ( k ) clearance from the fda . given the extensive time and cost required to conduct clinical trials and receive fda approvals , we believe that our data and regulatory approvals provide us a strong competitive advantage . our product development expertise and multiple technology platforms provide a robust product pipeline , which we believe will drive future growth . 75 historically we have concentrated our efforts in the advanced wound care market . in 2017 , we acquired nutech medical which further expanded our wound care portfolio and broadened our addressable market to include the surgical & sports medicine market . we believe the expanded product portfolio facilitated by this acquisition is enhancing the ability of our sales representatives to reach and penetrate customer accounts , contributing to strong growth over time . in the advanced wound care market , we focus on the development and commercialization of advanced wound care products for the treatment of chronic and acute wounds , primarily in the outpatient setting . we have a comprehensive portfolio of regenerative medicine products , capable of supporting patients from early in the wound healing process through to wound closure regardless of wound type . our advanced wound care products include apligraf for the treatment of vlus and dfus ; dermagraft for the treatment of dfus ; puraply am to address biofilm across a broad variety of wound types ; and affinity and nushield to address a variety of wound sizes and types . we have a highly trained and specialized direct wound care sales force paired with exceptional customer support services . in the surgical & sports medicine market , we focus on products that support the healing of musculoskeletal injuries , including degenerative conditions such as oa and tendonitis . we are leveraging our regenerative medicine capabilities in this attractive , adjacent market . our surgical & sports medicine products include renu for in-office joint and tendon applications ; nucel for bony fusion in the spine and extremities ; nushield and affinity for surgical application in targeted soft tissue repairs ; and puraply am for surgical treatment of open wounds . we currently sell these products through independent agencies and our growing direct sales force . on december 10 , 2018 , avista healthcare public acquisition corp. , our predecessor company ( ahpac ) , consummated the previously announced business combination pursuant to that certain agreement and plan of merger , dated as of august 17 , 2018 ( as amended , the avista merger agreement ) , by and among ahpac , avista healthcare merger sub , inc. , a delaware corporation and a direct wholly owned subsidiary of ahpac ( avista merger sub ) and organogenesis inc. , a delaware corporation ( organogenesis inc. ) . story_separator_special_tag under the terms of the avista merger agreement , all of the outstanding common stock of organogenesis inc. was exchanged for orgo class a common stock , and all outstanding options and warrants ( other than warrants that expired , were exercised or were deemed automatically net exercised immediately prior to the avista merger ) exercisable for common stock in organogenesis inc. were exchanged for options and warrants exercisable for orgo class a common stock with the same terms and conditions except adjusted by the aforementioned exchange ratio . concurrently with the signing of the avista merger agreement , ahpac entered into a subscription agreement with avista capital partners iv , l.p. and avista capital partners iv ( offshore ) , l.p. ( the pipe investors ) for the purchase and sale of 9,022,741 shares of orgo class a common stock and 4,100,000 warrants to purchase one-half of one share of orgo 's class a common stock for an aggregate purchase price of $ 46.0 million to occur at the consummation of the avista merger ( the additional avista investment ) . the proceeds from the additional avista investment were received in december 2018. the pipe investors also purchased , concurrently with the execution and delivery of the avista merger agreement , 6,538,732 shares of orgo class a common stock for an aggregate purchase price of $ 46.0 million ( the initial avista investment ) . organogenesis inc. received the proceeds from the initial avista investment in august 2018. concurrently with the signing of the avista merger agreement , our lenders agreed to release the subordination on the affiliate debt and the affiliate guarantee on the term debt , and the holders of the affiliate debt 77 executed and delivered to the company an exchange agreement ( the exchange agreement ) whereby we agreed that , concurrently with the consummation of the avista merger , outstanding principal of $ 45.7 million related to the affiliate debt was exchanged for 6,502,679 shares of orgo class a common stock and a cash payment of $ 35.6 million , representing $ 22.0 million of principal and $ 13.6 million of accrued interest related to all aforementioned affiliate debt and accrued affiliate loan fees as of and through the closing date of the avista merger . following the consummation of these transactions , the affiliate debt was deemed fully paid and satisfied in full and was discharged and terminated . we incurred a loss of $ 2.1 million on the extinguishment of the affiliate debt related to the write-off of the unamortized debt discount and the difference in the carrying value of the affiliate debt converted to class a common stock and the fair value of the class a common stock issued in the conversion . management 's use of non-gaap measures our management uses financial measures that are not in accordance with generally accepted accounting principles in the united states , or gaap , in addition to financial measures in accordance with gaap to evaluate our operating results . these non-gaap financial measures should be considered supplemental to , and not a substitute for , our reported financial results prepared in accordance with gaap . our management uses adjusted ebitda principally as a measure of our operating performance and believes adjusted ebitda helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude . accordingly , we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results , enhancing the overall understanding of our past performance and future prospects , and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making . we define ebitda as net income ( loss ) attributable to organogenesis holdings inc. before depreciation and amortization , interest expense and income taxes and we define adjusted ebitda as ebitda , further adjusted for the impact of certain items that we do not consider indicative of our core operating performance . these items include non-cash equity compensation , mark to market adjustments on our warrant liabilities , interest rate swaps and our contingent asset and liabilities , write-off of ipo costs , costs incurred with the avista merger and a loss on the extinguishment of debt . we have presented adjusted ebitda in this annual report on form 10-k because it is a key measure used by our management and board of directors to understand and evaluate our operating performance , generate future operating plans and make strategic decisions regarding the allocation of capital . in particular , we believe that the exclusion of certain items in calculating adjusted ebitda can produce a useful measure for period-to-period comparisons of our business . we use adjusted ebitda to evaluate our operating performance and trends and make planning decisions . we believe adjusted ebitda helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude . accordingly , we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results , enhancing the overall understanding of our past performance and future prospects , and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making . our adjusted ebitda is not prepared in accordance with gaap , and should not be considered in isolation of , or as an alternative to , measures prepared in accordance with gaap . there are a number of limitations related to the use of adjusted ebitda rather than net income ( loss ) attributable to organogenesis holdings inc. , which is the most directly comparable gaap equivalent .
| results of operations the following table sets forth , for the periods indicated , our results of operations : replace_table_token_4_th 82 ebitda and adjusted ebitda the following table presents a reconciliation of adjusted ebitda to net loss attributable to organogenesis holdings inc. , the most directly comparable gaap measure , for each of the periods presented : replace_table_token_5_th ( 1 ) amount reflects the change in fair value of the common shares associated with the shares issued in connection with the acquisition of nutech medical that are forfeitable by the sole stockholder of nutech medical upon the occurrence of the fda requiring approval of certain products acquired from nutech medical . ( 2 ) amount reflects the change in fair value of our interest rate swaps that the real estate entities entered into to manage the economic impact of fluctuations in interest rate . we do not use interest rate swaps for speculative or trading purposes and as such , the fair value of these instruments is recorded as an asset or liability on the consolidated balance sheet with change in the fair value of the instruments recognized as income or expense in the current period as a component of other income ( expense ) , net in the consolidated statement of operations . ( 3 ) in connection with our 2016 loans ( as defined below ) , we classified the warrants issued to purchase our common stock to the lenders , who are affiliates of ours as a liability on our consolidated balance sheet . amounts reflect the change in fair value of the warrant liability . ( 4 ) amount reflects a one-time write-off in the quarter ended june 30 , 2018 of costs accumulated in connection with a proposed initial public offering of organogenesis inc. that was abandoned . the ipo process was abandoned and was replaced with the avista merger transaction .
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this discussion should be read in conjunction with our consolidated financial statements included elsewhere in this form 10-k. our discussion of our results of operations and financial condition includes various forward-looking statements about , among other things , our markets , the demand for our products and services and our future results . these statements are based on our current expectations , which are inherently subject to risks and uncertainties . our actual results and the timing of certain events may differ materially from those indicated in the forward looking statements . overview the goal of hanger orthopedic group , inc. ( the `` company '' ) is to be the world 's premier provider of services and products that enhance human physical capabilities . we provide orthotic and prosthetic patient-care services , distribute o & p devices and components , manage o & p networks , and provide therapeutic solutions to the broader post acute market . we are the largest owner and operator of orthotic and prosthetic patient-care centers in the united states and the largest dedicated distributor of o & p products in the united states through our distribution subsidiary , southern prosthetic supply , inc. ( `` sps '' ) . we operate in excess of 700 o & p patient-care centers located in 45 states and the district of columbia and six strategically located distribution facilities . in addition to providing o & p services and products we , through our subsidiary , linkia llc ( `` linkia '' ) , manage an o & p network and develop programs to manage all aspects of o & p patient-care for insurance companies . we provide therapeutic solutions through our subsidiaries innovative neurotronics and accelerated care plus corp. innovative neurotronics ( `` in , inc. '' ) introduces emerging neuromuscular technologies developed through independent research in a collaborative effort with industry suppliers worldwide . accelerated care plus corp. ( `` acp '' ) is a developer of specialized rehabilitation technologies and a leading provider of evidence-based clinical programs for post-acute rehabilitation serving more than 4,000 long-term care facilities and other sub-acute rehabilitation providers throughout the u.s. we have increased our net sales during the past two years through organic growth , acquisitions and opening of new patient-care centers , increased distribution revenues though targeted sales efforts and increased product offerings , and continued growth in revenue associated with the linkia contracts . our operations include three reportable segmentspatient-care services , distribution , and therapeutic solutions . patient-care services as of december 31 , 2011 , we provided o & p patient-care services through over 700 patient-care centers and over 1,190 clinicians in 45 states and the district of columbia . for the years ended december 31 , 2011 and 2010 , net sales attributable to our patient-care services were $ 753.4 million and $ 714.7 million , respectively . patients are referred to our local patient-care centers directly by physicians as a result of our reputation with them or through our agreements with managed care providers . in our orthotics business , we design , fabricate , fit and maintain a wide range of standard and custom-made braces and other devices ( such as spinal , knee and sports-medicine braces ) that provide external support to patients suffering from musculoskeletal disorders , such as ailments of the back , extremities or joints and injuries from sports or other activities . in our prosthetics business , we design , fabricate , fit and maintain custom-made artificial limbs for patients who are without limbs as a result of traumatic injuries , vascular diseases , diabetes , cancer or congenital disorders . o & p devices are increasingly technologically advanced and are custom-designed to add functionality and comfort to patients ' lives , shorten the rehabilitation process and lower the cost of rehabilitation . 28 our clinicians are also responsible for managing and operating our patient-care centers and are compensated , in part , based on their success in managing costs and collecting accounts receivable . we provide centralized administrative , marketing and materials management services to take advantage of economies of scale and to increase the time clinicians have to provide patient-care . in areas where we have multiple patient-care centers , we also utilize shared fabrication facilities where technicians fabricate devices for clinicians in that region . distribution services we distribute o & p components to our customers and to our own patient-care centers through our wholly-owned subsidiary , sps , which is the nation 's largest o & p distributor . we are also a leading manufacturer and distributor of therapeutic footwear for diabetic patients in the podiatric market . for the year ended december 31 , 2011 , 34.6 % or approximately $ 100.5 million of sps distribution sales were to third-party o & p services providers , and the balance of approximately $ 190.3 million represented intercompany sales to our patient-care centers . sps maintains in inventory approximately 29,000 individual skus manufactured by more than 300 different companies . sps maintains distribution facilities in california , florida , georgia , illinois , pennsylvania , and texas , which allows us to deliver products via ground shipment anywhere in the contiguous united states typically within two business days . our distribution business enables us to : centralize our purchasing and thus lower our material costs by negotiating purchasing discounts from manufacturers ; reduce our patient-care center inventory levels and improve inventory turns ; perform inventory quality control ; encourage our patient-care centers to use clinically appropriate products that enhance our profit margins ; and coordinate new product development efforts with key vendor `` partners '' . marketing of our distribution services is conducted on a national basis through a dedicated sales force , print and e-commerce catalogues , and exhibits at industry and medical meetings and conventions . we direct specialized catalogues to segments of the healthcare industry , such as orthopedic surgeons , physical and occupational therapists , and podiatrists . story_separator_special_tag we regularly assess these policies in light of current and forecasted economic conditions . our accounting policies are stated in note b to the consolidated financial statements included elsewhere in this annual report on form 10-k. we believe the following accounting policies are critical to understanding our results of operations and the more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition : revenues in our patient-care services segment are derived from the sale of o & p devices and the maintenance and repair of existing devices and are recorded net of all contractual adjustments and discounts . the sale of o & p devices includes the design , fabrication , assembly , fitting and delivery of a wide range of braces , limbs and other devices . revenues from the sale of these devices are recorded when ( i ) acceptance by and delivery to the patient has occurred ; ( ii ) persuasive evidence of an arrangement exists and there are no further obligations to the patient ; ( iii ) the sales price is fixed or determinable ; and ( iv ) collectability is reasonably assured . revenues from maintenance and repairs are recognized when the service is provided . revenues on the sale of o & p devices to customers by the distribution segment are recorded upon the shipment of products , in accordance with the terms of the invoice , net of merchandise returns received and the amount established for anticipated returns . discounted sales are recorded at net realizable value . revenues in our therapeutic solutions are primarily derived from leasing rehabilitation technology combined with clinical therapy programs and education and training . the revenue is recorded on a monthly basis according to terms of the contracts with our customers . certain accounts receivable may be uncollectible , even if properly pre-authorized and billed . regardless of the balance , accounts receivable amounts are periodically evaluated to assess collectability . in addition to the actual bad debt expense recognized during collection activities , we estimate the amount of potential bad debt expense that may occur in the future . this estimate is based upon our historical experience as well as a review of our receivable balances . on a quarterly basis , we evaluate cash collections , accounts receivable balances and write-off activity to assess the adequacy of our allowance for doubtful accounts . additionally , a company-wide evaluation of collectability of receivable balances older than 180 days is performed at least semi-annually , the results of which are used in the next allowance analysis . in these detailed reviews , the account 's net realizable value is estimated after considering the customer 's payment history , past efforts to collect on the balance and the outstanding balance , and a specific reserve is recorded if needed . from time to time , we may outsource the collection of such accounts to collection agencies after internal collection efforts are exhausted . in cases where valid accounts receivable can not be collected , the uncollectible account is written off to bad debt expense . 31 the following represents the composition of our accounts receivable balance by payor : replace_table_token_9_th replace_table_token_10_th inventories : inventories , which consist principally of raw materials , work in process and finished goods , are stated at the lower of cost or market using the first-in , first-out method . at our patient-care services segment , we calculate cost of goods soldmaterials in accordance with the gross profit method for all reporting periods . we base the estimates used in applying the gross profit method on the actual results of the most recently completed physical inventory and other factors , such as sales mix and purchasing trends among other factors . cost of goods soldmaterials is adjusted once the annual physical inventory is taken and the valuation is completed in the fourth quarter . we treat these inventory adjustments as changes in accounting estimates . at our distribution and therapeutic solutions segments , a perpetual inventory is maintained . we adjust our reserve for inventory obsolescence whenever the facts and circumstances indicate that the carrying cost of certain inventory items is in excess of its market price . shipping and handling costs are included in cost of goods soldmaterials . fair value : effective january 1 , 2008 , we adopted the authoritative guidance for fair value measurements and disclosures , which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements . the authoritative guidance requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be grouped , based on significant levels of inputs as follows : level 1 quoted prices in active markets for identical assets or liabilities ; level 2 quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability ; level 3 unobservable inputs , such as discounted cash flow models and valuations . 32 the determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement . investments : trading securities consisted of auction rate securities accounted for in accordance with authoritative guidance for investments in debt and equity securities . trading securities are reported at fair value with unrealized gains and losses included in earnings . securities purchased to be held for indeterminate periods of time and not intended at the time of purchase to be held until maturity are classified as available-for-sale securities with any unrealized gains and losses reported as a separate component of accumulated other comprehensive loss on our consolidated balance sheets . we continually evaluate whether any marketable investments have been impaired and , if so , whether such impairment is temporary or other than temporary .
| results of operations the following table sets forth , for the periods indicated , certain items from our statements of operations as a percentage of our net sales : replace_table_token_12_th year-ended december 31 , 2011 compared with the year ended december 31 , 2010 net sales . net sales for the year ended december 31 , 2011 increased by $ 101.2 million , or 12.4 % , to $ 918.5 million from $ 817.4 million last year . the sales increase was principally the result of a $ 18.4 million , or 2.6 % , increase in same-center sales in our patient-care services segment , a $ 4.9 million , or 5.1 % , increase in sales of our distribution segment , $ 57.4 million in increased sales from our therapeutic solutions segment , resulting primarily from the december 2010 acquisition of acp , and a $ 20.5 million increase related to sales from acquired patient-care entities . cost of goods soldmaterials . cost of goods soldmaterials for the year ended december 31 , 2011 was $ 267.7 million , an increase of $ 20.1 million , or 8.1 % , over $ 247.6 million for the same period in the prior year . the increase was the result of the growth in sales . cost of goods soldmaterials as a percentage of net sales decreased to 29.1 % in 2011 from 30.3 % in 2010. the decrease in cost of goods soldmaterials as a percentage of sales resulted from the inclusion of a full year of results from acp , which has a lower of cost of goods sold as a percentage of sales . personnel costs .
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among other things , we sell sulfuric acid and provide marine transportation and terminalling and storage services to martin resource management . we purchase land transportation services and marine fuel from martin resource management . all of these services and goods are purchased and sold pursuant to the terms of a number of agreements between us and martin resource management . for a more comprehensive discussion concerning the omnibus agreement and the other agreements that we have entered into with martin resource management , please see `` item 13. certain relationships and related transactions , and director independence . '' how we evaluate our operations our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with u.s. gaap to analyze our performance . these include : ( 1 ) net income before interest expense , income tax expense , and depreciation and amortization ( `` ebitda '' ) , ( 2 ) adjusted ebitda and ( 3 ) distributable cash flow . our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow , and as key components of our internal financial reporting . we believe investors benefit from having access to the same financial measures that our management uses . ebitda and adjusted ebitda . certain items excluded from ebitda and adjusted ebitda are significant components in understanding and assessing an entity 's financial performance , such as cost of capital and historic costs of depreciable assets . we have included information concerning ebitda and adjusted ebitda because they provide investors and management with additional information to better understand the following : financial performance of our assets without regard to financing methods , capital structure or historical cost basis ; our operating performance and return on capital as compared to those of other similarly situated entities ; and the viability of acquisitions and capital expenditure projects . our method of computing adjusted ebitda may not be the same method used to compute similar measures reported by other entities . the economic substance behind our use of adjusted ebitda is to measure the ability of our assets to generate cash sufficient to pay interest costs , support our indebtedness and make distributions to our unit holders . distributable cash flow . distributable cash flow is a significant performance measure used by our management and by external users of our financial statements , such as investors , commercial banks and research analysts , to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders . distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment . specifically , this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates . distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit 's yield , which in turn is based on the amount of cash distributions the entity pays to a unitholder . ebitda , adjusted ebitda and distributable cash flow should not be considered alternatives to , or more meaningful than , net income , cash flows from operating activities , or any other measure presented in accordance with u.s. gaap . our method of computing these measures may not be the same method used to compute similar measures reported by other entities . 46 non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2016 , 2015 , and 2014 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . reconciliation of ebitda , adjusted ebitda , and distributable cash flow replace_table_token_8_th story_separator_special_tag storage rates at our arcadia and monroe gas storage facilities . products revenues . our ngl average sales price per barrel increased $ 2.68 , or 8 % , resulting in an increase to products revenues of $ 38.5 million . the increase in average sales price per barrel was a result of an increase in market prices . product sales volumes decreased 34 % , decreasing revenues $ 166.6 million . cost of products sold . our average cost per barrel increased $ 1.66 , or 6 % , increasing cost of products sold by $ 23.7 million . the increase in average cost per barrel was a result of an increase in market prices . the decrease in sales volume of 34 % resulted in a $ 147.6 million decrease to cost of products sold . our margins increased $ 1.03 per barrel , or 35 % during the period . operating expenses . operating expenses decreased primarily due to a $ 0.6 million decrease in pipeline testing expense , $ 0.4 million in lower fuel expense at our gas storage facilities , $ 0.3 million decrease in maintenance expense at our gas storage facilities , $ 0.1 million decrease in ngls employment expense and a $ 0.1 million decrease in utility expense related to our east texas ngl pipeline . these decreases are offset by a $ 0.8 million increase from our arcadia rail facility put into service in june 2015. selling , general and administrative expenses . selling , general and administrative expenses decreased primarily due to a $ 0.3 million decrease in professional fees , $ 0.2 million decrease in bad debt expense , and a $ 0.2 million decrease in property tax expense . 51 depreciation and amortization . depreciation and amortization decreased primarily due to a $ 6.8 million decrease in amortization related to contracts acquired during the purchase of story_separator_special_tag among other things , we sell sulfuric acid and provide marine transportation and terminalling and storage services to martin resource management . we purchase land transportation services and marine fuel from martin resource management . all of these services and goods are purchased and sold pursuant to the terms of a number of agreements between us and martin resource management . for a more comprehensive discussion concerning the omnibus agreement and the other agreements that we have entered into with martin resource management , please see `` item 13. certain relationships and related transactions , and director independence . '' how we evaluate our operations our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with u.s. gaap to analyze our performance . these include : ( 1 ) net income before interest expense , income tax expense , and depreciation and amortization ( `` ebitda '' ) , ( 2 ) adjusted ebitda and ( 3 ) distributable cash flow . our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow , and as key components of our internal financial reporting . we believe investors benefit from having access to the same financial measures that our management uses . ebitda and adjusted ebitda . certain items excluded from ebitda and adjusted ebitda are significant components in understanding and assessing an entity 's financial performance , such as cost of capital and historic costs of depreciable assets . we have included information concerning ebitda and adjusted ebitda because they provide investors and management with additional information to better understand the following : financial performance of our assets without regard to financing methods , capital structure or historical cost basis ; our operating performance and return on capital as compared to those of other similarly situated entities ; and the viability of acquisitions and capital expenditure projects . our method of computing adjusted ebitda may not be the same method used to compute similar measures reported by other entities . the economic substance behind our use of adjusted ebitda is to measure the ability of our assets to generate cash sufficient to pay interest costs , support our indebtedness and make distributions to our unit holders . distributable cash flow . distributable cash flow is a significant performance measure used by our management and by external users of our financial statements , such as investors , commercial banks and research analysts , to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders . distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment . specifically , this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates . distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit 's yield , which in turn is based on the amount of cash distributions the entity pays to a unitholder . ebitda , adjusted ebitda and distributable cash flow should not be considered alternatives to , or more meaningful than , net income , cash flows from operating activities , or any other measure presented in accordance with u.s. gaap . our method of computing these measures may not be the same method used to compute similar measures reported by other entities . 46 non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2016 , 2015 , and 2014 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . reconciliation of ebitda , adjusted ebitda , and distributable cash flow replace_table_token_8_th story_separator_special_tag storage rates at our arcadia and monroe gas storage facilities . products revenues . our ngl average sales price per barrel increased $ 2.68 , or 8 % , resulting in an increase to products revenues of $ 38.5 million . the increase in average sales price per barrel was a result of an increase in market prices . product sales volumes decreased 34 % , decreasing revenues $ 166.6 million . cost of products sold . our average cost per barrel increased $ 1.66 , or 6 % , increasing cost of products sold by $ 23.7 million . the increase in average cost per barrel was a result of an increase in market prices . the decrease in sales volume of 34 % resulted in a $ 147.6 million decrease to cost of products sold . our margins increased $ 1.03 per barrel , or 35 % during the period . operating expenses . operating expenses decreased primarily due to a $ 0.6 million decrease in pipeline testing expense , $ 0.4 million in lower fuel expense at our gas storage facilities , $ 0.3 million decrease in maintenance expense at our gas storage facilities , $ 0.1 million decrease in ngls employment expense and a $ 0.1 million decrease in utility expense related to our east texas ngl pipeline . these decreases are offset by a $ 0.8 million increase from our arcadia rail facility put into service in june 2015. selling , general and administrative expenses . selling , general and administrative expenses decreased primarily due to a $ 0.3 million decrease in professional fees , $ 0.2 million decrease in bad debt expense , and a $ 0.2 million decrease in property tax expense . 51 depreciation and amortization . depreciation and amortization decreased primarily due to a $ 6.8 million decrease in amortization related to contracts acquired during the purchase of
| results of operations the results of operations for the years ended december 31 , 2016 , 2015 , and 2014 have been derived from our consolidated financial statements . we evaluate segment performance on the basis of operating income , which is derived by subtracting cost of products sold , operating expenses , selling , general and administrative expenses , and depreciation and amortization expense from revenues . the following table sets forth our operating revenues and operating income by segment for the years ended december 31 , 2016 , 2015 , and 2014 . our consolidated results of operations are presented on a comparative basis below . there are certain items of income and expense which we do not allocate on a segment basis . these items , including equity in earnings ( loss ) of unconsolidated 47 entities , interest expense , and indirect selling , general and administrative expenses , are discussed after the comparative discussion of our results within each segment . the natural gas services segment information below excludes the discontinued operations of the floating storage assets disposed of on february 12 , 2015 for the years ended december 31 , 2015 and 2014. see item 8 , note 5. replace_table_token_9_th 48 terminalling and storage segment comparative results of operations for the twelve months ended december 31 , 2016 and 2015 replace_table_token_10_th services revenues . s ervices revenue decreased primarily as a result of decreased throughput volumes and pass-through revenues at our corpus christi crude terminal , which was sold on december 21 , 2016. products revenues . a 22 % decrease in sales volumes at our blending and packaging facilities resulted in a $ 15.6 million decrease to products revenues . the decline in volumes resulted primarily from the downturn in the energy industry , as well as increased price competition .
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in addition , bh/re and starwood entered into a registration rights agreement with respect to their membership interests in equityco . 9. related party transactions planet hollywood licensing agreement opbiz , planet hollywood and certain of planet hollywood 's subsidiaries have entered into a licensing agreement pursuant to which opbiz received a non-exclusive , irrevocable license to use various `` planet hollywood `` trademarks and service marks . under the licensing agreement , opbiz also has the right , but not the obligation , to open a planet hollywood story_separator_special_tag overview of management 's discussion and analysis of financial condition and results of operations set forth below is a discussion of the financial condition and results of operations of bh/re and our subsidiaries for the periods covered in the report . the discussion of operations herein focuses on events and the revenues and expenses during the year ended december 31 , 2007 as compared to the year ended december 31 , 2006 , and the year ended december 31 , 2006 as compared to the year ended december 31 , 2005. the following discussion and analysis should be read in conjunction with `` item 6. selected financial data '' and the financial statements and the notes thereto included in `` item 8. financial statements and supplementary data '' in this annual report on form 10-k. critical accounting policies and estimates significant accounting policies and estimates our consolidated financial statements are prepared in conformity with u.s. generally accepted accounting principles . certain policies , including the determination of bad debt reserves , the estimated useful lives assigned to assets , asset impairment , insurance reserves and the calculation of liabilities , require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . our judgments are based on historical experience , terms of existing contracts , observance of trends in the gaming industry and information available from other outside sources . there can be no assurance that actual results will not differ from our estimates . to provide an understanding of the methodology we apply , our significant accounting policies and basis of presentation are discussed below , as well as where appropriate in the notes to the consolidated financial statements . property and equipment property and equipment are stated at cost . recurring repairs and maintenance costs , including items that are replaced routinely in the casino , hotel and food and beverage departments which do not meet the company 's capitalization policy , are expensed as incurred . the company has established its capital expense policy to be reflective of its individual ongoing repairs and maintenance programs . gains or losses on dispositions of property and equipment are included in the determination of income . property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis : buildings 40 years building improvements 15 to 40 years furniture , fixtures and equipment 3 to 7 years property and equipment and other long-lived assets are evaluated for impairment in accordance with the financial accounting standards board 's ( `` fasb '' ) statement of financial accounting standards ( `` sfas '' ) no . 144 , `` accounting for the impairment or disposal of long-lived assets . '' for assets to be disposed of , the asset to be sold is recognized at the lower of carrying value or fair value less costs of disposal . fair value for assets to be disposed of is estimated based on comparable asset sales , solicited offers or a discounted cash flow model . property and equipment are reviewed for impairment whenever indicators of impairment exist . if an indicator of impairment exists , the estimated future cash flows of the asset , on an undiscounted basis , are compared to the carrying value of the asset . if the undiscounted cash flows exceed the carrying value , no impairment is indicated . if the undiscounted cash flows do not exceed the carrying 24 value , then impairment is measured based on fair value compared to carrying value , with fair value typically based on a discounted cash flow model . the property and equipment and other long-lived assets that bh/re obtained in the acquisition of the aladdin were appraised by an independent third party . property and equipment and the related accumulated depreciation amounts , as well as certain intangible assets recorded in the company 's consolidated balance sheet as of december 31 , 2007 , are based on the independent third party appraisal . derivative instruments and hedging activities pursuant to the refinancing of the securities purchase agreement and the terms of the restructuring agreement , the restructuring parties agreed to amend the warrants issued by mezzco to purchase 17.5 % of the fully diluted equity in mezzco . the warrants contain a net cash settlement , and therefore are accounted for in accordance with emerging issues task force ( `` eitf '' ) 00-19 , `` accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock `` . both sfas no . 133 `` accounting for derivative instruments and hedging activities `` and eitf 00-19 require that the warrants be recognized as liabilities , with changes in fair value affecting net income . see `` note 7. long-term debt . '' the terms of the loan agreement required the company to enter into an interest rate cap agreement , which expires on november 30 , 2008 , to manage interest rate risk . the company did not apply cash flow hedge accounting to this instrument . although this derivative was not afforded cash flow hedge accounting , the company retained the instrument as protection against the interest rate risk associated with its long-term borrowings . the company accounts for its derivative activity in accordance with sfas no . story_separator_special_tag sheraton is a wholly owned subsidiary of starwood , which has a 15 % equity interest in equityco and has the right to appoint two members to the equityco board of managers . recently issued accounting standards sfas no . 157 in september 2006 , the fasb issued statement of financial accounting standards no . 157 ( `` sfas no . 157 '' ) , `` fair value measurements '' , which clarifies the definition of fair value , establishes guidelines for measuring fair value , and expands disclosures regarding fair value measurements . sfas 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements . sfas 157 will be effective for the company on january 1 , 2008. the adoption of sfas 157 will not have a material effect on the company 's financial position , results of operation or cash flow . sfas no . 159 in february 2007 , the fasb issued sfas no . 159 , `` the fair value option for financial assets and financial liabilities-including an amendment of sfas no . 115 , '' which permits an entity to measure certain financial assets and financial liabilities at fair value . entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date . sfas no . 159 is effective as of the first fiscal year beginning after november 15 , 2007. the adoption of sfas 159 will not have a material effect on the company 's financial position , results of operation or cash flow . 27 story_separator_special_tag rates exceeded our expectations during this renovation period . hotel expenses decreased 9.9 % to $ 40.7 million for the year ended december 31 , 2006 as compared to $ 45.1 million for the year ended december 31 , 2005. the hotel profit margin increased 4.3 percentage points over the same twelve-month period . during the year ended december 31 , 2005 , we incurred certain repair and maintenance expenses related to upgrades and amenities in the hotel rooms . we did not incur similar expenses in 2006 which accounted for most of the profit margin increase year over year . food and beverage food and beverage revenues are derived from food and beverage sales in the restaurants , bars , room service , banquets and entertainment outlets . food and beverage revenue is recognized at the time the food and or beverage are provided to the guest . 2007 compared with 2006 combined food and beverage revenues decreased 18.1 % to $ 48.9 million for the year ended december 31 , 2007 as compared to $ 59.7 million for the year ended december 31 , 2006. food revenues decreased $ 12.5 million or 24.0 % over the previous twelve-month period as a result of the transition to leased outlets as well as a decrease in the number of hotel guests due to the room renovations . beverage revenues increased $ 1.7 million or 12.6 % when comparing the year ended december 31 , 2007 to december 31 , 2006 due to the opening of new beverage outlets including the race and sports book bar and the new center bar as the renovation to these areas was completed . casino bars were temporarily closed and relocated throughout the course of the renovation in 2006. combined food and beverage expenses decreased 20.0 % to $ 36.9 million for the year ended december 31 , 2007 as compared to $ 46.1 million for the year ended december 31 , 2006. food and beverage profit margin increased 1.9 % over the same twelve-month period . the decrease in operating expenses and increase in profit margin were primarily the result of the transition to leased outlets during the year ended 2007 which resulted in significant labor and other expense elimination . 2006 compared with 2005 combined food and beverage revenues decreased 19.9 % to $ 59.7 million for the year ended december 31 , 2006 as compared to $ 74.6 million for the year ended december 31 , 2005. food revenues decreased $ 7.8 million or 13.1 % over the same twelve-month period , while beverage revenues declined $ 7.1 million or 34.8 % over the same twelve-month period . the decreases in food and beverage revenues were driven by the outlet closures required for the renovation . the high end restaurants and 24-hour café were permanently closed and reopened in 2007 as outlets leased to third parties . casino bars were temporarily closed and relocated throughout the course of the renovation in 2006. combined food and beverage expenses decreased 10.2 % to $ 46.1 million for the year ended december 31 , 2006 as compared to $ 51.4 million for the year ended december 31 , 2005. food and beverage profit margin decreased 8.4 % over the same twelve-month period . the increase in food and beverage expenses and the resulting decrease in food and beverage operating margins were primarily 31 due to our inability to eliminate certain fixed expenses while the outlets were closed as well as increases in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective october 1 , 2005. other other revenue includes entertainment sales , tenant income , telephone and other miscellaneous income and is recognized at the time the goods or services are provided to the guest .
| results of operations the following table highlights the results of operations as compared to the prior years . replace_table_token_3_th net revenues for the year ended december 31 , 2007 , declined over those of the year ended december 31 , 2006. the decline is mainly the result of declines in hotel revenue related to the renovation and food and beverage revenues which declined with the transition of outlets to third party operators . net revenues for the year ended december 31 , 2006 , declined over those of the year ended december 31 , 2005. the decline was mainly the result of declines in gaming , entertainment and food and beverage revenues resulting from the renovation . operating expense declines were commensurate with the revenue declines in each area . 28 the following table highlights the various sources of our revenues and expenses as compared to the prior years . replace_table_token_4_th casino casino revenue is derived primarily from patrons wagering on slot machines , table games and other gaming activities . table games generally include blackjack or twenty one , craps , baccarat and roulette . other gaming activities include the race and sports books , poker and keno . casino revenue is defined as the win from gaming activities , computed as the difference between gaming wins and losses . casino revenues vary from time-to-time due to general economic conditions , competition , popularity of entertainment offerings , table game hold , slot machine hold and occupancy percentages in the hotel . casino revenues also vary depending upon the amount of gaming activity , as well as variations in the odds for different games of chance . casino revenue is recognized at the end of each gaming day .
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these restricted stock awards vested on june 18 , 2013. the aggregate market value of the restricted stock at the date of the award was $ 85,000 and was amortized as director compensation expense over the twelve-month vesting period . a summary of the status of the company 's non-vested restricted stock activity as of february 1 , 2014 and changes during the twelve-month period then ended is as follows : replace_table_token_26_th 55 valuevision media , inc. and subsidiaries notes story_separator_special_tag introduction the following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere in this annual report . cautionary statement regarding forward-looking statements this annual report on form 10-k , including the following management 's discussion and analysis of financial condition and results of operations and other materials we file with the sec ( as well as information included in oral statements or other written statements made or to be made by us ) contain certain `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. any statements contained herein that are not statements of historical fact , including statements regarding guidance , industry prospects or future results of operations or financial position made in this report are forward-looking . we often use words such as anticipates , believes , expects , intends and similar expressions to identify forward-looking statements . these statements are based on management 's current expectations and accordingly are subject to uncertainty and changes in circumstances . actual results may vary materially from the expectations contained herein due to various important factors , including ( but not limited to ) : consumer preferences , spending and debt levels ; the general economic and credit environment ; interest rates ; seasonal variations in consumer purchasing activities ; the ability to achieve the most effective product category mixes to maximize sales and margin objectives ; competitive pressures on sales ; pricing and gross sales margins ; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations ; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships , and to successfully manage key vendor relationships ; our ability to manage our operating expenses successfully and our working capital levels ; our ability to remain compliant with our long-term credit facility covenants ; our ability to maintain and successfully execute our long-term growth strategy ; continued public statements about the company and other actions by an activist shareholder , and our ability to minimize our costs and avoid management distraction in connection therewith ; the market demand for television station sales ; our management and information systems infrastructure ; challenges to our data and information security ; changes in governmental or regulatory requirements ; litigation or governmental proceedings affecting our operations ; the risks identified under item 1a ( risk factors ) in this report on form 10k ; significant public events that are difficult to predict , or other significant television-covering events causing an interruption of television coverage or that directly compete with the viewership of our programming ; and our ability to obtain , retain and offer meaningful compensation to our key executives and employees . you are cautioned not to place undue reliance on forward-looking statements , which speak only as of the date of this filing . we are under no obligation ( and expressly disclaim any such obligation ) to update or alter our forward-looking statements whether as a result of new information , future events or otherwise . overview company description we are a multichannel electronic retailer that markets , sells and distributes products to consumers through tv , telephone , online , mobile and social media . we operate a 24-hour television shopping network , shophq , which is distributed primarily through cable and satellite affiliation agreements , through which we offer brand name and private label products in the categories of jewelry & watches ; home & consumer electronics ; beauty , health & fitness ; and fashion & accessories . we also operate shophq.com , a comprehensive e-commerce platform that sells products which appear on our television shopping channel as well as an extended assortment of online-only merchandise . our programming and products are also marketed via mobile devices , including smartphones and tablets , and through the leading social media channels . in may 2013 , we announced our intention to rebrand our 24-hour television shopping network , shopnbc , and our companion e-commerce internet website , shopnbc.com and on january 31 , 2014 , we officially transitioned to our new brand , shophq and shophq.com , to reinforce our positioning as the shopping headquarters for customers . products and customers products sold on our media channel platforms include primarily jewelry & watches , home & consumer electronics , beauty , health & fitness , and fashion & accessories . historically jewelry & watches has been our largest merchandise category . we are working to shift our product mix to include a more diversified product assortment in order to grow our new and active customer base . the following table shows our merchandise mix as a percentage of television shopping and internet net merchandise sales for the years indicated by product category group : 26 replace_table_token_7_th our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand , as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute . our multichannel customers — those who interact with our network and transact through tv , internet and mobile device — are primarily women between the ages of 35 and 65 , married , with average annual household incomes of $ 70,000 or more . story_separator_special_tag on january 31 , 2014 , the company entered into a third amendment to its revolving credit and security agreement with pnc , as previously amended that , among other things , increased the size of the revolving line of credit from $ 50 million to $ 60 million and provides for a $ 15 million term loan on which the company may draw to fund potential improvements at the company 's distribution facility in bowling green , kentucky . the revolving line of credit under the credit facility , as amended , bears interest at libor plus 3 % per annum . all borrowings under the credit facility mature and are payable on may 1 , 2018. subject to certain conditions , the credit facility also provides for the issuance of letters of credit in an aggregate amount up to $ 6 million which , upon issuance , would be deemed advances under the credit facility . remaining capacity under the credit facility provides liquidity for working capital and general corporate purposes . the amended credit facility contains customary covenants and conditions , including , among other things , maintaining a minimum of unrestricted cash plus facility availability of $ 10 million at all times and limiting annual capital expenditures . certain financial covenants , including minimum ebitda levels ( as defined in the credit facility ) and minimum fixed charge coverage ratio , become applicable only if unrestricted cash plus facility availability falls below $ 16 million or upon an event of default . in addition , the credit facility places restrictions on the company 's ability to incur additional indebtedness or prepay existing indebtedness , to create liens or other encumbrances , to sell or otherwise dispose of assets , to merge or consolidate with other entities , and to make certain restricted payments , including payments of dividends to common shareholders . fcc license impairment ( fiscal 2012 ) we annually review our fcc television broadcast license for impairment in the fourth quarter , or more frequently if an impairment indicator is present . we estimate the fair value of our fcc television broadcast license primarily by using income-based discounted cash flow models with the assistance of an independent outside fair value consultant . the discounted cash flow models utilize a range of assumptions including revenues , operating profit margin , projected capital expenditures and an unobservable discount rate . we also consider comparable asset market and sales data for recent comparable market transactions for standalone television broadcasting stations to assist in determining fair value . during the company 's annual fiscal 2012 fair value assessment and utilizing independent market data , assumptions in the company 's discounted cash flow models reflected declines in independent television station industry revenues and operating margins due to television station rating declines and reduced advertising purchases on local broadcast television stations . as a result , cash flows from our discounted cash flow model did not support recovery of the asset 's carrying value and the company recorded an $ 11.1 million non-cash impairment charge in the fourth quarter of fiscal 2012. while we believe that our estimates and assumptions regarding the valuation of the license are reasonable , different assumptions or future events could materially affect its valuation . in addition , due to the illiquid nature of this asset , our valuation for this license could be materially different if we were to decide to sell it in the short term which , upon revaluation , could result in a future impairment of this asset . loss on debt extinguishment ( fiscal 2011 ) in february 2011 , we made a $ 2.5 million payment to ge capital equity investments , inc. ( `` ge equity '' ) in connection with obtaining a consent for the execution of a common stock equity offering in december 2010 , reducing the outstanding accrued dividend payable on the series b preferred stock , and recorded a $ 1.2 million charge to income related to the early preferred stock debt extinguishment . in april 2011 , we redeemed all of our outstanding series b preferred stock for $ 40.9 million , paid accrued 28 series b preferred dividends of $ 6.4 million and recorded a $ 24.5 million charge related to the early preferred stock debt extinguishment . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 22.6 % in fiscal 2011 , a 50 bps decrease . the decrease in the fiscal 2012 return rate was influenced by a decrease in return rates within our jewelry & watches and fashion & accessories product categories as well as a mix shift away from our jewelry product line , which historically has higher return rates . we continue to monitor our return rates in an effort to keep our overall return rates in line and commensurate with our current product mix and our average selling price levels . total customers total customers purchasing over the last twelve months increased 18 % to 1.4 million during fiscal 2013 from 1.1 million in fiscal 2012 ( a 20 % increase on a pro forma basis ) . we believe the increase in total customers is primarily due to continued diversification and broadening of our merchandise mix at lower price points . improvements in customer satisfaction and channel positioning also contributed to overall customer growth . total customers purchasing increased 8 % to 1.1 million during fiscal 2012 from 1.0 million in fiscal 2011. net sales consolidated net sales , inclusive of shipping and handling revenue , for fiscal 2013 were $ 640.5 million , a 9 % increase over consolidated net sales of $ 586.8 million for fiscal 2012 ( a 12 % increase on a pro forma basis ) . as noted above , fiscal 2012 had 53 weeks as compared to fiscal 2013 , which had 52 weeks , and pro forma consolidated net sales for fiscal 2012 were $ 574.1 million .
| results of operations the following table sets forth , for the periods indicated , certain statement of operations data expressed as a percentage of net sales . replace_table_token_8_th key operating metrics replace_table_token_9_th ( a ) the company 's most recently completed fiscal year , fiscal 2013 , ended on february 1 , 2014 , and consisted of 52 weeks . fiscal 2012 ended on february 2 , 2013 and consisted of 53 weeks . fiscal 2011 ended on january 28 , 2012 and consisted of 52 weeks . ( b ) internet net sales percentage is calculated based on net sales that are generated from our shophq.com website and mobile platforms , which are primarily ordered directly online . pro forma comparison of results because we follow a 4-5-4 retail calendar , every five or six years we have an extra week of operations within our fiscal year and this occurred in fiscal 2012 . therefore , operations for our fourth quarter and full year fiscal 2012 have 14 and 53 weeks , respectively , as compared to operations for fourth quarter and full year fiscal 2013 which have 13 and 52 weeks , respectively . to facilitate a comparison with fiscal 2012 results , we are presenting pro forma comparable 52-week results for fiscal 2012 as compared 29 to fiscal 2013 . fiscal 2012 fourth quarter pro forma results were calculated by dividing actual fourth quarter results by 14 and then by multiplying the quotients by 13. the fiscal 2012 pro forma results were calculated by adding our fourth quarter 13-week pro forma calculation to previously reported fiscal year-to-date third quarter results of operations . we believe that the pro forma results being presented for fiscal 2012 in the table below are useful to investors for comparison to our current fiscal year results .
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risk factors. ” actual results may differ materially from those contained in any forward-looking statements . overview tpg specialty lending , inc. is a delaware corporation formed on july 21 , 2010. the adviser is our external manager . we have three wholly owned subsidiaries , tc lending , llc , a delaware limited liability company , which holds a california finance lender and broker license , tpg sl spv , llc , a delaware limited liability company , in which we hold assets to support our asset-backed credit facility , and tsl mr , llc , a delaware limited liability company , in which we hold certain investments . our results reflect our ramp-up of initial investments , which is now complete , as well as the ongoing measured growth of our portfolio of investments . we have elected to be regulated as a bdc under the 1940 act and as a ric under the code . we made our bdc election on april 15 , 2011. as a result , we are required to comply with various statutory and regulatory requirements , such as : · the requirement to invest at least 70 % of our assets in “ qualifying assets ” ; · source of income limitations ; · asset diversification requirements ; and · the requirement to distribute ( or be treated as distributing ) in each taxable year at least 90 % of our investment company taxable income and tax-exempt interest for that taxable year . on march 21 , 2014 , we completed our ipo , issuing 7,000,000 shares at $ 16.00 per share , and our concurrent private placement , issuing 3,124,984 shares at $ 16.00 per share . net of underwriting fees and offering costs , we received total cash proceeds of $ 151.6 million . in april 2014 , we issued an additional 1,050,000 shares of stock pursuant to the exercise of the underwriters ' over-allotment option . net of underwriting fees and offering costs , we received additional total cash proceeds of approximately $ 15.4 million . our shares are currently listed on the nyse under the symbol “ tslx. ” on november 3 , 2014 , our board of directors approved a stock repurchase plan , the company 10b5-1 plan , to acquire up to $ 50 million in the aggregate of our common stock at prices below our net asset value over a specified period , in accordance with the guidelines specified in rule 10b-18 and rule 10b5-1 of the exchange act . unless extended or terminated by the board of directors , the company 10b5-1 plan will be in effect through the earlier of may 4 , 2015 or such time as the approved $ 50 million repurchase amount has been fully utilized , subject to certain conditions . on february 20 , 2015 , our board of directors authorized the extension of the termination date of the company 10b5-1 plan from may 4 , 2015 to june 30 , 2015. as of december , 31 , 2014 , no shares had been repurchased under the company 10b5-1 plan . our investment framework we are a specialty finance company focused on lending to middle-market companies . since we began our investment activities in july 2011 , through december 31 , 2014 , we have originated more than $ 3.3 billion aggregate principal amount of investments and retained approximately $ 2.4 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments . we seek to generate current income primarily in u.s.-domiciled middle-market companies through direct 52 originations of senior secured loans and , to a lesser extent , originations of mezzanine loans and investments in corporate bonds and equity securities . by “ middle-market companies , ” we mean companies that have annual ebitda , which we believe is a useful proxy for cash flow , of $ 10 million to $ 250 million , although we may invest in larger or smaller companies on occasion . as of december 31 , 2014 , our core portfolio companies , which excludes certain investments that fall outside of our typical borrower profile , had weighted average annual revenue of $ 145 million and weighted average annual ebitda of $ 34 million . we invest in first-lien debt , second-lien debt , mezzanine debt and equity and other investments . our first-lien debt may include stand-alone first-lien loans ; “ last out ” first-lien loans , which are loans that have a secondary priority behind super-senior “ first out ” first-lien loans ; “ unitranche ” loans , which are loans that combine features of first-lien , second-lien and mezzanine debt , generally in a first-lien position ; and secured corporate bonds with similar features to these categories of first-lien loans . our second-lien debt may include secured loans , and , to a lesser extent , secured corporate bonds , with a secondary priority behind first-lien debt . as of december 31 , 2014 , our average investment size in each of our portfolio companies was approximately $ 37 million . the companies in which we invest use our capital to support organic growth , acquisitions , market or product expansion and recapitalizations . we expect that no single investment will represent more than 15 % of our total investment portfolio . the debt in which we invest typically is not rated by any rating agency , but if these instruments were rated , they would likely receive a rating of below investment grade ( that is , below bbb- or baa3 ) , which is often referred to as “ junk ” . through our adviser , we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole : business and sector selection . we focus on companies with enterprise value between $ 50 million and $ 1 billion . story_separator_special_tag we expect that with the ability to co-invest with tssp and tpg affiliates we will be able to provide “ one-stop ” financing to a potential portfolio company in these circumstances , which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors . under the terms of the investment advisory agreement and administration agreement , the adviser 's services are not exclusive , and the adviser is free to furnish similar or other services to others , so long as its services to us are not impaired . under the terms of the investment advisory agreement , we will pay the adviser the management fee and may also pay the incentive fee . under the terms of the administration agreement , the adviser also provides administrative services to us . these services include providing office space , equipment and office services , maintaining financial records , preparing reports to stockholders and reports filed with the sec , and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others . certain of these services are reimbursable to the adviser under the terms of the administration agreement . in 2014 , the adviser entered into a purchase agreement , the adviser 10b5-1 plan , in accordance with rules 10b5-1 and 10b-18 under the exchange act , under which an agent for the adviser , would buy up to $ 25 million in the aggregate of our common stock , subject to certain conditions . the adviser 10b5-1 plan expired in accordance with its terms on december 31 , 2014. during the year ended december 31 , 2014 , 300 shares were purchased under the adviser 10b5-1 plan . these 300 shares were purchased prior to the approval and implementation of the company 10b5-1 plan . key components of our results of operations investments we focus primarily on the direct origination of loans to middle-market companies domiciled in the united states . our level of investment activity ( both the number of investments and the size of each investment ) can and does vary substantially from period to period depending on many factors , including the amount of debt and equity capital available to middle-market companies , the level of merger and acquisition activity for such companies , the general economic environment and the competitive environment for the types of investments we make . 54 in addition , as part of our risk strategy on investments , we may reduce certain levels of investments through partial sales or syndication to additional investors . revenues we generate revenues primarily in the form of interest income from the investments we hold . in addition , we may generate income from dividends on direct equity investments , capital gains on the sales of loans and debt and equity securities and various loan origination and other fees . our debt investments typically have a term of two to six years , and , as of december 31 , 2014 , 96.8 % bear interest at a floating rate , subject to interest rate floors . interest on debt investments is generally payable quarterly or semiannually . some of our investments provide for deferred interest payments or pik interest . for the year ended december 31 , 2014 , less than 2.0 % of our total investment income was comprised of pik interest . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income using the effective yield method for term instruments and the straight-line method for revolving or delayed draw instruments . repayments of our debt investments can reduce interest income from period to period . the frequency or volume of these repayments may fluctuate significantly . we record prepayment premiums on loans as interest income . we also may generate revenue in the form of commitment , amendment , structuring , syndication or due diligence fees , fees for providing managerial assistance and consulting fees . dividend income on equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies . our portfolio activity also reflects the proceeds of sales of investments . we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation ( depreciation ) on investments in the consolidated statements of operations . expenses our primary operating expenses include the payment of fees to our adviser under the investment advisory agreement , expenses reimbursable under the administration agreement and other operating costs described below . additionally , we pay interest expense on our outstanding debt . we bear all other costs and expenses of our operations , administration and transactions , including those relating to : · calculating individual asset values and our net asset value ( including the cost and expenses of any independent valuation firms ) ; · expenses , including travel expenses , incurred by the adviser , or members of our investment team , or payable to third parties , in respect of due diligence on prospective portfolio companies and , if necessary , in respect of enforcing our rights with respect to investments in existing portfolio companies ; · the costs of any public offerings of our common stock and other securities , including registration and listing fees ; · the management fee and any incentive fee ; · certain costs and expenses relating to distributions paid on our shares ; · administration fees payable under our administration agreement ; · debt service and other costs of borrowings or other financing arrangements ; · the adviser 's allocable share of costs incurred in providing significant managerial assistance
| results of operations operating results for the years ended december 31 , 2014 , 2013 and 2012 were as follows : replace_table_token_20_th ( 1 ) includes foreign exchange hedging activity . investment income replace_table_token_21_th interest from investments , which includes amortization of upfront fees and prepayment fees , increased from $ 90.4 million for the year ended december 31 , 2013 to $ 154.0 million for the year ended december 31 , 2014 , primarily due to the increase in the size of 59 our investment portfolio . the average size of our investment portfolio increased from $ 0.8 billion during the year ended december 31 , 2013 to $ 1.2 billion during the year ended december 31 , 2014. in addition , accelerated amortization of upfront fees primarily from unscheduled paydowns increased from $ 3.0 million for the year ended december 31 , 2013 to $ 12.5 million for the year ended december 31 , 2014. in addition , prepayment fees increased from $ 3.0 million for the year ended december 31 , 2013 to $ 21.0 million for the year ended december 31 , 2014. the accelerated amortization and prepayment fees primarily resulted from partial paydowns on three portfolio investments and full paydowns on five portfolio investments during the year ended december 31 , 2013 and from partial paydowns on two portfolio investments , full paydowns on thirteen portfolio investments and the expiration of one unfunded commitment during the year ended december 31 , 2014. other income increased from $ 2.2 million for the year ended december 31 , 2013 to $ 9.3 million for the year ended december 31 , 2014 , primarily due to higher syndication , amendment and agency fees earned during 2014. interest from investments , which includes amortization of upfront fees and prepayment fees , increased from $ 49.1 million for the year ended december 31 , 2012 to $ 90.4 million for the year ended december 31 , 2013 , primarily due to
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6. substandard ( definite weakness loss story_separator_special_tag introduction and overview united security bancshares , inc. , a delaware corporation ( bancshares , usbi or the company ) , is a bank holding company with its principal offices in thomasville , alabama . bancshares operates one commercial banking subsidiary , first united security bank ( the bank or fusb ) . at december 31 , 2011 , the bank operated and served its customers through nineteen banking offices located in brent , bucksville , butler , calera , centreville , coffeeville , columbiana , fulton , gilbertown , grove hill , harpersville , jackson , thomasville , tuscaloosa and woodstock , alabama . the bank owns all of the stock of acceptance loan company , inc. ( alc ) , an alabama corporation . alc is a finance company organized for the purpose of making and purchasing consumer loans . alc operates twenty-five finance company offices located in alabama and southeast mississippi . the headquarters of alc is located in jackson , alabama . the bank is the funding source for alc . the bank provides a wide range of commercial banking services to small and medium-sized businesses , real estate developers , property managers , business executives , professionals and other individuals , while alc 's business is consumer oriented . fusb reinsurance , inc. ( fusb reinsurance ) , an arizona corporation and a wholly-owned subsidiary of the bank , reinsures or underwrites credit life and credit accident and health insurance policies sold to the bank 's and alc 's consumer loan customers . fusb reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount , and a primary third-party insurer retains the remaining risk . the third-party insurer is also responsible for performing most of the administrative functions of fusb reinsurance on a contract basis . at december 31 , 2011 , bancshares had consolidated assets of $ 621.8 million , deposits of $ 527.1 million and shareholders ' equity of $ 66.2 million . total assets increased by $ 70,383 , or 0.01 % , in 2011. net loss attributable to usbi increased from $ ( 3.2 million ) in 2010 to $ ( 9.1 million ) in 2011. net loss attributable to usbi per share increased from $ ( 0.53 ) in 2010 to $ ( 1.51 ) in 2011. these results are explained in more detail throughout this section . delivery of the best possible banking services to customers remains an overall operational focus of the bank . we recognize that attention to details and responsiveness to customers ' desires are critical to customer satisfaction . the company continues to employ the most current technology , both in its financial services and in the training of its 297 full-time equivalent employees , to ensure customer satisfaction and convenience . the following discussion and financial information are presented to aid in an understanding of the current consolidated financial position , changes in financial position and results of operations of bancshares and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein . the emphasis of this discussion is on the years 2011 and 2010. all yields presented and discussed herein are based on the accrual basis and not on the tax-equivalent basis , unless otherwise indicated . forward-looking statements this annual report on form 10-k for the year ended december 31 , 2011 ( this annual report ) , other annual and periodic reports filed by bancshares and its subsidiaries under the securities and exchange act of 1934 , as amended , and any other written or oral statements made by or on behalf of bancshares may include forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that reflect bancshares ' current views with respect to future events and financial performance . such forward-looking statements are based on general assumptions and are subject to various risks , uncertainties and other factors that 18 may cause actual results to differ materially from the views , beliefs and projections expressed in such statements . these risks , uncertainties and other factors include , but are not limited to : 1. possible changes in economic and business conditions that may affect the prevailing interest rates , the prevailing rates of inflation , the amount of growth , stagnation or recession in the global , u.s. , alabama and mississippi economies , the value of investments , the collectibility of loans and the ability to retain and grow deposits ; 2. possible changes in monetary and fiscal policies , laws and regulations and other activities of governments , agencies and similar organizations ; 3. possible changes in regulation and laws affecting the financial services industry , such as banks , securities brokers and dealers , investment companies and finance companies , and attendant changes in patterns and effects of competition in the financial services industry ; 4. the ability of bancshares to achieve its expected operating results in the markets in which bancshares operates and bancshares ' ability to expand into new markets and to maintain profit margins ; and 5. since 2008 , the residential and commercial mortgage market in the united states has experienced a variety of worsening economic conditions that have adversely affected and may continue to adversely affect the performance and market value of our residential and commercial mortgage loans . across the united states , delinquencies , foreclosures and losses with respect to residential and commercial mortgage loans generally have increased during the last four years and may continue to increase . in addition , since 2008 , prices and appraisal values have declined . it is possible that values may remain stagnant or decline in the near term . an extended period of flat or declining values may result in increased delinquencies , losses on residential and commercial mortgage loans and reduced value of collateral that secure real estate loans . story_separator_special_tag other significant accounting policies other significant accounting policies , not involving the same level of measurable uncertainties as those discussed above , are nevertheless important to an understanding of the consolidated financial statements . policies related to revenue recognition , investment securities , fair value measurements and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance . certain of these matters are among topics currently under re-examination by accounting standard setters and regulators . specific conclusions have not been reached by these standard setters , and outcomes can not be predicted with confidence . also , see note 2 to our consolidated financial statements , as it discusses accounting policies that we have selected from acceptable alternatives . 21 overview of 2011 the following discussion should be read in conjunction with our consolidated financial statements , accompanying notes , and other schedules presented herein . for the year ended december 31 , 2011 , net loss attributable to usbi was $ ( 9.1 million ) , compared with net loss attributable to usbi of $ ( 3.2 million ) for the year ended december 31 , 2010. basic and diluted net loss attributable to usbi per common share was $ ( 1.51 ) for the year ended december 31 , 2011 , compared with net loss attributable to usbi per common share of $ ( 0.53 ) for 2010. other results for the year ended december 31 , 2011 were as follows : total assets increased 0.01 % to $ 621.8 million since year-end 2010. deposits increased 4.7 % to $ 527.1 million , compared with $ 503.5 million at december 31 , 2010. gross loans decreased 1.2 % to $ 403.4 million , compared with $ 408.4 million at december 31 , 2010. at year-end 2011 , our total risk-based capital was 14.69 % , significantly above a number of financial institutions in our peer group and well above the minimum requirements of 10 % , to achieve the highest regulatory rating of well-capitalized. our net interest income increased 1.6 % to $ 35.3 million in 2011 , compared with $ 34.8 million in 2010. the increase in net interest income was due primarily to a 52 basis point decline in the cost of interest-bearing liabilities . provision for loan losses decreased to $ 18.8 million for the year ended december 31 , 2011 , or 4.6 % annualized of average loans , compared with $ 19.1 million , or 4.6 % annualized of average loans , for the year ended december 31 , 2010. non-interest income decreased 14.1 % to $ 8.7 million in 2011 , compared with $ 10.2 million in 2010. this decrease in non-interest income resulted primarily from a non-recurring $ 4.2 million insurance settlement received in the first quarter of 2010. the decrease in 2011 was partially offset by an increase in gains on investment securities , which increased $ 2.3 million to $ 2.6 million . non-interest expense increased 25.4 % to $ 40.3 million in 2011 , compared with $ 32.1 million in 2010. this increase was primarily due to an impairment charge for goodwill of $ 4.1 million and oreo impairment loss of $ 6.4 million . shareholders ' equity totaled $ 66.2 million , or book value of $ 11.01 per share , at december 31 , 2011. return on average assets in 2011 was ( 1.45 ) % , and return on average shareholders ' equity was ( 11.76 ) % . these items are discussed in further detail throughout this management 's discussion and analysis of financial condition and results of operations section . 22 story_separator_special_tag recoveries , are charged directly to the allowance . the expense recorded each year is a reflection of actual net losses experienced during the year and management 's judgment as to the adequacy of the allowance to absorb losses inherent to the portfolio . charge-offs exceeded recoveries by $ 17.5 million in 2011 , and a provision of $ 18.8 million was expensed for loan losses in 2011 , compared to $ 19.1 million in 2010. the provision for 2011 and 2010 was 4.6 % of average loans . the provision in 2010 and 2011 was high due to charge-offs and impairments in the real estate development loan portfolio at the bank . net charge-offs at the bank were $ 14.2 million for the year ending december 31 , 2011 , compared to $ 5.4 million for the year ending december 31 , 2010. at the bank , net charge-offs of commercial real estate increased from $ 4.0 million in 2010 to $ 12.9 million in 2011. the severely depressed real estate market continues to adversely impact real estate values and the ability of borrowers to perform , particularly when performance is based on real estate sales . these conditions are the primary cause for the increase in net charge-offs in 2011 and 2010. alc had net charge-offs of $ 3.2 million for the year ending december 31 , 2011 , compared to $ 2.8 million for the year ending december 31 , 2010. net charge-offs as a percentage of average loans were 4.30 % and 2.0 % for the years ended december 31 , 2011 and 2010 , respectively . the ratio of the allowance to loans , net of unearned income , at december 31 , 2011 and 2010 was 5.52 % and 5.13 % , respectively . for additional information regarding the company 's allowance for loan losses , see loans and allowance for loan losses. 26 non-interest income the following table presents the major components of non-interest income for the years indicated .
| summary of consolidated operating results replace_table_token_4_th net interest income net interest income is an effective measurement of how well management has matched interest-earning assets and interest-bearing liabilities and is the company 's principal source of income . fluctuations in interest rates materially affect net interest income . although market rates were stable during 2011 , the yield on earning assets declined by 14 basis points , while the cost of interest-earning liabilities declined by 52 basis points , as longer-term time deposits repriced at lower rates , improving the net interest margin by 34 basis points , from 5.83 % in 2010 to 6.17 % in 2011. net interest income increased 1.6 % to $ 35.3 million in 2011 , compared to an increase of 1.4 % in 2010. the increase in net interest income in 2011 was primarily due to a 52 basis point decline in the cost of interest-bearing liabilities , primarily time deposits . the company 's loan portfolio decreased by $ 6.4 million , or 1.7 % , during 2011 , and investment securities decreased during 2011 by $ 13.7 million , or 10.0 % . overall , volume , rate and yield changes in interest-earning assets and interest-bearing liabilities contributed to the increase in net interest income during 2011. as to volume , the company 's average earning assets decreased $ 22.7 million during 2011 , or 3.8 % , while average interest-bearing liabilities decreased $ 27.1 million , or 5.3 % . the company 's ability to produce net interest income is measured by a ratio called the interest margin . the interest margin is net interest income as a percentage of average earning assets . the interest margin was 6.2 % in 2011 and 5.8 % in 2010. interest margins are affected by several factors , one of which is the relationship of rate-sensitive earning assets to rate-sensitive interest-bearing liabilities . this factor determines the effect that fluctuating interest rates will have on net interest income .
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our credit investments include our residential investments , commercial investments , and abs investments . we are a maryland corporation and are externally managed by our manager , a wholly-owned subsidiary of angelo gordon , pursuant to a management agreement . our manager , pursuant to a delegation agreement dated as of june 29 , 2011 , has delegated to angelo gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement . we conduct our operations to qualify and be taxed as a real estate investment trust , or reit , for u.s. federal income tax purposes . accordingly , we generally will not be subject to u.s. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a reit . we also operate our business in a manner that permits us to maintain our exemption from registration under the investment company act of 1940 , as amended , or the investment company act . our common stock is traded on the new york stock exchange , or the nyse , under the symbol mitt . our 8.25 % series a cumulative redeemable preferred stock and our 8.00 % series b cumulative redeemable preferred stock trade on the nyse under the symbols mitt-pa and mitt-pb , respectively . market conditions including distressed sales , home prices nationwide increased by 5.1 % on a year-over-year basis in november 2018 as compared with november 2017 , according to data released by corelogic . this marks the 82 nd consecutive monthly increase year-over-year in national home prices . according to corelogic 's homeowner equity report , in the third quarter of 2018 , u.s. homeowners with mortgages have seen their equity increase by a total of nearly $ 775 billion since the third quarter of 2017. in the third quarter of 2018 , as compared to the third quarter of 2017 , the total number of mortgaged residential properties with negative equity ( homes where the homeowner owes more on the home than the home is worth ) decreased to 2.2 million homes from 2.6 million homes . home prices have benefited from a tight supply of homes across the nation , and the negative equity epidemic has eased due to the rise in home prices over the past several years . additionally , credit performance in terms of serious delinquencies and subsequent default rates continued to be stable-to-improving in 2018 , as mortgage delinquency rates reported by the federal reserve declined from 3.6 % to 2.8 % from the fourth quarter of 2017 to the fourth quarter of 2018. this improvement has been driven by the strengthening of borrower 's household balance sheets and unemployment remaining low . during the year , the federal reserve raised the federal funds interest rate four times , with the most recent raise during the december meeting where the fed raised the federal funds interest rate by 0.25 % to a target range of 2.25 % -2.50 % . the labor market continued its expansion in 2018 , as the rate of unemployment remained well below 5 % during the year and inflation has improved to levels close to the fed 's 2.0 % target for core pce . in the december update of the fed 's summary of economic projections , the median forecast for real gdp growth decreased in 2018 and 2019 and remained the same for 2020 , while the median forecast for the unemployment rate remained the same for 2018 and 2019 and increased in 2020. the projection of the median fed funds rates , based on the individual assessments of the fomc members , was 2.4 % in 2018 , 2.9 % in 2019 and 3.1 % in 2020. the interest rate environment experienced volatility in 2018 , as rates moved higher in concert with expectations for federal funds rate increases and then reversed course during the fourth quarter , falling sharply partially due to uncertainty related to the path of the economy in 2019. agency mortgages underperformed for 2018 , with nearly all the underperformance occurring in the fourth quarter . agency rmbs spreads widened as interest rates declined , which primarily drove the decrease in mitt 's book value for the year . during the fourth quarter , legacy rmbs spreads were wider but exhibited strong technical demand and favorable underlying fundamentals . the crt market widened in sympathy with broader risk markets during the fourth quarter , with the widening most pronounced in the lower part of the capital structure . despite this backdrop , there was little forced selling from crt investors during the quarter . the market conditions and trends outlined above may have a meaningful impact on our operating results and our existing portfolio and may cause us to adjust our investment and financing strategies over time as new opportunities emerge and the risk profile of our business changes . 49 recent government activity the current regulatory environment may be impacted by future legislative developments , such as amendments to key provisions of the dodd-frank act or changes to fannie mae and freddie mac , including with respect to how long they will continue to be in existence , the extent of their roles in the market and what forms they will take . there is a lack of clarity around the impact of such potential reform on our operations . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > for the year ended december 31 , 2017 primarily due to an increase in the weighted average financing rate on our gaap investment portfolio and u.s. treasury securities , if any , during the period , by 0.39 % from 1.47 % for the year ended december 31 , 2016 to 1.86 % for the year ended december 31 , 2017 . the weighted average financing balance on our gaap investment portfolio and u.s. treasury securities , if any , was $ 2.3 billion for the years ended december 31 , 2016 and december 31 , 2017 . story_separator_special_tag year ended december 31 , 2017 for the year ended december 31 , 2017 , unrealized gain/ ( loss ) on derivative and other instruments , net was $ 19.8 million . the $ 19.8 million was comprised of unrealized gains on certain derivatives of $ 19.2 million , coupled with unrealized gains on tbas of $ 0.6 million during the year . year ended december 31 , 2016 for the year ended december 31 , 2016 , unrealized gain/ ( loss ) on derivative and other instruments , net was $ 8.6 million . the $ 8.6 million was comprised of unrealized gains on certain derivatives of $ 8.9 million , offset by unrealized losses on tbas of $ 0.3 million during the year . other income other income pertains to certain fees we receive on our residential mortgage loans , ancillary rental income we receive on our sfr portfolio , insurance proceeds we receive on our sfr portfolio and a premium received on a credit default swap which was entered into and expired in q4 2018. year ended december 31 , 2018 compared to the year ended december 31 , 2017 for the years ended december 31 , 2018 and december 31 , 2017 , other income was $ 0.4 million and $ 55,000 respectively . the increase in other income pertains to insurance proceeds on our sfr portfolio and a premium received on a credit default swap . year ended december 31 , 2017 compared to the year ended december 31 , 2016 for the years ended december 31 , 2017 and december 31 , 2016 , other income was $ 55,000 and $ 0.4 million , respectively . the decrease in other income pertains to decreased fees we received on one of our residential mortgage loan pools . 53 management fee to affiliate our management fee is based upon a percentage of our stockholders ' equity . see the `` contractual obligations '' section of this part ii , item 7 for further detail on the calculation of our management fee and for the definition of stockholders ' equity . year ended december 31 , 2018 compared to the year ended december 31 , 2017 for the years ended december 31 , 2018 and december 31 , 2017 , our management fees were $ 9.5 million and $ 9.8 million , respectively . management fees decreased primarily due to the decrease in our stockholders ' equity as calculated pursuant to our management agreement . year ended december 31 , 2017 compared to the year ended december 31 , 2016 for the years ended december 31 , 2017 and december 31 , 2016 our management fees were $ 9.8 million and $ 9.8 million , respectively . management fees increased slightly primarily due to the increase in our stockholders ' equity as calculated pursuant to our management agreement . other operating expenses these amounts are primarily comprised of professional fees , directors ' and officers ' ( `` d & o '' ) insurance and directors ' fees , as well as certain expenses reimbursable to the manager . we are required to reimburse our manager or its affiliates for operating expenses which are incurred by our manager or its affiliates on our behalf , including certain salary expenses and other expenses relating to legal , accounting , due diligence , and other services . refer to the `` contractual obligations '' section below for more detail on certain expenses reimbursable to the manager . the following table presents a summary of certain expenses within other operating expenses for the years ended december 31 , 2018 , december 31 , 2017 and december 31 , 2016 ( in thousands ) : replace_table_token_10_th equity based compensation to affiliate equity based compensation to affiliate represents the amortization of the fair value of our restricted stock units granted to our manager remeasured quarterly , less the present value of dividends expected to be paid on the underlying shares through the requisite period . year ended december 31 , 2018 compared to the year ended december 31 , 2017 for the years ended december 31 , 2018 and december 31 , 2017 , our equity based compensation to affiliate was $ 239,000 and $ 301,000 , respectively . the decrease is a result of a decreased stock price for the year . year ended december 31 , 2017 compared to the year ended december 31 , 2016 for the years ended december 31 , 2017 and december 31 , 2016 , our equity based compensation to affiliate remained relatively unchanged . 54 excise tax excise tax represents a four percent tax on the required amount of our ordinary income and net capital gains not distributed during the year . the quarterly expense is calculated in accordance with applicable tax regulations . year ended december 31 , 2018 compared to the year ended december 31 , 2017 for the years ended december 31 , 2018 and december 31 , 2017 our excise tax remained relatively unchanged . year ended december 31 , 2017 compared to the year ended december 31 , 2016 for the years ended december 31 , 2017 and december 31 , 2016 our excise tax remained relatively unchanged . servicing fees we incur servicing fee expenses in connection with the servicing of our residential mortgage loans . as of december 31 , 2018 , december 31 , 2017 , and december 31 , 2016 , we owned residential mortgage loans with fair market value of $ 186.1 million , $ 18.9 million , and $ 38.2 million , respectively . year ended december 31 , 2018 compared to the year ended december 31 , 2017 for the years ended december 31 , 2018 and december 31 , 2017 our servicing fees were $ 433,000 and $ 234,000 , respectively . the increase in fees primarily pertains to net purchases of residential mortgage loans during the period .
| results of operations our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio , the level of our net interest income , the market value of our assets and the supply of , and demand for , our target assets in the marketplace , which can be impacted by unanticipated credit events , such as defaults , liquidations or delinquencies , experienced by borrowers whose mortgage loans are included in our investment portfolio . our primary source of net income available to common stockholders is our net interest income , less our cost of hedging , which represents the difference between the interest earned on our investment portfolio and the costs of financing and hedging our investment portfolio . our net interest income varies primarily as a result of changes in market interest rates , prepayment speeds , as measured by the constant prepayment rate ( `` cpr '' ) on the agency rmbs in our investment portfolio , and our funding and hedging costs . the table below presents certain information from our consolidated statements of operations for the years ended december 31 , 2018 , december 31 , 2017 and december 31 , 2016 ( in thousands ) : replace_table_token_8_th 50 net income/ ( loss ) available to common stockholders net income/ ( loss ) available to common stockholders decreased $ 117.0 million from $ 105.1 million for the year ended december 31 , 2017 to $ ( 11.9 ) million for the year ended december 31 , 2018 primarily due to lower prices on our securities and derivatives and other investments , which decreased our `` unrealized gain/ ( loss ) on real estate securities and loans , net , '' our `` unrealized gain/ ( loss ) on derivative and other instruments , net '' , and our `` net realized gain/ ( loss ) . ''
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under the terms of our employment agreements with ms. johnson and ms. walters-hoffert , if their respective employment is terminated by us without cause or by the executive for good reason , in each case , within three months prior to or 12 months following a change of control , then , subject to the applicable executive 's continued compliance with customary confidentiality , intellectual property assignment and similar obligations to us , and subject to the delivery of a full release of claims in our favor by the executive , ( 1 ) the executive is eligible to receive an amount equal to a specified number of months ( 18 for ms. johnson and 12 for ms. walters-hoffert ) of the executive 's then-current base salary and target bonus at the rate in effect immediately prior to such termination , ( 2 ) the executive will receive continuing health benefits coverage for a specified number of months ( 18 for ms. johnson and 12 for ms. walters-hoffert ) and ( 3 ) any unvested and outstanding equity interests such executive may have in daré will fully vest and accelerate . under the terms of our change in control policy in which our employees at vice president and above are eligible to participate , if the employment of an employee covered by such policy is terminated by us without cause or if such employee resigns for good reason , in either case , within 90 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in part ii , item 8 of this report . this following discussion includes forward-looking statements . see part i `` cautionary note regarding forward-looking statements , ” above . forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors , including , but not limited to , those discussed in part i , item 1a of this report under the heading “ risk factors , ” which are incorporated herein by reference . business overview we are a clinical-stage biopharmaceutical company committed to advancing innovative products for women 's health . we are driven by a mission to identify , develop and bring to market a diverse portfolio of differentiated therapies that expand treatment options , improve outcomes and facilitate convenience for women , primarily in the areas of contraception , vaginal health , sexual health and fertility . our business strategy is to in-license or otherwise acquire the rights to differentiated product candidates in our areas of focus , some of which have existing clinical proof-of-concept data , to take those candidates through mid to late-stage clinical development , and to establish and leverage strategic partnerships to achieve commercialization . we and our wholly owned subsidiaries operate in one business segment . since july 2017 , we have assembled a portfolio of clinical-stage and pre-clinical-stage candidates . while we will continue to assess opportunities to expand our portfolio , our current focus is on advancing our existing product 82 candidates through mid and late stages of clinical development or fda approval . our portfolio includes three product candidates in advanced clinical development : dare-bv1 , a novel thermosetting bioadhesive hydrogel formulated with clindamycin phosphate 2 % to be administered in a single vaginally delivered application , as a first line treatment for bacterial vaginosis ; ovaprene® , a hormone-free , monthly vaginal contraceptive ; and sildenafil cream , 3.6 % , a proprietary cream formulation of sildenafil for topical administration to the vulva and vagina for treatment of female sexual arousal disorder . our portfolio also includes three product candidates in phase 1 clinical development or that we believe are phase 1-ready : dare-hrt1 , a combination bio-identical estradiol and progesterone intravaginal ring for the treatment of menopausal symptoms , including vasomotor symptoms , as part of a hormone therapy following menopause ; dare-frt1 , an intravaginal ring containing bio-identical progesterone for the prevention of preterm birth and broader luteal phase support as part of an in vitro fertilization treatment plan ; and dare-vva1 , a vaginally delivered formulation of tamoxifen to treat vulvar vaginal atrophy , or vva , in patients with hormone- receptor positive breast cancer . in addition , our portfolio includes these pre-clinical stage product candidates : dare-larc1 , a combination product designed to provide long-acting , reversible contraception comprising an implantable , user-controlled wireless drug delivery system and levonorgestrel ; orb-204 and orb-214 , injectable formulations of etonogestrel designed to provide contraception over 6-month and 12-month periods , respectively ; and dare-rh1 , a novel approach to non-hormonal contraception for both men and women by targeting the catsper ion channel . see item 1 . `` business , '' in part i of this report for additional information regarding our product candidates . our primary operations have consisted of , and are expected to continue to consist primarily of , product research and development and advancing our portfolio of product candidates through clinical development and regulatory approval . we expect that the majority of our research and development expenses in 2021 and 2022 will support the advancement of dare-bv1 , ovaprene and sildenafil cream , 3.6 % . to date , we have not obtained any regulatory approvals for any of our product candidates , commercialized any of our product candidates or generated any revenue . we are subject to several risks common to clinical-stage biopharmaceutical companies , including dependence on key individuals , competition from other companies , the need to develop commercially viable products in a timely and cost-effective manner , and the need to obtain adequate additional capital to fund the development of product candidates . story_separator_special_tag . 84 in 2020 , our research and development expenses consisted primarily of costs associated with continued development of dare-bv1 , ovaprene and sildenafil cream 3.6 % . we expect research and development expenses to increase in the future as we continue to invest in the development of and seek regulatory approval for our clinical-stage and phase 1-ready product candidates and as any other potential product candidates we may develop are advanced into and through clinical trials in the pursuit of regulatory approvals . such activities will require a significant increase in investment in regulatory support , clinical supplies , inventory build-up related costs , and the payment of success-based milestones to licensors . in addition , we continue to evaluate opportunities to acquire or in-license other product candidates and technologies , which may result in higher research and development expenses due to , among other factors , license fee and or milestone payments . conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may not obtain regulatory approval for any product candidate on a timely or cost-effective basis , or at all . the probability of success of our product candidates may be affected by numerous factors , including clinical results and data , competition , intellectual property rights , manufacturing capability and commercial viability . as a result , we can not accurately determine the duration and completion costs of development projects or when and to what extent we will generate revenue from the commercialization of any of our product candidates . license fees license fees consist of up-front license fees and annual license fees due under our in-licensing arrangements . general and administrative expense general and administrative expenses consist of personnel costs , facility expenses , expenses for outside professional services , including legal , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . facility expenses consist of rent and other related costs . recently issued accounting standards from time to time , the financial accounting standards board , or fasb , or other standard setting bodies issue new accounting pronouncements . updates to the fasb accounting standards codification are communicated through issuance of an accounting standards update . we have implemented all new accounting pronouncements that are in effect and that may impact our financial statements . we have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based on our financial statements that we prepared in accordance with accounting principles generally accepted in the united states . preparing these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses , and related disclosures . on an ongoing basis , we evaluate these estimates and judgments . we base our estimates on historical experience and on various assumptions we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources . actual results may differ materially from these estimates . historically , revisions to our estimates have not resulted in a material change to the financial statements . the items in our financial statements requiring significant estimates and judgments are as follows : the fair value of stock-based compensation and purchase accounting . stock-based compensation the compensation cost for all stock-based awards is measured at the grant date , based on the fair value of the award ( determined using a black-scholes option pricing model ) , and is recognized as an expense over the requisite service period ( generally the vesting period of the equity award ) . determining the fair value of stock-based awards at the grant date requires significant estimates and judgments , including estimating the market price volatility of our common stock , future employee stock option exercise behavior and requisite service periods . due to our limited history of stock option exercises we applied the simplified method prescribed by sec staff accounting bulletin 110 , share-based payment : certain assumptions used in valuation methods - expected term , to estimate expected life . the fair value of non-employee stock options or stock awards are remeasured as the awards vest , and the resulting increase or decrease in fair value , if any , is recognized as an increase or decrease to compensation expense in the period the related services are rendered . stock options or stock awards issued to non-employees who are not 85 directors with performance conditions are measured and recognized when the performance is complete or is expected to be met . refer to note 10 to our consolidated financial statements included in this report for more information . business combinations assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition . the excess of the total purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill . determining fair value of identifiable assets , particularly intangibles , and liabilities acquired also requires management to make estimates , which are based on all available information and , in some cases , assumptions with respect to the timing and amount of future revenue and expenses associated with an asset . acquired in-process research and development expense we have acquired , and may continue to acquire , the rights to develop new product candidates . payments to acquire a new product candidate , as well as future milestone payments associated with asset acquisitions which are deemed probable of achievement , are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and , absent obtaining such approval , has no alternative future use .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our consolidated results of operations for the years ended december 31 , 2020 and 2019 , and the change in the applicable category in terms of dollars : replace_table_token_2_th revenues we did not recognize any revenue for the years ended december 31 , 2020 or 2019. general and administrative expenses the increase of approximately $ 1.3 million in general and administrative expenses from 2019 to 2020 was primarily attributable to increases in ( i ) personnel costs of approximately $ 640,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , ( ii ) expenses for legal , professional , and accounting services of approximately $ 212,000 , ( iii ) insurance costs of approximately $ 192,000 due to increased premiums , ( iv ) rent and facilities expenses of approximately $ 183,000 due to the addition of two leases for office and laboratory facilities when we acquired microchips in november 2019 , and ( v ) stock-based compensation expense of approximately $ 161,000. we expect an increase in general and administrative expenses of approximately 10 % to 15 % in 2021 compared to 2020 , primarily due to increased personnel expenses and other general corporate overhead . our 2021 general and administrative expenses could also include significant costs related to commercial readiness activities for dare-bv1 depending on the type and nature of commercial partnership we establish for dare-bv1 in the u.s. , which , if incurred , could increase our 2021 general and administrative expenses above our current expectation .
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the most common low-carbon fuels are renewable fuels . we are focused on the development and production of mainstream fuels like jet fuel and gasoline using renewable feedstocks that have the potential to lower greenhouse gas emissions at a meaningful scale and enhance agricultural production , including food and other related products . in addition to serving the low-carbon fuel markets , we can also serve markets for the production of chemical intermediate products for solvents , plastics , and building block chemicals using our technologies . our proven production technologies target what we believe to be large potential markets of renewable fuels and related chemicals that can compete directly against petrochemical products depending on the price of oil and the value of carbon intensity reductions . renewable fuels are one of the few fuel products where the value for renewable carbon has already been established , particularly in the united states and the european union . we believe that the demand for low-carbon fuels and renewable chemicals will continue to grow in the future . outlook for 2019 in 2019 , we intend to continue to develop the markets for our renewable isooctane , jet fuel and isobutanol products made from isobutanol and ethanol , including the value-added animal feed and protein products . we plan to decarbonize the luverne facility which will lower the carbon footprint of the products we produce . the resulting low-carbon ethanol is expected to generate improved margins , the results of which we expect to be realized beginning in 2020 , depending on project completion schedules . in addition to establishing the infrastructure to decarbonize the luverne facility and improve the profitability of the luverne facility , we intend to enter into binding , financeable supply contracts for jet fuel , on-road gasoline with isooctane , and isobutanol . we believe that the combination of these agreements , along with the expected financeable nature of these contracts , will help enable us to finance the build-out the luverne facility . the focus for operational , sales and market development activities in 2019 is expected to be the following : ● enter into binding , financeable jet fuel off-take contracts for general business aviation and commercial aviation . ● enter into binding , financeable off-take contracts for isooctane for use in on-road gasoline . ● continue to develop the oxygenated ethanol free gasoline market using isobutanol , primarily in reformulated gasoline or rfg areas . we plan to increase its distribution network , and add additional regions , broadening our distribution footprint . we intend to use isobutanol in inventory to develop these sales . ● continue to produce jet fuel and isooctane at the production facility at south hampton resources , inc. in silsbee , texas using previously inventoried renewable isobutanol as a feedstock . ● use the agreement with hcs to obtain financing for and begin construction of a 1 mgpy isooctane and jet plant to be located at the luverne facility . the 1 mgpy hydrocarbon plant would increase gevo 's hydrocarbon production capabilities by a factor of 10 and allow gevo to better develop the markets for jet fuel and isooctane . as part of the 1 mgpy hydrocarbon plant project , gevo expects to also improve the production assets for isobutanol with the goal of lowering the cost of isobutanol production . ● sell approximately 18 million gallons or more of ethanol . ● begin selling value-added animal feed , protein products , and corn oil which is expected to improve the profitability of the luverne facility . the total amount of animal feed product expected to be sold is greater than 50,000 metric tons . 41 luverne facility update as previously announced , we are undertaking several initiatives to improve the profitability of the luverne facility . specifically , we are adapting and optimizing the luverne facility 's energy and equipment infrastructure to use lower amounts of lower fossil-based energy sources to lower the carbon intensity score of our products and decrease our production costs . we are also installing a process , the shockwave process , to fractionate corn to enable more feed and food products to be sold from the luverne facility that should increase revenues and profitability at the luverne facility . the shockwave process is expected to be operational during the first half of 2019. in addition , we are currently evaluating the implementation of one or more of the following systems or technologies to further lower our use of fossil-based energy sources at the luverne facility : combined heat and power systems ; manure biogas , wind power and certain other expansion and energy reduction technologies . we expect that by approximately the end of 2020 we will have completed certain projects at our luverne facility to improve the carbon intensity score of our products that will increase the value of our ethanol and related products and that should translate into increased revenues for us as a result of the credits associated with our renewable fuels under lcfs and or rfs . we expect this 'de-carbonization ' process will benefit future production expansions at the luverne facility if implemented . as previously disclosed , during 2017 , we hired a third-party engineering firm to test the structural integrity of two of our three carbon steel production fermentation vessels . the results of the testing indicate that one of these fermentation vessels had at least one more year of life before needing repair , and the other one had approximately two months of life remaining . in the middle of 2018 , we hired a third-party engineering firm to test the third carbon steel fermenter . the results indicated the vessel had approximately 1 year of useful life remaining . besides these three carbon steel production fermenters , we have two stainless steel production fermenters . recently , we decided to repair two of the carbon steel fermentation vessels . repairs are expected to be completed by the second quarter of 2019 , at an estimated cost of approximately $ 0.6 million . story_separator_special_tag direct labor includes compensation of personnel directly involved in production operations at the luverne facility . other operating costs include utilities and natural gas usage . our gross loss is defined as our total revenues less our cost of goods sold . research and development our research and development costs consist of expenses incurred to identify , develop and test our technologies for the production of isobutanol and the development of downstream applications thereof . research and development expenses include personnel costs ( including stock-based compensation ) , consultants and related contract research , facility costs , supplies , depreciation and amortization expense on property , plant and equipment used in product development , license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs . research and development expenses also include upfront fees and milestone payments made under licensing agreements and payments for sponsored research and university research gifts to support research at academic institutions . 46 selling , general and administrative selling , general and administrative expenses consist of personnel costs ( including stock-based compensation ) , consulting and service provider expenses ( including patent counsel-related costs ) , legal fees , marketing costs , corporate insurance costs , occupancy-related costs , depreciation and amortization expenses on property , plant and equipment not used in our product development programs or recorded in cost of goods sold , travel and relocation expenses and hiring expenses . we also record selling , general and administrative expenses for the operations of the luverne facility that include administrative and oversight expenses , certain personnel-related expenses , insurance and other operating expenses . liquidity and capital resources since our inception in 2005 , we have devoted most of our cash resources to manufacturing ethanol , isobutanol and related products , research and development and selling , general and administrative activities related to the commercialization of isobutanol , as well as related products from renewable feedstocks . we have incurred losses since inception and expect to incur losses through at least 2020. we have financed our operations primarily with proceeds from multiple sales of equity and debt securities , borrowings under debt facilities and product sales . the continued operation of our business is dependent upon raising additional capital through future public and private equity offerings , debt financings or through other alternative financing arrangements . in addition , successful completion of our research and development programs and the attainment of profitable operations are dependent upon future events , including our ability to raise sufficient capital to expand our commercial production facility , completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and or technology , achieving market acceptance and demand for our products and services and attracting and retaining qualified personnel . we expect to incur future net losses as we continue to fund the development and commercialization of our products and product candidates . we have primarily relied on raising capital to fund our operations and debt service obligations by issuing common stock and warrants in underwritten public offerings . those issuances have caused significant dilution to our existing stockholders . while we have sought , and will continue to seek , other , less dilutive forms financing to fund our operations and debt service obligations , there is no assurance that we will be successful in doing so . our transition to profitability is dependent upon , among other things , the successful development and commercialization of our products and product candidates , the achievement of a level of revenues adequate to support our cost structure and securing sufficient financing for the build-out and retrofit of the luverne facility or a facility at another suitable location . we may never achieve profitability or generate positive cash flows , and unless and until we do , we will continue to need to raise additional cash . we intend to fund future operations through additional private and or public offerings of debt or equity securities . in addition , we may seek additional capital through arrangements with strategic partners or from other sources , may seek to restructure our debt and we will continue to address our cost structure . notwithstanding , there can be no assurance that we will be able to raise additional funds , or achieve or sustain profitability or positive cash flows from operations . the following table sets forth the major sources and uses of cash for each of the periods set forth below ( in thousands ) : replace_table_token_2_th operating activities our primary uses of cash from operating activities are personnel-related expenses and research and development-related expenses including costs incurred under development agreements , costs for licensing of technology , legal-related costs and expenses for the production of isobutanol , ethanol and related products , logistics and further processing of ethanol and isobutanol at the luverne facility and for the operation of our hydrocarbon demonstration production facility . 47 during the year ended december 31 , 2018 , we used $ 15.9 million in cash for operating activities due to a net loss of $ 28.0 million , excluding the impact of $ 11.3 million in non-cash expenses , and $ 0.8 million net cash increase associated with an decrease in working capital primarily a result of a decreases in both receivables and inventories . during the year ended december 31 , 2017 , we used $ 20.6 million in cash for operating activities due to a net loss of $ 24.6 million , offset by the impact of $ 6.4 million in non-cash expenses , and $ 2.4 million net cash used due to an increase in working capital primarily as a result of a paydown of accounts payable coupled with an increase in accounts receivable . investing activities during the year ended december 31 , 2018 , we used $ 2.2 million in cash for investing activities related to capital expenditures at our luverne facility .
| results of operations comparison of the years ended december 31 , 201 8 and 201 7 replace_table_token_0_th revenue . during the year ended december 31 , 2018 , we recognized revenue of $ 31.6 million associated with the sale of 19.4 million gallons of ethanol , as well as isobutanol and related products , an increase of $ 5.4 million from the year ended december 31 , 2017 , primarily related to increased production and sales of ethanol at the luverne facility . hydrocarbon revenue increased $ 0.2 million during the year ended december 31 , 2018 primarily as a result of greater shipments of finished products from our demonstration plant located at the south hampton facility . hydrocarbon revenues are comprised of atj , isooctane and isooctene sales . grant and other revenue was $ 25,000 during the year ended december 31 , 2018 , down $ 0.2 million compared to the same period in 2017 , primarily as a result of the company 's contract with the nara ending in 2017. cost of goods sold . our cost of goods sold during the year ended december 31 , 2018 included $ 35.3 million associated with the production of ethanol , isobutanol and related products and $ 6.3 million in depreciation expense . cost of goods sold increased $ 3.4 million during the year ended december 31 , 2018 , primarily due to increased production and sales of ethanol as compared to the prior year . research and development expense . research and development expenses increased $ 0.2 million during the year ended december 31 , 2018 compared to the prior year , primarily due to an increase in facility expansion fees related to the south hampton facility . selling , general and administrative expense .
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factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed in the section entitled “ risk factors ” included elsewhere in this annual report on form 10-k. this annual report on form 10-k contains “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended , or the “ exchange act ” . these statements are often identified by the use of words such as “ believe , ” “ may , ” “ potentially , ” “ will , ” “ estimate , ” “ continue , ” “ anticipate , ” “ intend , ” “ could , ” “ should , ” “ would , ” “ project , ” “ plan , ” “ predict , ” “ expect , ” “ seek ” and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified herein , and those discussed in the section titled “ risk factors ” , set forth in part i , item 1a of this annual report on form 10-k. except as required by law , we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . references to “ 2017 , ” “ 2016 ” and “ 2015 ” refer to the year ended december 31 , 2017 , the year ended december 31 , 2016 and the year ended december 31 , 2015 , respectively . overview we provide a leading cross-channel , cross-device , enterprise marketing software platform for search , social and display advertising channels , offered as a software-as-a-service , or saas , solution for advertisers and agencies . our platform is an analytics , workflow and optimization solution for marketing professionals , allowing them to effectively manage their digital advertising spend across search , social and display channels . we market and sell our solutions to advertisers directly and through leading advertising agencies , and our customers collectively manage billions of dollars in advertising spend on our platform globally across a wide range of industries . our solution is designed to help our customers : measure the effectiveness of their advertising campaigns through our proprietary reporting and analytics capabilities ; manage and execute campaigns through our intuitive user interface and underlying technology that streamlines and automates key functions , such as advertisement creation and bidding , across multiple publishers and channels ; and optimize campaigns across multiple publishers and channels based on market and business data to achieve desired revenue outcomes using our predictive bid management technology . we generate revenues principally from subscription contracts under which we provide advertisers with access to our search , social and display advertising management platform , either directly or through the advertiser 's relationship with an agency with whom we have a contract . in accordance with the subscription contracts , we charge fees generally based upon the amount of advertising spend that our customers manage through our platform . our search subscription contracts are generally one year or longer in length , while social and display contracts may vary in duration . under our subscription contracts with most of our direct advertisers and some of our independent agency customers , customers are contractually committed to a minimum monthly platform fee , which is payable on a monthly basis over the duration of the contract and is generally greater than one-half of our estimated monthly revenues from these customers , at the time the contract is signed . however , most of our subscription contracts with our network advertising agency customers do not include a committed minimum monthly platform fee . in general , if our contractual arrangement is with an advertising agency , the advertiser is not a party to the terms of the contract . accordingly , most advertisers through our agency customers do not have a commitment to use our services and the advertisers may be added or removed from our platform at the discretion of the respective agency . historically , our revenues earned from advertising agency customers have ranged between approximately one-third and one-half of our overall revenues . under our subscription contracts , we generally begin invoicing our customers the first day of the month following the execution of the contract . we generally invoice the greater of the minimum monthly platform fee or the percentage of advertising spend on our platform . the implementation process for new advertisers is typically four to six weeks ; however , we generally have not charged a separate implementation fee under our standard subscription contracts . our implementation and customer support personnel , as well as costs associated with our operating infrastructure , are included in our cost of revenues . we are leveraging our headcount and operating expenses to bring them in line with our revenues , while continuing to invest in our data center capacity and new platform features . 30 to grow revenues , we need to invest in ( 1 ) research and development to improve and further expand our platform and support for additional publishers and ( 2 ) sales activities by adding sales representatives globally to target new advertisers and agencies . these ac tivities will require us to make investments , particularly in research and development and sales and marketing , and if these investments do not generate additional customers or additional advertising spend managed by our platform , our future operating resu lts could be harmed . the majority of our revenues are derived from advertisers based in the united states . advertisers from outside of the united states represented 34 % , 31 % and 33 % of total revenues for 2017 , 2016 and 2015 , respectively . story_separator_special_tag 32 results of operations the following table is a summary of our consolidated statements of operations for the specified periods and results of operations as a percentage of revenues for those periods . the period-to-period comparisons of results are not necessarily indicative of results for future periods . percentage of revenues figures are rounded and therefore may not subtotal exactly . replace_table_token_9_th ( 1 ) stock-based compensation expense included in the consolidated statements of operations data above was as follows : replace_table_token_10_th ( 2 ) amortization of intangible assets included in the consolidated statements of operations data above was as follows : replace_table_token_11_th 33 ( 3 ) restructuring related expenses included in the consolidated statements of operations data above was as follows : replace_table_token_12_th the following table sets forth our consolidated revenues by geographic area , as well as the related percentages of total revenues , for the specified periods . replace_table_token_13_th adjusted ebitda adjusted ebitda is a financial measure not calculated in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . we define adjusted ebitda as net loss , adjusted for stock-based compensation expense , depreciation , the amortization of internally developed software and intangible assets , the capitalization of internally developed software costs , the impairment of goodwill and long-lived assets , interest expense , net , the provision for income taxes , other income or expenses , net , and costs associated with acquisitions and restructurings . adjusted ebitda should not be considered as an alternative to net loss , operating loss or any other measure of financial performance calculated and presented in accordance with gaap . we prepare adjusted ebitda to eliminate the impact of items that we do not consider indicative of our core operating performance . investors are encouraged to evaluate these adjustments and the reasons we consider them appropriate . we believe adjusted ebitda is useful to investors in evaluating our operating performance for the following reasons : adjusted ebitda is widely used by investors and securities analysts to measure a company 's operating performance without regard to items , such as stock-based compensation expense , depreciation and amortization , capitalized software development costs , interest expense , net , benefit from or provision for income taxes , other income or expenses , net , costs associated with acquisitions and restructurings , that can vary substantially from company to company depending upon their financing , capital structures and the method by which assets were acquired ; our management uses adjusted ebitda in conjunction with gaap financial measures for bonus compensation and planning purposes , including the preparation of our annual operating budget , as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance ; and adjusted ebitda provides consistency and comparability with our past financial performance , facilitates period-to-period comparisons of operations and also facilitates comparisons with other peer companies , many of which use similar non-gaap financial measures to supplement their gaap results . 34 we understand that , although adjusted ebitda is frequently used by investors and securities analysts in their evaluations of companies , it has limitations as an analytical tool , and investors should not consider it in isolation or as a substitute for analysis of our results of operations as reported under gaap . these limitations include : depreciation and amortization are non-cash charges , and the assets being depreciated or amortized will often have to be replaced in the future ; adjusted ebitda does not reflect any cash requirements for these replacements ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs or contractual commitments ; adjusted ebitda does not reflect cash requirements for income taxes and the cash impact of other income or expense ; and other companies may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . the following table presents a reconciliation of net loss , the most comparable gaap measure , to adjusted ebitda for each of the periods indicated : replace_table_token_14_th comparison of the years ended december 31 , 2017 and 2016 revenues years ended december 31 , change 2017 2016 $ % ( dollars in thousands ) revenues , net $ 74,991 $ 99,878 $ ( 24,887 ) ( 25 ) % revenues in 2017 decreased by $ 24.9 million , or 25 % , as compared to 2016. during 2017 , we experienced an increase in customer turnover , combined with a decrease in new customer bookings . in addition , we continued to encounter significant competition and related price pressure within our marketplace , further driving down our revenues , net . revenues , net in 2017 are also inclusive of the out-of-period adjustment described in note 2 to the consolidated financial statements , which resulted in a decrease in revenues , net , of $ 0.4 million due to corrections from prior periods . revenues in 2017 and 2016 from our u.s. locations represented 66 % and 69 % , respectively , of total revenues , net . there were no customers that accounted for greater than 10 % of our revenues in either 2017 or 2016 . 35 cost of revenues and gross margin replace_table_token_15_th cost of revenues in 2017 decreased by $ 2.7 million , or 8 % , as compared to 2016. this was primarily driven by a reduction in the number of global services and cloud infrastructure personnel , which led to decreases of $ 1.5 million in compensation and benefits expense , including stock-based compensation , and $ 0.3 million in allocated facilities and information technology costs as compared to 2016. we also experienced decreases of $ 0.4 million in both hosting costs , due to a decline in usage of our hosted platform , and in depreciation and amortization of internally developed software , due primarily to the nature and timing of internal projects as compared to 2016. our gross margin decreased to 57 % during 2017 , as compared to
| quarterly results of operations the following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended december 31 , 2017. we have prepared the quarterly data on a basis consistent with our audited annual financial statements , including , in the opinion of management , all normal recurring adjustments necessary for the fair statement of the financial information contained in these statements . the historical results are not necessarily indicative of future results and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. 39 replace_table_token_27_th ( 1 ) stock-based compensation expense included in the consolidated statements of operations data above was as follows : replace_table_token_28_th ( 2 ) amortization of intangible assets included in the consolidated statements of operations data above was as follows : replace_table_token_29_th 40 ( 3 ) restructuring related expenses included in the consolidated statements of operations data above was as follows : replace_table_token_30_th ( 4 ) all share and per share amounts of our common stock for all periods presented have been adjusted to reflect the one-for-seven reverse stock split of our issued and outstanding common stock , which took effect on october 5 , 2017. see note 2 of the consolidated financial statements for further information on this reverse stock split the following table sets forth our consolidated results of operations for the specified periods as a percentage of our revenues for those periods . percentage of revenue figures are rounded and therefore may not subtotal exactly . replace_table_token_31_th liquidity and capital resources since our incorporation in march 2006 , we have relied primarily on sales of our capital stock to fund our operating activities . from incorporation until our initial public offering ( “ ipo ” ) , we raised $ 105.7 million , net of related issuance costs , in funding through private placements of our preferred stock .
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productivity we worked towards realizing the benefits of our enterprise-wide business system , including standardizing best practices in inventory management , production planning and scheduling to improve manufacturing throughput and reduce costs . in addition , value-engineering efforts and product transfers contributed to our productivity improvements . this continued emphasis on operational improvements has led to further reductions in lead times and improved service levels to our customers . we also expanded our manufacturing presence in china by opening another manufacturing facility . transformation of business processes : we continued our long-term initiative of applying lean process improvement techniques throughout the enterprise , with particular emphasis on reducing supply chain complexity to eliminate waste and improve efficiency and reliability . we plan to continue to build on the shared services model that has been implemented in sourcing and logistics and apply those principles in other areas . outlook in 2011 , we expect net sales to increase three to five percentage points compared to 2010. we expect to achieve this increase through slightly higher organic sales and new product introductions . demand for our power products is expected to increase in the mid-single digit range as utility companies spend on distribution products to maintain the network and invest in large scale transmission projects . the industrial markets that we serve are expected to continue to grow overall , with higher spending for maintenance , repair and overhaul ( mro ) and harsh and hazardous related products partially offset by lower demand for high voltage test equipment . the non-residential construction market is expected to be slightly lower than 2010. this market should continue to benefit from stronger demand for renovation , relight and controls . our residential market is expected to be relatively flat as high levels of unemployment and uncertainty surrounding foreclosures are likely to continue to slow the recovery . we plan to continue to work on productivity initiatives , including improved sourcing , product redesign and lean projects focused on factory efficiency . we anticipate cost increases from commodities , pension , healthcare and other inflationary costs . the pricing environment is expected to remain competitive in 2011 and achieving 17 parity with commodity costs is expected to be a challenge . we plan to continue to invest in people and resources to support our growth initiatives . overall we expect to expand operating margin by approximately 50 basis points in 2011 compared to 2010. additionally , we expect our 2011 tax rate to increase by approximately 50 basis points due to a higher mix of domestic income . in 2011 , we anticipate generating free cash flow approximately equal to net income . finally , with our strong financial position , we expect to continue to pursue additional acquisitions . results of operations our operations are classified into two segments : electrical and power . for a complete description of the company 's segments , see part i , item 1 of this annual report on form 10-k. within these segments , hubbell primarily serves customers in the non-residential and residential construction , industrial and utility markets . these markets , in order of magnitude of net sales to the company , are non-residential construction ( approximately 40 % ) , industrial ( approximately 25 % ) , utility ( approximately 25 % ) and residential construction ( approximately 10 % ) . in 2010 , market conditions were mixed . non-residential construction declined due to lower levels of activity and a lack of available financing for projects . the industrial market improved slightly due to higher factory utilization . the utility market improved due to higher electricity consumption which increased mro demand within the distribution segment . the residential market also improved slightly due to the tax credits stimulus at the beginning of 2010. summary of consolidated results ( in millions , except per share data ) replace_table_token_6_th 2010 compared to 2009 net sales net sales for the year ended 2010 were $ 2.5 billion , an increase of 8 % over the year ended 2009. this increase was due to the burndy acquisition , favorable currency translation and higher organic volume . the burndy acquisition added approximately six percentage points to net sales in 2010 compared to 2009 while currency translation and volume increased net sales by one percentage point each in 2010 compared with 2009. gross profit the gross profit margin for 2010 increased to 32.6 % compared to 30.8 % in 2009. the increase was primarily due to productivity improvements , including improved factory utilization , and the favorable impact of the burndy acquisition partially offset by unfavorable price realization and higher commodity costs . 18 selling & administrative expenses ( s & a ) s & a expenses increased 7 % compared to 2009 primarily due to the full year impact of the burndy acquisition partially offset by savings from streamlining actions . as a percentage of net sales , s & a expenses were 18.1 % in 2010 compared to 18.3 % in 2009 as cost increases were in line with volume growth . operating income operating income increased 25 % primarily due to higher net sales and gross profit partially offset by higher selling and administrative costs . operating margin of 14.5 % in 2010 increased 200 basis points compared to 12.5 % in 2009 as a result of productivity improvements and improved product mix , including burndy , partially offset by unfavorable price realization , higher commodity costs and other inflationary increases . story_separator_special_tag in february 2011 , the board of directors extended the term of this program through february 20 , 2012. as of december 31 , 2010 , approximately $ 138 million remains available under this program . depending upon numerous factors , including market conditions and alternative uses of cash , the company may conduct discretionary repurchases through open market and privately negotiated transactions during its normal trading windows . during 2010 , the company spent $ 23.3 million on the repurchase of class b common shares . the company did not repurchase any class a common shares in 2010. additional information with respect to future investments in the business can be found under outlook within management 's discussion and analysis . 23 capital structure debt to capital net debt , defined as total debt less cash and investments , is a non-gaap measure that may not be comparable to definitions used by other companies . we consider net debt to be a useful measure of our financial leverage for evaluating the company 's ability to meet its funding needs . replace_table_token_12_th the company 's short-term debt consisted of a 4.0 million brazilian real line of credit with hsbc bank which is used to fund its brazilian operations . at december 31 , 2010 , 3.0 million brazilian real are outstanding ( equivalent to $ 1.8 million ) . this line of credit expires in march 2011 and is not subject to any annual commitment fees . the company did not have any short-term debt outstanding at december 31 , 2009. at december 31 , 2010 and 2009 , the company had $ 595.9 million and $ 497.2 million , respectively , of senior notes reflected as long-term debt in the consolidated balance sheet . in november 2010 , the company completed a public debt offering for $ 300 million of long-term , senior , unsecured notes maturing in november 2022 ( the 2022 notes ) and bearing interest at a fixed rate of 3.625 % . the company received $ 294.8 in proceeds from the offering , net of discounts and debt issuance costs . the discount and issuance costs were deferred and are being amortized to interest expense over the term of the 2022 notes . interest on the 2022 notes will be paid semi-annually in may and november , commencing in may 2011. in connection with the issuance of the 2022 notes , the company entered into a forward starting swap to hedge its exposure to fluctuations in treasury rates , which resulted in a loss of $ 1.6 million during the fourth quarter of 2010 when the company closed out this position . this amount has been recorded , net of tax , in accumulated other comprehensive loss and will be amortized to interest expense over the life of the 2022 notes . simultaneous with the november 2010 debt offering , the company also announced a cash tender offer for any and all of its $ 200 million ( 6.375 % ) senior notes that were scheduled to mature in may 2012 ( the 2012 notes ) . upon expiration of the tender offer , $ 81.9 million of the aggregate outstanding principal amount of the 2012 notes were validly tendered and accepted . subsequent to the expiration of the tender offer , the company elected to redeem the remaining outstanding principal of $ 118.1 million under the provisions of the 2012 notes . the loss on this transaction ( recorded as part of the loss on extinguishment of debt in the consolidated statement of income ) , including the make whole premium paid , expenses and the write-off of the remaining deferred issuance costs associated with the 2012 notes , was approximately $ 17.3 million . the net cash proceeds remaining from the 2022 note issuance , subsequent to the tender/redemption of the 2012 notes , were used for general corporate purposes . in conjunction with the early extinguishment of the 2012 notes , the company terminated its interest rate swap associated with these notes . this interest rate swap was accounted for as a fair value hedge and was used to convert the stated interest rate of the 2012 notes from fixed to floating . at the time of termination , this interest rate swap was in-the-money and resulted in a gain of $ 2.6 million . this gain was recorded as part of the loss on extinguishment of debt in the consolidated statement of income . 24 in may 2008 , the company completed a public offering of $ 300 million long-term senior , unsecured notes maturing in may 2018 ( the 2018 notes ) . the 2018 notes bear interest at a fixed rate of 5.95 % . prior to the issuance of the 2018 notes , the company entered into a forward interest rate lock which resulted in a $ 1.2 million gain . this amount was recorded in accumulated other comprehensive loss , net of tax , and is being amortized over the life of the notes . the 2018 notes and the 2022 notes are both fixed rate indebtedness , are callable at any time with a make whole premium and are only subject to accelerated payment prior to maturity in the event of a default under the indenture governing the terms of the 2018 notes and 2022 notes , as modified by the supplemental indentures creating each such series , or upon a change in control event as defined in such indenture .
| segment results electrical segment replace_table_token_7_th net sales in the electrical segment increased 10 % in 2010 compared with 2009. the burndy acquisition and currency translation added nine and one percentage points , respectively , to net sales in 2010 compared to 2009. within the segment , electrical systems products net sales increased 21 % in 2010 compared to 2009 due to the burndy acquisition , higher volume and favorable currency translation . net sales of wiring products , excluding burndy , increased 10 % while electrical products increased 1 % due to higher construction and industrial net sales partially offset by lower harsh and hazardous net sales . net sales of lighting products decreased 6 % in 2010 19 compared to 2009 due to lower organic volume . net sales of commercial and industrial lighting products decreased 7 % while net sales of residential lighting products were comparable to 2009. operating income in 2010 increased 52 % compared to 2009 primarily due to incremental operating income associated with burndy , productivity improvements including improved factory utilization and higher volume including a favorable mix of industrial sales . operating margin in 2010 increased 390 basis points compared to 2009 primarily due to productivity improvements , higher industrial mix and the impact of the burndy acquisition . within the segment , both electrical systems products and lighting products operating income and operating margin increased during 2010 as compared to 2009. power segment replace_table_token_8_th net sales for 2010 increased by 4 % compared to 2009. volume and foreign currency translation increased net sales by four and one percentage points , respectively . lower price realization offset these increases by approximately one percentage point . the higher volume was primarily due to demand for distribution products . operating income in 2010 decreased 9 % compared to 2009 and operating margin declined 240 basis points during the same period .
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factors that could cause such differences are discussed in forward-looking statements and risk factors. we assume no obligation to update any of these forward-looking statements . overview-introduction we are a holding company of specialty electrical construction service providers that was established in 1995 through the merger of long-standing specialty contractors . through our subsidiaries , we serve the electric utility infrastructure and commercial construction markets . we manage and report our operations through two industry segments : t & d and c & i . we have operated in the t & d industry since 1891. we are one of the largest contractors servicing the t & d sector of the electric utility industry in the united states and provide t & d services in western canada . our customers include many of the leading companies in the industry . we have provided c & i electrical contracting services to facility owners and general contractors since 1912. we generally provide our c & i services as a subcontractor to general contractors , but also contract directly with facility owners . we believe that we have a number of competitive advantages in both of our segments , including our skilled workforce , extensive centralized fleet , proven safety performance and reputation for timely completion of quality work that allows us to compete favorably in our markets . in addition , we believe that we are better capitalized than some of our competitors , which provides us with valuable flexibility to take on additional and complex projects . we had revenues for the year ended december 31 , 2017 of $ 1.403 billion compared to $ 1.142 billion for the year ended december 31 , 2016. for the year ended december 31 , 2017 , our net income was $ 21.2 million compared to $ 21.4 million for the year ended december 31 , 2016. overview-segments transmission and distribution segment . our t & d segment provides comprehensive solutions to customers in the electric utility and the renewable energy industries . our t & d segment generally serves the electric utility industry as a prime contractor to customers such as investor-owned utilities , cooperatives , private developers , government-funded utilities , independent power producers , independent transmission companies , industrial facility owners and other contractors . our t & d segment provides a broad range of services on electric transmission and distribution networks and substation facilities , which include design , engineering , procurement , construction , upgrade , maintenance and repair services with a particular focus on construction , maintenance and repair . the demand for transmission construction and maintenance services has remained strong over the past several years due to the modernization of the existing electric utility infrastructure and the need to integrate renewable generation into the electric power grid . for the year ended december 31 , 2017 , our t & d revenues were $ 879.4 million , or 62.7 % , of our revenue , compared to $ 819.0 million , or 71.7 % , of our revenue for the year ended december 31 , 2016 and $ 794.9 million , or 74.9 % , of our revenue for the year ended december 31 , 2015. revenues from transmission projects represented 68.5 % , 75.8 % , and 73.9 % of t & d segment revenue for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our t & d segment also provides restoration services in response to hurricanes , ice storms or other storm related events , which typically account for less than 5 % of our annual revenues . measured by revenues in our t & d segment , we provided 31.4 % , 56.9 % and 48.4 % of our t & d services under fixed-price contracts during the years ended december 31 , 2017 , 2016 and 2015 , respectively . we also provide many services to our customers under multi-year maintenance service agreements and other variable service agreements . 31 commercial and industrial segment . our c & i segment provides a wide range of services including design , installation , maintenance and repair of commercial and industrial wiring , installation of traffic networks and the installation of bridge , roadway and tunnel lighting . in our c & i segment , we generally provide our electric construction and maintenance services as a subcontractor to general contractors in the c & i industry as well as directly to facility owners . our c & i operations are primarily in the western and northeastern united states and in western canada where we have sufficient scale to deploy the level of resources necessary to achieve significant market share . we concentrate our efforts on projects where our technical and project management expertise are critical to successful and timely execution . the majority of c & i contracts cover electrical contracting services for airports , hospitals , data centers , hotels , stadiums , convention centers , manufacturing plants , processing facilities , waste-water treatment facilities , mining facilities and transportation control and management systems . for the year ended december 31 , 2017 , our c & i revenues were $ 523.9 million , or 37.3 % , of our revenue , compared to $ 323.5 million , or 28.3 % , of our revenue for the year ended december 31 , 2016 and $ 266.8 million , or 25.1 % , of our revenue for the year ended december 31 , 2015. measured by revenues in our c & i segment , we provided 63.7 % , 73.4 % and 71.6 % of our services under fixed-price contracts for the years ended december 31 , 2017 , 2016 and 2015 , respectively . overview-revenue and gross margins revenue recognition . we recognize revenue on a percentage-of-completion method of accounting , which is commonly used in the construction industry . the percentage-of-completion accounting method results in recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs . story_separator_special_tag we believe that the tax act , other regulatory reform , state renewable portfolio standards , the aging of the electric grid , and the general improvement of the economy will positively impact the level of spending by our customers . although competition remains strong , we see these trends as positive factors for us in the future . our business is directly impacted by the level of spending on t & d infrastructure and the level of c & i electrical construction activity across the united states and canada . the electric grid is aging and requires significant upgrades and maintenance to meet current and future demands for electricity . in addition , regulatory pressures and low energy prices may accelerate the shut-down of coal-fired generating plants , which could result in the need for line upgrades and new substations . over the past several years , many utilities have begun to implement plans to improve reliability of their transmission systems and reduce congestion . these utilities have started or planned new construction , line upgrades and maintenance projects on their transmission systems . we believe that our customers remain committed to the expansion and strengthening of their transmission infrastructure , with planning , engineering and funding for many of their projects already in place . state renewable portfolio standards , which set required or voluntary standards for how much electricity is to be generated from renewable energy sources , as well as general environmental concerns , are driving the development of renewable energy projects . the economic feasibility of renewable energy projects , and therefore the attractiveness of investment in the projects , may depend on the availability of tax incentive programs or the ability of the projects to take advantage of such incentives . as a result of reduced spending by united states utilities on their distribution systems for several years , we believe there is a need for sustained investment by utilities on their distribution systems to properly 33 maintain or meet reliability requirements . in 2017 , we saw increased bidding activity in some of our electric distribution markets , as economic conditions improved in those areas . we believe that continued recovery in the united states economy , and in the housing market in particular , over the next few years could provide additional stimulus for spending by our customers on their distribution systems . in addition , after hurricanes harvey , irma and , maria , we believe there will be a push to strengthen utility distribution systems against major storm-related damage . several industry and market trends are also prompting customers in the electric utility industry to seek outsourcing partners rather than performing projects internally . these trends include an aging electric utility workforce , increasing costs and staffing constraints . we believe electric utility employee retirements could increase with further economic recovery , which may result in an increase in outsourcing opportunities . we expect to see an incremental increase in distribution opportunities in the united states in 2018 and we believe these opportunities will continue to be bid in a competitive market . we believe we will continue to see significant bidding activity on large transmission projects in 2018 and 2019. the timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and right-of-way permits needed to commence construction . significant construction on any large , multi-year projects awarded in 2018 will not likely occur until 2019. bidding and construction activity for small to medium-size transmission projects and upgrades remains strong , and we expect this trend to continue in 2018 , primarily due to reliability and economic drivers . competition and the unpredictability of awards in the transmission market may impact our ability to maintain high utilization of equipment and manpower resources which is essential to maintaining contract margins . we saw increased activity in many of our c & i markets in 2017 and expect to see continued improvement in bidding opportunities in our c & i segment in 2018. we expect the long-term growth in our c & i segment to generally track the economic growth of the regions we serve . through 2017 , we continued the implementation of our three-pronged strategy of organic growth , strategic acquisitions and prudent capital returns . in june 2016 , we entered into an amended and restated , five-year credit agreement , which expanded our borrowing capacity to $ 250 million . this new credit agreement provided added resources and flexibility to execute each of our three-pronged strategy initiatives . we continue to invest in developing key management and craft personnel in both our t & d and c & i markets and in procuring the specialty equipment and tooling needed to win and execute projects of all sizes and complexity . in 2017 and 2016 , we invested in capital expenditures of approximately $ 30.8 million and $ 25.4 million , respectively . most of our capital expenditures supported opportunities in our t & d business . we plan to continue to evaluate our needs of additional equipment and tooling . our investment strategy is based on our belief that spending in transmission and distribution projects will continue to remain strong over the next several years as electric utilities , cooperatives and municipalities make up for the lack of infrastructure spending in the past , combined with the overall need to integrate new generation into the electric power grid , and our belief that distribution demand will increase over the next several years . we ended 2017 with $ 150.1 million available under our line of credit . we believe that our financial position and operational strengths will enable us to manage the current challenges and uncertainties in the markets we serve and give us the flexibility to successfully execute our three-pronged strategy . understanding backlog we define backlog as our estimated revenue on uncompleted contracts , including the amount of revenue on contracts for which work has not begun , less the revenue we have recognized under such contracts .
| segment results the following table sets forth , for the periods indicated , statements of operations data by segment , segment net sales as a percentage of total net sales and segment operating income as a percentage of segment net sales : replace_table_token_10_th 38 transmission & distribution revenues for our t & d segment for the year ended december 31 , 2017 were $ 879.4 million compared to $ 819.0 million for the year ended december 31 , 2016 , an increase of $ 60.4 million , or 7.4 % . the increase in revenue was primarily due to higher revenue from large transmission projects and an increase in distribution projects . revenues from transmission projects represented 68.5 % and 75.8 % of t & d segment revenue for the years ended december 31 , 2017 and 2016 , respectively . additionally , for the year ended december 31 , 2017 , measured by revenue in our t & d segment , we provided 31.4 % of our t & d services under fixed-price contracts , as compared to 56.9 % for the year ended december 31 , 2016. operating income for our t & d segment for the year ended december 31 , 2017 was $ 39.6 million compared to $ 63.4 million for the year ended december 31 , 2016 , a decrease of $ 23.8 million , or 37.5 % . the decline in t & d operating income was primarily due to lower margins caused by write-downs experienced on two projects in the midwest u.s. and on one project in canada . margins were also negatively impacted from significant revenue on certain large transmission projects that have lower than average margins due to a high mix of material and subcontractor costs .
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2018-13 effective january 1 , 2020 and the adoption did not materially affect the company 's disclosures . in july 2017 , the fasb issued asu no . 2017-11 , earnings per share ( topic 260 ) , distinguishing liabilities from equity ( topic 480 ) , derivatives and hedging ( topic 815 ) i. accounting for certain financial instruments with down round features ii . replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception ( asu 2017-11 ) . part i applies story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and accompanying footnotes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . see special note regarding forward-looking statements. because of many factors , including those factors set forth in part i , item 1a risk factors in 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 . we do not assume any obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . overview we are a clinical-stage biotechnology company focused on developing and commercializing our proprietary technology to harness the power of the immune system to combat cancer . our product candidate , cmp-001 , is a differentiated toll-like receptor 9 ( tlr9 ) , agonist delivered as a biologic virus-like particle ( vlp ) , utilizing a cpg-a oligonucleotide as a key component . when injected into a tumor , cmp-001 is designed to trigger the body 's innate immune system , thereby altering the tumor microenvironment and directing activated anti-tumor t cells to attack both the injected tumor and also tumors throughout the body . in a clinical trial of cmp-001 in combination with a systemic checkpoint inhibitor ( cpi ) , in patients whose tumors were unresponsive or no longer responsive to a cpi , we have observed a best objective response rate ( orr ) , of 28 % ( 27/98 ) , including post-progression responders . we are evaluating cmp-001 across multiple tumor types in combination with other immunotherapy agents . our founder , art krieg , first reported the discovery of immunostimulatory cytosine-phosphate-guanine ( cpg ) , dna in 1995 , which , combined with the discovery of tlr9 , led to the recognition that synthetic cpg-a oligonucleotides have the potential to stimulate the tlr9 receptor for therapeutic purposes . our goal is to establish cmp-001 as a foundational immuno-oncology therapy that engages the innate immune system to fight cancer and improve outcomes for patients with a broad range of solid tumors . 101 since our inception , we have devoted substantially all of our efforts and financial resources to the research and development activities related to our technology and our cmp-001 program , and the administrative support for such activities including raising capital , business planning , undertaking pre-clinical studies and clinical trials and other support activities . we do not have any products approved for sale and have not generated any revenue from product sales or any other sources and do not expect to generate any revenue for the next several years . we have not yet successfully completed any registrational clinical trials , obtained any regulatory approvals , manufactured a commercial-scale drug , or conducted sales and marketing activities . we have funded our operations to date primarily with proceeds from the sale of preferred stock , convertible debt and common stock . since inception and through december 31 , 2020 , we have received net cash proceeds of $ 241.7 million from sales of our preferred stock , convertible debt and common stock . we have incurred recurring losses and had negative operating cash flows since inception and our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of cmp-001 or any other products we acquire or develop . our net losses were $ 28.3 million and $ 36.9 million for the years ended december 31 , 2019 and 2020 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 140.1 million . we expect to continue to incur significant expenses and to increase operating losses for at least the next several years . we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities , particularly as we : prepare for and initiate additional clinical trials and preclinical studies of cmp-001 , including , among others , our currently anticipated phase 2 trial in anti-pd-1 refractory melanoma and randomized phase 2 trial in first-line melanoma and our currently anticipated phase 2 proof of concept study in head and neck squamous cell carcinoma ; conduct the necessary scale-up activities to support the potential commercialization of cmp-001 , if any ; hire additional clinical and scientific personnel to support our ongoing preclinical activities and clinical trials of cmp-001 and any other product candidates we choose to develop ; develop any future product candidates ; seek marketing approval for cmp-001 and any other product candidates that successfully complete clinical development ; acquire or in-license additional product candidates ; maintain compliance with applicable regulatory requirements ; maintain , expand , protect and enforce our intellectual property portfolio ; develop and expand our sales , marketing and distribution capabilities for cmp-001 and any other product candidates for which we obtain marketing approval ; take temporary precautionary measures to help minimize the risk of the coronavirus to our employees and encounter delays or interruptions related to current development activities , our supply chain , or the third-parties story_separator_special_tag operating expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities and the development of our technology and our cmp-001 program and include : expenses incurred in connection with the preclinical and clinical development of our technology and cmp-001 , including clinical trials under agreements with contract research organizations ( cros ) , clinical investigators and consultants ; employee-related expenses , including salaries , benefits and travel and stock-based compensation expense , for employees engaged in research and development functions ; the cost of contract manufacturing organizations ( cmos ) , that manufacture drug product for use in our preclinical studies and clinical trials and perform analytical testing , scale-up and other services in connection with our development activities ; costs related to compliance with regulatory requirements ; payments made under third-party licensing agreements , such as the kuros license agreement ; facilities and other expenses , which include direct and allocated expenses for facilities , insurance and supplies ; and costs related to compliance with regulatory requirements . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers . this process involves reviewing open contracts , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs . any nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . such amounts are expensed as the related goods are delivered or the related services are performed , or until it is no longer expected that the goods will be delivered or the services rendered . upfront payments under license agreements are expensed upon receipt of the license , and any annual maintenance fees under license agreements are expensed in the period in which they are incurred . milestone payments under license agreements are accrued and a corresponding expense is recognized in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable . we do not track our research and development expenses by indication . our direct external research and development expenses consist primarily of external costs , such as fees paid to cros , cmos , research/testing laboratories and outside consultants in connection with our preclinical development , process development , manufacturing and clinical development activities . our direct research and development expenses also include fees incurred under licensing agreements . we do not allocate these costs to specific indications because they are deployed across the entire the cmp-001 development program and , as such , are not separately classified . we use internal resources primarily to manage our preclinical development , outsourced clinical trials , process development , manufacturing and clinical development activities . these employees work across the entire the cmp-001 development program and , therefore , we do not track their costs by indication . 104 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as a result , we expect that our research and development expenses will increase substantially over the next several years as we advance cmp-001 into later stages of clinical development toward potential regulatory approval , advance cmp-001 for additional indications , as well as conduct translational research efforts and other preclinical and clinical development , including submitting regulatory filings for any other product candidates we may acquire or develop . in addition to the expected increase in third-party costs , we expect our personnel costs , including costs associated with stock-based compensation , will also increase substantially in the future . in addition , as we advance cmp-001 into potentially registrational clinical trials and , subject to positive data and regulatory approvals , potentially commercialize cmp-001 , we expect to incur additional expenses from milestone and royalty payments related to the kuros license agreement . we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization of cmp-001 or any other product candidates we may acquire or develop . this is due to numerous factors , some of which are beyond our control , that are associated with the successful development and commercialization of cmp-001 and any other product candidates we may acquire or develop , including the following : the scope , progress , outcome and costs of our preclinical studies and clinical trials for cmp-001 or any other product candidates we may acquire or develop ; making arrangements with third-party manufacturers for both clinical and commercial supplies of cmp-001 or any other product candidates ; successful patient enrollment in , and the initiation and completion of clinical trials ; raising additional funds necessary to complete clinical development and the potential commercialization , of cmp-001 or any other product candidates ; receipt , timing and related terms of marketing approvals from applicable regulatory authorities ; the extent of any required post-marketing approval commitments to applicable regulatory authorities ; developing and implementing marketing and reimbursement strategies ; establishing sales , marketing and distribution capabilities and launching commercial sales of cmp-001 or any other products , if approved , whether alone or in collaboration with others ; acceptance of cmp-001 or any other products , if approved , by patients , the medical community and third-party payors ; effectively competing with other therapies ; obtaining and maintaining third-party coverage and adequate reimbursement ; obtaining and maintaining patent , trade secret and other intellectual property protection and regulatory exclusivity for our product candidates ; protecting and enforcing our rights in our intellectual property portfolio ; significant and changing government regulations ; and maintaining an acceptable tolerability
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_1_th research and development expenses research and development expenses were $ 26.7 million in 2020 compared to $ 24.3 million in 2019. the increase of approximately $ 2.4 million was primarily related to increases in personnel and consulting costs of $ 2.6 million in connection with preparations for the initiation of planned additional clinical trials of cmp-001 and an increase of approximately $ 0.8 million in stock-based compensation expense related to stock option grants after our ipo in august 2020. these increases were partially offset by lower contract manufacturing costs in 2020 of $ 1.0 million due the timing of manufacturing runs of cmp-001 in 2020 compared to 2019. general and administrative expenses general and administrative expenses were $ 10.2 million in 2020 compared to $ 4.6 million in 2019. the increase of $ 5.6 million was primarily related to increases in personnel and consulting expense of $ 1.3 million , professional fees of $ 1.7 million and directors and officers insurance expense of $ 1.4 million , all related to the company beginning operations as a publicly traded company . also contributing to the 2020 increase was $ 0.9 million of additional stock compensation expense related to stock options grants issued after our ipo in august 2020. interest income interest income was $ 0.1 million for 2020 compared to $ 0.2 million for 2019. the year-over-year decrease reflects the lower prevailing interest rates in 2020 offsetting the impact associated with higher principal balances in 2020 resulting from our financing activities . we expect interest income will increase in 2021 due to higher principal balances .
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changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies . the company recognizes a tax benefit from an story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report . this discussion contains forward-looking statements that reflect our plans , estimates and beliefs , and involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those discussed in the section titled risk factors included under part i , item 1a and elsewhere in this annual report . see special note regarding forward-looking statements in this annual report . overview yelp connects people with great local businesses by bringing word of mouth online and providing a platform for businesses and consumers to engage and transact . our platform provides value to consumers and businesses alike by connecting consumers with great local businesses at the critical moment when they are deciding where to spend their money . each day , millions of consumers use our platform to find and interact with local businesses , which in turn use our free and paid services to help them engage with consumers . the yelp platform , which allows consumers and businesses to transact directly on yelp , provides consumers with a continuous experience from discovery to completion of transactions and local businesses with an additional point of consumer engagement . we derive substantially all of our revenue from the sale of advertising products . in the year ended december 31 , 2015 , our net revenue was $ 549.7 million , which represented an increase of 46 % from the year ended december 31 , 2014 , and we recorded a net loss of $ 32.9 million and adjusted ebitda of $ 69.1 million . in the year ended december 31 , 2014 , our net revenue was $ 377.5 million , which represented an increase of 62 % from the year ended december 31 , 2013 , and we generated net income of $ 36.5 million and adjusted ebitda of $ 70.9 million . our success is primarily the result of significant investment in our communities , employees , content , brand and technology . we believe that continued investment in our business provides our largest opportunity for future growth and plan to continue to invest for long-term growth in our key strategies : ● network effect . we plan to invest in marketing and product development aimed at both attracting more , and increasing the engagement of , consumers as we look to leverage our brand and benefit from network dynamics in yelp communities . in addition to continuing our efforts to raise brand awareness and expand our communities , we plan to explore new ways for contributors to share content and engage and transact on the yelp platform . for example , we plan to continue to invest in our mobile platform , where we find our most engaged users , and to further integrate eat24 into our platform . we believe that expanding our content and developing innovative features , while maintaining a great user experience , will attract new consumers as well as increase the number of visits and searches per user . ● enhance monetization . our core strength is our local advertising business in the united states . in 2015 , we phased out our brand advertising business to allow us to , among other things , focus on our local business , which has a significant and growing base of revenue . we plan to continue to invest in initiatives to enhance our opportunity in this area , including by aggressively growing our sales force in order to reach more businesses . we will also continue the expansion of the yelp platform , new business owner products and comprehensive tools to measure the effectiveness of our products , as well as our local business outreach . we expect to continue to invest in capital expenditures in 2016 to support the growth of our business , primarily to increase our office space , upgrade our technology and infrastructure to improve the ability of our platform to handle the projected increase in usage , and enable the release of new features and solutions . as a result of this investment philosophy , we expect that our operating expenses will continue to increase for the foreseeable future . 44 factors affecting our performance traffic and user engagement . changes in consumer traffic , as well as the quality and quantity of contributed content , will affect our revenue and financial performance . traffic to our platform determines the number of ads we are able to show , affects the value of those ads to businesses and influences the content creation that drives further traffic ; as a result , our ability to grow our business depends on our ability to increase traffic on our platform . because we rely on internet search engines to drive traffic to our platform , a significant portion of our traffic can be affected by a number of factors , many of which are not in our direct control . changes in a search engine 's ranking algorithms , methodologies or design layouts may result in links to our website not being prominent enough to drive traffic to our website and mobile app . for example , in 2014 , google made changes to its algorithms and methodologies that may be contributing to the slowing of our traffic growth rate and the decline in traffic in the fourth quarter of 2014. google also recently announced that the rankings of sites showing certain types of app install interstitials could be penalized on its mobile search results page . story_separator_special_tag we believe this is indicative of continued revenue growth , but slowing revenue growth for more mature communities . in general , the yelp communities in our earlier u.s. community cohorts are more populous than those in later cohorts , and we have already entered many of the largest cities in the united states and europe . for these and other reasons , launching additional communities may not yield results similar to those of our existing communities , particularly in the united states . as a result , we believe that development of our existing communities currently provides the greatest opportunity for growth , and plan to focus our community development efforts on existing communities in 2016. acquisitions . as part of our business strategy , we may determine to expand our product offerings and grow our business through the acquisition of complementary businesses or technologies . for example , in february 2015 , we acquired eat24 , a leading web and app-based food ordering service , to drive daily engagement in our restaurant vertical and provide the opportunity to expand eat24 's services to all the restaurants listed on our platform . our acquisitions will affect our future financial results due to factors such as the amortization of acquired intangible assets . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . unless otherwise stated , these metrics do not include eat24 metrics . reviews number of reviews represents the cumulative number of reviews submitted to yelp since inception , as of the period end , including reviews that were not recommended or had been removed from our platform . in addition to the text of the review , each review includes a rating of one to five stars . we include reviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at some point in time , providing information that may be useful to users to evaluate businesses and individual reviewers . because our automated recommendation software continually reassesses which reviews to recommend based on new information that becomes available , the recommended or not recommended status of reviews may change over time . reviews that are not recommended or that have been removed do not factor into a business 's overall star rating . by clicking on a link on a reviewed business 's page on our website , users can access the reviews that are not recommended for the business , as well as the star rating and other information about reviews that were removed for violation of our terms of service . 46 as of december 31 , 2015 , approximately 88.7 million reviews were available on business listing pages , including approximately 20.7 million reviews that were not recommended , and 6.5 million reviews had been removed from our platform , either by us for violation of our terms of service or by the users who contributed them . the following table presents the number of cumulative reviews as of the dates indicated : replace_table_token_9_th traffic traffic to our website and mobile app has three components : visitors to our non-mobile optimized website ( our desktop website ) , visitors to our mobile-optimized website ( our mobile website ) and mobile devices accessing our unique app devices . we use the following metrics to measure each of these traffic streams . desktop and mobile website unique visitors . we calculate desktop unique visitors as the number of users , as measured by google analytics , who have visited our desktop website at least once in a given month , averaged over a given three-month period . similarly , we calculate mobile website unique visitors as the number of users who have visited our mobile website at least once in a given month , averaged over a given three-month period . google analytics , a product from google inc. that provides digital marketing intelligence , measures users based on unique cookie identifiers . because the numbers of desktop unique visitors and mobile web unique visitors are therefore based on unique cookies , an individual who accesses our desktop website or mobile website from multiple devices with different cookies may be counted as multiple desktop unique visitors or mobile web unique visitors , as applicable , and multiple individuals who access our desktop website or mobile website from a shared device with a single cookie may be counted as a single desktop unique visitor or mobile web unique visitor . unique app devices . we calculate unique app devices as the number of unique mobile devices using our mobile app in a given month , averaged over a given three-month period . under this method of calculation , an individual who accesses our mobile app from multiple mobile devices will be counted as multiple unique app devices . multiple individuals who access our mobile app from a shared device will be counted as a single unique app device . the following table presents our traffic for the periods indicated : replace_table_token_10_th we anticipate that our mobile traffic will be the driver of our growth for the foreseeable future and that usage of our desktop website will continue to decline worldwide . 47 claimed local business locations the number of claimed local business locations represents the cumulative number of business locations that have been claimed on yelp worldwide since 2008 , as of a given date . we define a claimed local business location as each business address for which a business representative has visited our website and claimed the free business listing page for the business located at that address . the following table presents the number of cumulative claimed local business locations as of the dates presented : replace_table_token_11_th local advertising accounts local advertising accounts comprise all local business accounts from which we recognize local revenue in a given three-month period .
| results of operations the following tables set forth our results of operations for the periods indicated as a percentage of net revenue for those periods . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_14_th years ended december 31 , 2015 , 2014 and 2013 net revenue we generate revenue from our local products , transactions , other services and , through the end of 2015 , brand advertising . local . we generate local revenue from our local advertising programs , including enhanced listing pages and performance and impression-based advertising in search results and elsewhere on our website and mobile app . we also generate local revenue from our seatme reservation product , a monthly subscription service . 50 transactions . we generate revenue from various transactions with consumers , including through eat24 , platform transactions and the sale of yelp deals and gift certificates . our eat24 business generates revenue through arrangements with restaurants , in which restaurants pay a commission percentage fee on orders placed through eat24 's platform . we record revenue associated with eat24 's transactions on a net basis . our platform partnerships are revenue-sharing arrangements that provide consumers with the ability to complete food delivery transactions , order flowers and book spa and salon appointments , among others , through third parties directly on yelp . we earn a fee on our platform partnerships for acting as an agent for these transactions , which we record on a net basis and include in revenue upon completion of a transaction . yelp deals allow merchants to promote themselves and offer discounted goods and services on a real-time basis to consumers directly on our website and mobile app . we earn a fee on yelp deals for acting as an agent in these transactions , which we record on a net basis and include in revenue upon a consumer 's purchase of a deal .
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asu 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows . under current u.s. gaap , it was not specified how these cash flows should be classified . in addition , companies will now have to elect whether to account for forfeitures on share-based payments by ( 1 ) recognizing forfeitures of awards as they occur or ( 2 ) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change , as is currently required . the amendments of this asu are effective for reporting periods beginning after december 15 , 2016 , with early adoption permitted but all of the guidance must be adopted in the same period . the company is currently assessing the impact that asu 2016-09 will have on its consolidated financial statements . in april 2016 , the fasb issued asu no . 2016-10 , revenue from contracts with customer ( “ asu 2016-10 ” ) . the new guidance is an update to asc 606 and provides clarity on : identifying performance obligations and licensing implementation . for public companies , asu 2016-10 is effective for annual periods , including interim periods within those annual periods , beginning after december 15 , 2016. the company is currently evaluating the impact that asu 2016-10 will have on its consolidated financial statements . in june 2016 , the fasb issued asu no . 2016-13 , financial instruments - credit losses : measurement of credit losses on financial instruments ( “ asu 2016-13 ” ) . asu 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses . asu 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases . the new standard will be effective on january 1 , 2020. early adoption will be available on january 1 , 2019. the company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures . in august 2016 , the fasb issued asu no . 2016-15 , statement of cash flows - classification of certain cash receipts and cash payments , which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows . the standard is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . early adoption is permitted , including adoption in an interim period . the company is currently evaluating the impact of this new pronouncement on its consolidated statements of cash flows . f- 14 spherix incorporated and subsidiaries notes to consolidated financial statements in january 2017 , the fasb issued asu no . 2017-04 , intangibles - goodwill and other ( topic 350 ) : simplifying the accounting for goodwill impairment . asu no . 2017-04 removes step 2 of the goodwill impairment test , which requires a hypothetical purchase price allocation . a goodwill impairment will now be the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying amount of goodwill . this standard will be effective for the company beginning in the first quarter of fiscal year 2021 is required to be applied prospectively . early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company is currently evaluating the impact this standard will have on its consolidated financial statements . note 4. property and equipment the components of property and equipment as of december 31 , 2016 and 2015 , at cost are ( $ in thousands ) : replace_table_token_9_th the company 's depreciation expense for the years ended december 31 , 2016 and 2015 was $ 2,592 and $ 1,089 , respectively . note 5. intangible assets patent portfolio the company 's intangible assets with finite lives consist of its patents and story_separator_special_tag forward-looking statements you should read this discussion together with the financial statements , related notes and other financial information included elsewhere in this form 10-k. the following discussion contains assumptions , estimates and other forward-looking statements that involve a number of risks and uncertainties . these risks could cause our actual results to differ materially from those anticipated in these forward-looking statements . overview we are an intellectual property company that owns patented and unpatented intellectual property . spherix incorporated was formed in 1967 as a scientific research company and for much of our history pursued drug development including through phase iii clinical studies which were largely discontinued in 2012. in 2012 and 2013 , we shifted our focus to being a firm that owns , develops , acquires and monetizes intellectual property assets . through our acquisitions of 108 patents and patent applications from rockstar consortium us , lp and acquisition of several hundred patents issued to harris corporation as a result of our acquisition of north south , we have expanded our activities in wireless communications and telecommunication sectors including antenna technology , wi-fi , base station functionality and cellular . our activities generally include the acquisition and development of patents through internal or external research and development . in addition , we seek to acquire existing rights to intellectual property through the acquisition of already issued patents and pending patent applications , both in the united states and abroad . story_separator_special_tag we measure the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . we use 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 - quoted prices for similar assets and liabilities in active markets or inputs that are observable level 3 - inputs that are unobservable ( for example , cash flow modeling inputs based on assumptions ) revenue recognition revenue is recognized when ( i ) persuasive evidence of an arrangement exists , ( ii ) all obligations have been substantially performed pursuant to the terms of the arrangement , ( iii ) amounts are fixed or determinable , and ( iv ) the collectability of amounts is reasonably assured . 20 in general , revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned by us . these rights may include some combination of the following : ( i ) the grant of a non-exclusive , retroactive and future license , ( ii ) a covenant-not-to-sue , ( iii ) the release of the licensee from certain claims , and ( iv ) the dismissal of any pending litigation . the intellectual property rights granted may be perpetual in nature , extending until the expiration of the related patents , or can be granted for a defined , relatively short period of time , with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment . intangible assets - patent portfolios intangible assets include our patent portfolios with original estimated useful lives ranging from 6 months to 12 years . we amortize the cost of the intangible assets over their estimated useful lives on a straight line basis . costs incurred to acquire patents , including legal costs , are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent . we monitor the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable . if a change in circumstance occurs , we will perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows . if cash flows can not be separately and independently identified for a single asset , we will determine whether impairment has occurred for the group of assets for which we can identify the projected cash flows . if the carrying values are in excess of undiscounted expected future cash flows , we measure any impairment by comparing the fair value of the asset or asset group to its carrying value . we deemed it was necessary to test our intangible assets for impairment at the end of december 31 , 2016. during the year ended december 31 , 2016 , we recorded a $ 2.7 million of impairment charges to our intangible assets . during the year ended december 31 , 2015 , we recorded a $ 38.9 million of impairment charges to our intangible assets . goodwill goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination . goodwill is subject to impairment testing at least annually and will be tested for impairment between annual tests if an event occurs or circumstances changes that indicate the carrying amount may be impaired . asc topic 350 provides an entity with 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 that the fair value of a reporting unit is less than its carrying amount . if , after assessing the totality of events or circumstances , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . if the two-step impairment test is necessary , a fair-value-based test is applied at the reporting unit level , which is generally one level below the operating segment level . the test compares the fair value of an entity 's reporting units to the carrying value of those reporting units . this test requires various judgments and estimates . we estimate the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach . impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit . an adjustment to goodwill will be recorded for any goodwill that is determined to be impaired . we test goodwill for impairment at least annually in conjunction with the preparation of our annual business plan , or more frequently if events or circumstances indicate it might be impaired . accounting standards update ( “ asu ” ) 2010-28 modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts .
| results of operations fiscal year ended december 31 , 2016 compared to fiscal year ended december 31 , 2015 for the year ended december 31 , 2016 , we incurred a loss from operations of $ 8.6 million , a decrease of $ 43.4 million , as compared to $ 52.0 million in 2015. the decrease in net loss was primarily attributed to a $ 37.9 million decrease in impairment charge taken against the goodwill and intangible assets , and $ 4.2 million decrease in amortization of patent portfolio expense , partially offset by a $ 226,000 increase in compensation and related expenses . during the years ended december 31 , 2016 and 2015 , we recorded $ 2.1 million and $ 6.3 million , respectively , in amortization expenses related to the rockstar patents acquired by the company during 2013. for the year ended december 31 , 2016 , revenue was approximately $ 0.9 million , which is the amortization of deferred revenue related to rpx license agreements . for the year ended december 31 , 2015 , the revenue was nominal . for the year ended december 31 , 2016 , we recorded income related to a non-cash fair value adjustment on our warrant liability of approximately $ 2.3 million , compared to $ 269,000 of income in 2015. fair value adjustments for warrant liabilities is the result of the change in the carrying amount of the warrant liability caused by changes in the fair value as determined using a black-scholes valuation method . in addition , during the year ended december 31 , 2016 , we recorded other expenses , net of $ 182,000 compared to other income , net of $ 276,000 in 2015. during the year ended december 2015 , the company received $ 295,000 related to the settlement of the huawei case in 2015 . 21 for the year ended december 31 , 2016 , we incurred a $ 31.5
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such statements , include , but are not limited to , statements contained in this annual report relating to the company 's business , financial performance , business strategy , recently announced transactions and capital outlook . important factors that could cause actual results to differ materially from those in the forward-looking statements include : a continued decline in general economic conditions nationally and internationally ; decreased demand for our products and services ; market acceptance of our products ; the impact of any litigation or infringement actions brought against us ; competition from other providers and products ; the inability to raise capital to fund continuing operations ; changes in government regulation ; the ability to complete customer transactions , and other factors relating to our industry , our operations and results of operations and any businesses that may be acquired by us . should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended or planned . readers of this annual report should not place undue reliance on any forward-looking statements . except as required by federal securities laws , the company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties . you should read the following discussion and analysis of the financial condition and results of operations of the company together with the financial statements and the related notes presented herein . 51 description and interpretation and clarification of business category on the consolidated results of the operations the company 's strategy is to manage and operate its businesses under five ( 5 ) business divisions or units on a standalone basis , namely : beef & organic fertilizer division ( marked 1 . ( i ) sjap & , qzh and ( ii ) hsa ) plantation division ( marked 2. jhst ) fishery division ( marked 3. a. ca engineer & technology and 3.b . seafood sales — ( discontinued operation from 1 st october 2016 ) cattle farm division ( marked 4. meiji and jhmc ) corporate & others division ( marked 5. siaf ) a summary of each business division is described below : · 1. beef and organic fertilizer division refers to : ( i ) the operation of sjap in manufacturing and sales of organic fertilizer , bulk livestock feed , concentrated livestock feed , and the sales of live cattle inclusive of : ( a ) cattle that are not being slaughtered in our own slaughter house operated by qinghai zhong he meat products co. , limited ( “ qzh ” ) are sold live to third party livestock wholesalers and , ( b ) cattle that are sold to qzh and slaughtered and deboned and packed by qzh ; and the sales of meats deboned and packed by qzh that are sold to various meat distributors , wholesalers and super market chains and our own retail butcher stores . qzh is a fully owned subsidiary of our partially owned subsidiary qinghai sanjiang a power agriculture co. , ltd. ( “ sjap ” ) ; as such , the financial statements of these three companies ( sjap , qzh and hsa ) are consolidated into our wholly owned subsidiary , a power agro agriculture development ( macau ) limited ( “ apwam ” ) , as one entity . sjap and qzh are both variable interest entities over which we exercise significant control . ( ii ) the operation of hunan shenghua a power agriculture co. ltd. ( “ hsa ” ) in manufacturing and sales of organic fertilizer . · 2. plantation division refers to the operations of jiangmen city heng sheng tai agriculture development co. ltd. ( “ jhst ” ) in the hu plantation business where dragon fruit flowers ( dried and fresh ) and immortal vegetables are sold to wholesale and retail markets . jhst 's financial statements are consolidated into the financial statements of macau eiji company ltd. ( “ meiji ” ) as one entity . · 3. fishery division refers to the operations of capital award inc. ( “ capital award ” or “ ca ” ) covering its engineering , technology and consulting service management of fishery farms and seafood sales operations and marketing , where ; capital award generates revenues from providing engineering consulting services as turnkey contractors to owners and developers of fishery projects that are being designed and engineered into turnkey contracts by capital award in china using its a power module technology systems ( “ apm ” ) as follows : ( a ) . engineering and technology services ; via consulting and service contracts ( “ csc 's ” ) for the development , construction , and supply of plant and equipment , and management of fishery ( and prawn or shrimp ) farms and related business operations . ( b ) . seafood sales from ca 's projected farms ( discontinued segment of operations beginning october 5 , 2016 ; further information regarding this transition is delineated in this and other sections of the annual report ) through september 30 , 2016 , capital award generated sales revenue from the following : ( 1 ) . sales to jfd ( “ fish farm 1 ” or “ ff1 ” ) , which is a sino foreign joint venture company ( “ sfjvc ” ) , and sales derived from seafood sold by jfd ( currently , only the jfd subsidiary is a sfjvc ) , being consolidated into our wholly owned hong kong subsidiary tri-way industries ltd. ( “ trw ” ) as one entity . ff1 generates sales from its production of ( a ) its in-door apm farm with 16 apm production units and ( b ) its open dam farms producing fish and prawns from 310 mu ( 52 acres ) of land leased from zhongshan a power prawn culture farms development co. ltd. ( “ zsapp , ” “ prawn farm 2 ” or “ pf2 ” ) . ( 2 ) . story_separator_special_tag engineering technology consulting and services : notes to table a ( 1 ) note ( 1.1 , 2.1 and 3.1 ) table ( a.5 ) below shows the revenue , cost of services and gross profit generated from consulting , services , commission and management fees for years 2016 , 2015 and 2014 . 62 replace_table_token_19_th revenues ( consulting , service , commission and management fee ) : revenues decreased by $ 20,109,937 or 21.8 % from $ 92,266,930 for the year ended december 31 , 2015 to $ 72,156,993 for the year ended december 31 , 2016. ca ( fishery ) : revenue from fishery decreased by $ 16,323,963 or 18.4 % from $ 88,480,956 for the year ended december 31 , 2015 to $ 72,156,993 for the year ended december 31 , 2016. siaf ( corporate ) : revenue from corporate decreased by $ 3,785,974 from $ 3,785,974 for the year ended december 31 , 2015 to $ 0 for the year ended december 31 , 2016. the reason for the decrease is due to the reduced pace of work in progress for the construction of restaurant related work during 2016. cost of services ( consulting , service , commission and management fee ) cost of services for consulting , service , commission and management fee decreased by $ 9,631,145 or 17 % from $ 57,046,350 for the year ended december 31 , 2015 to $ 47,415,205 for the year ended december 31 , 2016. the decrease was primarily due to the cost of sale of the master license being inconsequential . ca ( fishery ) : cost of services from fishery decreased by $ 8,226,332 or 15 % from $ 55,641,537 for the year ended december 31 , 2015 to $ 47,415,205 for the year ended december 31 , 2016. the decrease was primarily due to the cost of sale of the master license as inconsequential . siaf ( corporate ) : cost of services from corporate decreased by $ 1,404,813 from $ 1,404,813 for the year ended december 31 , 2015 to $ 0 for the year ended december 31 , 2016. the reason for the decrease is because of no restaurant work being carried out in 2016. gross profit ( consulting , service , commission and management fee ) gross profit of consulting , service , commission and management fees decreased by $ 10,478,792 or 30 % , from $ 35,220,580 for the year ended december 31 , 2015 to $ 24,741,788 for the year ended december 31 , 2016. ca ( fishery ) : gross profit from fishery decreased by $ 8,097,631 or 25 % from $ 32,839,419 for the year ended december 31 , 2015 to $ 24,741,788 for the year ended december 31 , 2016. siaf ( corporate ) : gross profit from corporate decreased by $ 2,381,161 from $ 2,381,161 for the year ended december 31 , 2015 to $ 0 for the year ended december 31 , 2016. the reason for the decrease was due to no work being carried out in 2016. note ( 4 ) to table a 1 other income : other income registered a loss of $ 1,905,040 in 2016 ( government grant $ 1,787,636 & other income $ 318,023 – interest expense $ 4,010,699 ) representing a decrease of $ 1,142,118 from 2015 's - $ 762,922 . 63 note ( 5 ) to table a 1 general and administrative expenses and interest expenses : general and administrative and interest expenses ( including depreciation and amortization ) decreased by $ 806,364 or 4 % from $ 22,014,025 for the year ended december 31 , 2015 to $ 21,207,661 for the year ended december 31 , 2016. the decrease was seen in all sectors , including but not limited to office and corporate expenses of $ 3,174,888 from $ 8,148,940 for the year ended december 31 , 2015 to $ 4,974,052 for the year ended december 31 , 2016 , and the decrease in others and miscellaneous of $ 1,105,875 from $ 3,309,361 for the year ended december 31 , 2015 to $ 2,294,767 for the year ended december 31 , 2016 as shown in the table below : table ( to note 5 ) note ( 5 ) to table a 1 general and administrative expenses and interest expenses : replace_table_token_20_th note ( 6 ) to table a 1 depreciation and amortization : depreciation and amortization increased by $ 1,040,506 or 22 % to $ 5,857,857 for the year ended december 31 , 2016 from $ 4,817,351 for the year ended december 31 , 2015. the increase was primarily due to the increase of depreciation by $ 1,275,102 to $ 4,141,629 for the year ended december 31 , 2016 from depreciation of $ 2,866,527 for the year ended december 31 , 2015 , and the decrease of amortization by $ 234,596 to $ 1,716,228 for the year ended december 31 , 2016 from amortization of $ 1,950,824 for the year ended december 31 , 2015. in this respect , total depreciation and amortization amounted to $ 5,857,857 for the year ended december 31 , 2016 , out of which amount $ 3,540,766 was reported under general and administration expenses and $ 2,317,091 was reported under cost of goods sold ; whereas total depreciation and amortization was at $ 4,817,351 for the year ended december 31 , 2015 and out of which amount $ 3,309,361 was reported under general and administration expenses and $ 1,507,990 was reported under cost of goods sold .
| consolidated results of operations part a. audited income statements of consolidated results of operations for year ended december 31 201 , compared to the year ended december 31 , 2014 and a ( 1 ) income statements ( audited ) replace_table_token_8_th 54 comparative overview of fy2016 and fy2015 based on results as illustrated in table a ( 1 ) , above : notes to table a.1 's 1 , 2 & 3 : ( a ) : information of note ( 1 , 2 & 3 ) sales , cost of sales and gross profit and analysis : the company 's revenues were generated from ( a ) sale of goods and ( b ) consulting and services provided in project and business developments covering technology transfers , engineering , construction , supervision , training , management and technology licensing fees etc . table ( a.2 ) . below shows segmental break-down figures of sales of goods sold , cost of goods sold , and related gross profits for the twelve months ended december 31 , 2016 and the twelve months ended december 31 , 2015 and 2014 . 55 replace_table_token_9_th 56 the company 's revenues generated from sale of goods increased by $ 19,406,221 or 8 % from $ 251,382,538 for the year ended december 31 , 2015 to $ 270,788,759 for the year ended december 31 , 2016. the increase was primarily due to the increase of revenues from the siaf/other and corporate sector ( from $ 37.9 million in 2015 to $ 72.4 million in 2016 ) , collectively . the company 's cost of goods sold increased by $ 17,902,889 or 9 % from $ 193,690,882 for the year ended december 31 , 2015 to $ 211,593,774 for the year ended december 31 , 2016. the increase was primarily due to the increase in cost of goods sold from the siaf/other and corporate sector .
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such statements are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995. wherever possible , we have identified these forward-looking statements by words such as “ will , ” “ may , ” “ anticipates , ” “ believes , ” “ intends , ” “ estimates , ” “ expects , ” “ plans , ” “ projects , ” “ trends , ” “ opportunity , ” “ current , ” “ intention , ” “ position , ” “ assume , ” “ potential , ” “ outlook , ” “ remain , ” “ continue , ” “ maintain , ” “ sustain , ” “ seek , ” “ target , ” “ achieve , ” “ continuing , ” “ ongoing , ” and similar words or phrases , or future or conditional verbs such as “ would , ” “ should , ” “ could , ” “ may , ” or similar expressions . these forward-looking statements are based upon assumptions our management believes are reasonable . such forward-looking statements are subject to risks and uncertainties which could cause our actual results , performance and achievements to differ materially from those expressed in , or implied by , these statements , including , among others , the risks and uncertainties listed in this report under “ item 1a risk factors ” and in our other reports filed with the sec from time-to-time . because our forward-looking statements are based on estimates and assumptions that are subject to significant business , economic and competitive uncertainties , many of which are beyond our control or are subject to change , actual results could be materially different and any or all of our forward-looking statements may turn out to be wrong . forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties . many factors mentioned in our discussion in this report will be important in determining future results . new factors emerge from time-to-time , and it is not possible for us to predict which factors will arise . consequently , we can not assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved . except as required by law , we undertake no obligation to publicly update any of our forward-looking or other statements , whether as a result of new information , future events , or otherwise . overview vericel corporation is a leader in advanced cell therapies and specialty biologics for the sports medicine and severe burn care markets . we currently market two fda-approved autologous cell therapy products in the united states . maci ® ( autologous cultured chondrocytes on porcine collagen membrane ) is an autologous cellularized scaffold product indicated for the repair of symptomatic , single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults . epicel ® ( cultured epidermal autografts ) is a permanent skin replacement hud for the treatment of adult and pediatric patients with deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of tbsa . we also hold an exclusive license from mediwound ltd. for north american rights to nexobrid ® , ( concentrate of proteolytic enzymes enriched in bromelain ) , a registration-stage biological orphan product . on june 30 , 2020 , mediwound submitted to the fda a bla seeking the approval of nexobrid for eschar removal ( debridement ) in adults with deep partial-thickness and or full-thickness thermal burns . the fda subsequently accepted the bla for filing and has assigned a prescription drug user fee act ( pdufa ) target date of june 29 , 2021. covid-19 throughout 2020 , the pandemic caused by the spread of a novel strain of coronavirus ( covid-19 ) has created significant disruptions to the u.s. and global economy and has contributed to significant volatility in financial markets . the global impact of the outbreak is continually evolving and , as the virus spreads and infection rates surge in various locations , many state , local and national governments – including those in massachusetts and michigan , where our operations are located – have responded by issuing , extending and supplementing orders requiring quarantines , restrictions on travel , and the mandatory closure of certain non-essential businesses , among other actions . in the u.s. , the status and application of these orders have varied on a state-by-state basis since the early days of the pandemic . many of the restrictions have been periodically updated as infections rates in the u.s. have risen and fallen and as world health leaders learn more about the virus , its transmission pathway and who is most at risk . because vericel is deemed an essential business , we continue to be exempt from government orders , in their current form , requiring the closure of workplaces and the cessation of business operations . notwithstanding being an essential business , vericel 's business and operations have been adversely impacted by the effects of covid-19 . after the covid-19 pandemic began directly affecting the u.s. , in march 2020 , the american college of surgeons and united states surgeon general recommended that each hospital , health system , and surgeon minimize , postpone , or cancel electively scheduled surgeries . these recommendations were followed by numerous state level executive orders either 58 restricting or partially restricting elective surgeries . because maci is an elective surgical procedure , as a result of these restrictions , beginning in mid-march 2020 , we began to experience a significant increase in cancellations of scheduled maci procedures as well as a slowdown in new maci orders . story_separator_special_tag on september 16 , 2020 , we announced that the fda accepted the bla for review and has assigned a pdufa target date of june 29 , 2021. maci and carticel carticel ® , an earlier generation aci product for the treatment and repair of cartilage defects in the knee , was the first fda-approved autologous cartilage repair product . carticel was replaced at the end of the second quarter of 2017 by maci , which the fda approved on december 13 , 2016 by the fda . maci is a third-generation product for aci , a class of methods for the repair of symptomatic , single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults . the target audience of u.s. physicians is approximately 5,000 orthopedic surgeons and is divided into two segments - a group of orthopedic surgeons who self-identify and or have a formal specialty as sports medicine physicians , and a sub-population of general orthopedic surgeons who perform a high volume of cartilage repair procedures . as of december 31 , 2020 , we have increased the number of maci sales representatives to 76 clinical account specialists and expanded their reach to over nine geographical regions to enable the sales force to call on 2,000 of the general orthopedic surgeons . most private payers have a medical policy that covers treatment with maci with the top 30 largest commercial payers having a formal medical policy for maci or aci in general . even for private payers that have not yet approved a medical policy for maci , for medically appropriate cases , we often obtain approval on a case-by-case basis . for the year ended december 31 , 2020 , maci net revenues totaled $ 94.4 million . epicel epicel is a permanent skin replacement for deep dermal or full-thickness burns greater than or equal to 30 % of tbsa . epicel is regulated by the center for biologics evaluation and research , or cber of the fda under medical device authorities , and is the only fda-approved cultured epidermal autograft product available for large total surface area burns . epicel was designated as a hud in 1998 and a hde application for the product was submitted in 1999. huds are devices that are intended for diseases or conditions that affect fewer than 8,000 individuals annually in the u.s. under an hde approval , a hud can not be sold for an amount that exceeds the cost of research and development , fabrication and distribution unless certain conditions are met . a hud is eligible to be sold for profit after receiving hde approval if the device meets certain eligibility criteria , including where the device is intended for the treatment of a disease or condition that occurs in pediatric patients and such device is labeled for use in pediatric patients . if the fda determines that a hud meets the eligibility criteria , the hud is permitted to be sold for profit so long as the number of devices distributed in any calendar year does not exceed the annual distribution number ( adn ) . the adn is defined as the number of devices reasonably needed to treat a population of 8,000 individuals per year in the u.s. on february 18 , 2016 , the fda-approved our hde supplement to revise the labeled indications of use for epicel to specifically include pediatric patients . the revised product label also now specifies that the probable benefit of epicel , mainly related to survival , was demonstrated in two epicel clinical experience databases and a physician-sponsored study comparing outcomes in patients with massive burns treated with epicel relative to standard care . because of the change in the label to specifically include use in pediatric patients , epicel is no longer subject to the hde profit restrictions . in conjunction with adding the pediatric labeling and meeting pediatric eligibility criteria , the fda has determined the adn number for epicel to be 360,400 which is approximately 45 times larger than the volume of grafts sold in 2019. we currently have an eleven-person sales force comprised of seven ( 7 ) account managers and four ( 4 ) burn clinical specialists , overseen by a senior sales director . in the year ended december 31 , 2020 , epicel net revenues totaled $ 27.5 million . 60 nexobrid our portfolio also includes nexobrid , a topically-administered biological product that enzymatically removes nonviable burn tissue , or eschar , in patients with deep partial and full-thickness thermal burns . on june 30 , 2020 , we announced the submission of a bla to the fda seeking the approval of nexobrid . subsequently , on september 16 , 2020 , we announced that the fda accepted the bla for review and assigned a pdufa target date of june 29 , 2021. nexobrid is approved in the european union and other international markets and has been designated as an orphan biologic in the united states , european union and other international markets . pursuant to the terms of our existing license agreement , if the bla is approved , mediwound will transfer the bla to vericel and vericel will market nexobrid in the u.s. both mediwound and vericel , under the supervision of a central steering committee comprised of members of both companies will continue to guide development of nexobrid in north america . under our license agreement with mediwound , nexobrid is being manufactured for barda prior to approval by the fda under an emergency use authorization .
| results of operations net income our net income for the year ended december 31 , 2020 totaled $ 2.9 million . our net loss for the year ended december 31 , 2019 and december 31 , 2018 totaled $ 9.7 million and $ 8.1 million , respectively , which included a $ 17.5 million upfront payment to mediwound for the nexobrid license in 2019 and a loss on extinguishment of debt of $ 0.8 million in 2018. replace_table_token_2_th net revenues net revenues increased for the year ended december 31 , 2020 , compared to december 31 , 2019 , with both maci and epicel growing , in addition to revenue being recognized related to the first deliveries of nexobrid to barda . an increase in demand during the third and fourth quarters of 2020 , partially offset the effects of covid-19 related shutdowns in the first half of 2020. net revenues increased for the year ended december 31 , 2019 , compared to december 31 , 2018 , primarily due to an increase in maci volume growth as well as continued growth in demand for epicel grafts over the prior year . net revenues for the years ended december 31 , 2020 , 2019 and 2018 are shown below . replace_table_token_3_th seasonality . during 2020 , the effects of the covid-19 pandemic disrupted the normal seasonality of our maci business . these effects included , among others , the temporary limitation of elective surgical procedures throughout the country , the 61 inability of our clinical account specialists to call on surgeon customers and , we believe , a reduction in the number of patients seeking treatment for cartilage damage .
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in addition , please see “ information regarding non-gaap measures and other ” beginning on page 34 for a reconciliation of the non-gaap measures for adjusted total revenues , organic commission , fee and supplemental revenues and adjusted ebitdac to the comparable gaap measures , as well as other important information regarding these measures . we are engaged in providing insurance brokerage and consulting services , and third-party property/casualty claims settlement and administration services to entities in the u.s. and abroad . we believe that one of our major strengths is our ability to deliver comprehensively structured insurance and risk management services to our clients . our brokers , agents and administrators act as intermediaries between underwriting enterprises and our clients and we do not assume net underwriting risks . we are headquartered in rolling meadows , illinois , have operations in 49 countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent brokers and consultants . in 2020 , we expanded , and expect to continue to expand , our international operations through both acquisitions and organic growth . we generate approximately 68 % of our revenues for the combined brokerage and risk management segments domestically , with the remaining 32 % generated internationally , primarily in the u.k. , australia , canada , new zealand and bermuda ( based on 2020 revenues ) . we expect that our international revenue as a percentage of our total revenues in 2021 will be comparable to 2020. we have three reportable segments : brokerage , risk management and corporate , which contributed approximately 74 % , 14 % and 12 % , respectively , to 2020 revenues . our major sources of operating revenues are commissions , fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations . investment income is generated from invested cash and fiduciary funds , clean energy investments , and interest income from premium financing . this management 's discussion and analysis of financial condition and results of operations contains certain statements relating to future results which are forward-looking statements as that term is defined in the private securities litigation reform act of 1995. please see “ information concerning forward-looking statements ” at the beginning of this annual report , for certain cautionary information regarding forward-looking statements and a list of factors that could cause our actual results to differ materially from those predicted in the forward-looking statements . prior year discussion of results and comparisons for information on fiscal 2018 results and similar comparisons , see `` item 7. management 's discussion and analysis of financial condition and results of operations '' of our form 10-k for the fiscal year ended december 31 , 2019 . 27 summary of financial results - year ended december 31 , see the reconciliations of non-gaap measures on page 30. replace_table_token_3_th in our corporate segment , net after tax earnings from our clean energy investments was $ 69.8 million and $ 88.5 million in 2020 and 2019 , respectively . our current estimate of the 2021 annual net after tax earnings , including irc section 45 tax credits , which will be produced from all of our clean energy investments in 2021 , is $ 60.0 million to $ 75.0 million . we expect to use the additional cash flow generated by these earnings to continue our mergers and acquisition strategy in our core brokerage and risk management operations . 28 the following provides information that management believes is helpful when comparing revenues before reimbursements , net earnings , ebitdac and diluted net earnings per share for 2020 and 2019 . in addition , these tables provide reconciliations to the most comparable gaap measures for adjusted revenues , adjusted ebitdac and adjusted diluted net earnings per share . reconciliations of ebitdac for the brokerage and risk management segments are provided on pages 3 7 and 4 2 of this filing . replace_table_token_4_th * for 2020 , the pretax impact of the brokerage segment adjustments totals $ 125.8 million , with a corresponding adjustment to the provision for income taxes of $ 28.1 million relating to these items . the pretax impact of the risk management segment adjustments totals $ 8.5 million , with a corresponding adjustment to the provision for income taxes of $ 2.1 million relating to these items . there is no pretax impact of the corporate segment adjustments , but there is an adjustment to the provision for income taxes of $ 1.1 million . for the corporate segment , the clean energy related adjustments are described on page 47. for 2019 , the pretax impact of the brokerage segment adjustments totals $ 6.9 million , with no corresponding adjustment to the provision for income taxes relating to these items . the pretax impact of the risk management segment adjustments totals $ 5.6 million , with a corresponding adjustment to the provision for income taxes of $ 1.5 million relating to these items . the pretax impact of the corporate segment adjustments totals $ 17.9 million , with an adjustment to the benefit for income taxes of $ 3.9 million . for the corporate segment , the clean energy related adjustments are described on page 47 . 29 reconciliation of non-gaap measures - pre-tax earnings and diluted net earnings per share ( in millions except share and per share data ) earnings ( loss ) before income taxes provision ( benefit ) for income taxes net earnings ( loss ) net earnings ( loss ) attributable to noncontrolling interests net earnings ( loss ) attributable to controlling interests diluted net earnings ( loss ) per share year ended dec 31 , 2020 brokerage , as reported $ 1,142.3 $ 276.3 $ 866.0 $ 4.9 $ 861.1 $ 4.42 net losses on divestitures 5.8 1.1 4.7 — 4.7 0.02 acquisition integration 25.1 5.8 19.3 — 19.3 0.10 workforce and lease termination 43.9 9.9 34.0 — 34.0 0.17 acquisition related adjustments 51.0 11.3 39.7 — 39.7 0.20 brokerage , as adjusted $ 1,268.1 $ 304.4 $ 963.7 $ 4.9 $ story_separator_special_tag given the deterioration in economic conditions , since the first quarter of 2020 , we are actively managing costs by limiting discretionary spending such as travel , entertainment and advertising expenses , adjusting our real estate footprint , reducing capital expenditures , limiting use of outside labor and consultants , increasing utilization of our centers of excellence , and we have adjusted portions of our workforce where volumes have declined significantly and normal attrition was not sufficient . the cost saving impact of these actions in the second , third and fourth quarters of 2020 was substantial ; with estimated quarterly savings of approximately $ 65 million to $ 70 million pretax compared to the same quarters in 2019 , as adjusted for pro forma full‑quarter costs related to acquisitions . offsetting these savings were severance and lease termination costs related to these actions . we believe savings in the first quarter of 2021 compared to the first quarter of 2020 could again total approximately $ 60 million to $ 65 million pretax after adjusting for pro forma costs related to acquisitions . offsetting possible future savings would be additional implementation and execution costs , which we estimate could total approximately $ 12 million to $ 15 million pretax . future net savings may be lower if the economy recovers faster than we are forecasting or our costs to implement changes exceed our estimates . we have not seen any meaningful decline in cash receipts from our clients to date and we have more than $ 1.6 billion of available liquidity . a prolonged period of economic weakness may cause future cash collections to deteriorate , but we believe our cost savings , reduced non-client facing capital expenditures and working capital improvements could mitigate a potential decline in our cash flows over the near‑term . for a discussion of risk and uncertainties relating to covid‑19 for our business , results of operations and financial condition , see part ii , item 1a . risk factors in our form 10-k page 9. update on ransomware incident as previously disclosed , on september 26 , 2020 , we detected a ransomware incident impacting our internal systems . we implemented our incident response plan , took our global systems offline , isolated impacted systems , retained cyber security counsel and forensic experts and reported the event to the fbi . the incident has been contained , and all critical systems are back in service . while we remain unaware of any actual or attempted misuse of information , our investigation into the incident remains ongoing . we are working to conclude our forensic investigation and determine the nature and extent of unauthorized access to information on our systems . we intend to comply with all applicable laws and regulations . based on the results of the forensic investigation to date , we do not believe this incident will have a material adverse effect on our business , operations or financial condition . we maintain cyber liability insurance coverage , but disputes over the extent of insurance coverage for claims are not uncommon . furthermore , while we have not been the subject of any legal proceedings involving this incident , it is possible we could be the subject of claims from persons alleging they suffered damages from the incident , or actions by governmental authorities . 31 insurance market overview fluctuations in premiums charged by property/casualty underwriting enterprises have a direct and potentially material impact on the insurance brokerage industry . commission revenues are generally based on a percentage of the premiums paid by insureds and normally follow premium levels . insurance premiums are cyclical in nature and may vary widely based on market conditions . various factors , including competition for market share among underwriting enterprises , increased underwriting capacity and improved economies of scale following consolidations , can result in flat or reduced property/casualty premium rates ( a “ soft ” market ) . a soft market tends to put downward pressure on commission revenues . various countervailing factors , such as greater than anticipated loss experience , unexpected loss exposure and capital shortages , can result in increasing property/casualty premium rates ( a “ hard ” market ) . a hard market tends to favorably impact commission revenues . hard and soft markets may be broad-based or more narrowly focused across individual product lines or geographic areas . as markets harden , buyers of insurance ( such as our brokerage clients ) , have historically tried to mitigate premium increases and the higher commissions these premiums generate , including by raising their deductibles and or reducing the overall amount of insurance coverage they purchase . as the market softens , or costs decrease , these trends have historically reversed . during a hard market , buyers may switch to negotiated fee in lieu of commission arrangements to compensate us for placing their risks , or may consider the alternative insurance market , which includes self-insurance , captives , rent-a-captives , risk retention groups and capital market solutions to transfer risk . our brokerage units are very active in these markets as well . while increased use by insureds of these alternative markets historically has reduced commission revenue to us , such trends generally have been accompanied by new sales and renewal increases in the areas of risk management , claims management , captive insurance and self-insurance services and related growth in fee revenue . inflation tends to increase the levels of insured values and risk exposures , resulting in higher overall premiums and higher commissions . however , the impact of hard and soft market fluctuations has historically had a greater impact on changes in premium rates , and therefore on our revenues , than inflationary pressures . we typically cite the council of insurance agents & brokers ( which we refer to as the ciab ) insurance pricing quarterly survey at this time as an indicator of the current insurance rate environment . the fourth quarter 2020 survey had not been published as of the filing date of this report .
| adjusted results of approximately 2 4 .0 % to 2 6 .0 % in our risk management segment for the foreseeable future . corporate the corporate segment reports the financial information related to our clean energy and other investments , our debt , certain corporate and acquisition-related activities and the impact of foreign currency translation . see note 14 to our 2020 consolidated financial statements for a summary of our investments at december 31 , 2020 and 2019 and a detailed discussion of the nature of these investments . see note 8 to our 2020 consolidated financial statements for a summary of our debt at december 31 , 2020 and 2019. financial information relating to our corporate segment results for 2020 and 2019 ( in millions , except per share and percentages ) : replace_table_token_17_th revenues - revenues in the corporate segment consist of the following : revenues from consolidated clean coal production plants represents revenues from the consolidated irc section 45 facilities in which we have a majority ownership position and maintain control over the operations at the related facilities . the decrease in 2020 and 2019 was due to decreased production of refined coal . royalty income from clean coal licenses represents revenues related to chem-mod llc . we hold a 46.5 % controlling interest in chem-mod llc . as chem-mod llc 's manager , we are required to consolidate its operations . the decrease in royalty income in 2020 compared to 2019 was due to decreased production of refined coal by chem-mod llc 's licensees . 45 expenses related to royalty income of chem ‑ mod llc were $ 10.6 million and $ 17.5 million in 2020 and 2019 , respectively . these expenses are included in the operating expenses discussed below . in 2019 , chem-mod llc , incurred costs related to settling certain patent infringement litigation .
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asu 2016-02 is effective for annual reporting periods beginning after december 15 , 2018 , and interim periods within those annual periods . the company adopted asu 2016-02 during the first quarter of 2019 and elected the optional transition method . the company also elected the package of practical expedients provided in the guidance which permits the company to not reassess under the new standard the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “ selected financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risk , uncertainties and , assumptions . certain risks , uncertainties and other factors , including but not limited to those set forth under “ cautionary note regarding forward-looking statements , ” “ risk factors , ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected in the forward looking statements . we assume no obligation to update any of these forward-looking statements . overview we are metrocity bankshares , inc. , a bank holding company headquartered in the atlanta metropolitan area . we operate through our wholly-owned banking subsidiary , metro city bank , a georgia state-chartered commercial bank that was founded in 2006. we currently operate 19 full-service branch locations in multi-ethnic communities in alabama , florida , georgia , new york , new jersey , texas and virginia . we are focused on delivering full-service banking services in markets , predominantly asian-american communities in growing metropolitan markets in the eastern u.s. and texas . prior to december 2014 , we operated without a holding company , and in december 2014 , the bank formed metrocity bankshares , inc. as its holding company . on december 31 , 2014 , metrocity bankshares , inc. acquired all of the outstanding common stock of metro city bank as a part of the holding company formation transaction . we are a bank holding company and we conduct all of our material business operations through the bank . as a result , the discussion and analysis relates to activities primarily conducted at the bank level . critical accounting policies and estimates our accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and conform to general practices within the industry in which we operate . to prepare financial statements in conformity with gaap , management makes estimates , assumptions and judgments based on available information . these estimates , assumptions and judgments affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements and , as this information changes , actual results could differ from the estimates , assumptions and judgments reflected in the financial statement . in particular , management has identified several accounting policies that , due to the estimates , assumptions and judgments inherent in those policies , are critical in understanding our financial statements . the following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments . additional information about these policies can be found in note 1 of our consolidated financial statements as of december 31 , 2019 , included elsewhere in this annual report on form 10-k. allowance for loan losses the all is a valuation allowance for probable incurred credit losses . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . management estimates the allowance balance required using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors . allocations of the allowance may be made for specific loans , but the entire allowance is available for any loan that , in management 's judgment , should be charged off . the all is maintained at a level that management believes is appropriate to provide for known and inherent incurred loan losses as of the date of the consolidated balance sheet and we have established methodologies for the determination of its adequacy . the methodologies are set forth in a formal policy and take into consideration the need for an overall general valuation allowance as well as specific allowances that are determined on an individual loan basis . 50 this evaluation is inherently subjective as it requires material estimates that are susceptible to significant change including the amounts and timing of future cash flows expected to be received on impaired loans . servicing assets servicing assets are recognized separately when loans are sold and the rights to service loans are retained . when loans are sold , servicing assets are recorded at fair value in accordance with asc topic 860 , transfers and servicing ( “ asc 860 ” ) . fair value is based on market prices for comparable servicing contracts , when available , or alternatively , is based on a valuation model that calculates the present value of estimated future net servicing income . the fair value of servicing rights is highly sensitive to changes in underlying assumptions . changes in the prepayment speed and discount rate assumptions have the most significant impact on the fair value of servicing assets . servicing fee income , which is reported on the income statement as mortgage servicing income and sba servicing income , is recorded for fees earned for servicing loans . the fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned . the amortization of servicing assets is netted against loan servicing fee income . late fees and ancillary fees related to loan servicing are not material . story_separator_special_tag compensation or golden parachute arrangements . these exemptions will apply for a period of five years from our initial public offering date on october 7 , 2019 or until we are no longer an “ emerging growth company , ” whichever is earlier . recent developments stock split on august 30 , 2019 , we effected a two-for-one split of our common stock in the form of a stock dividend , whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of august 15 , 2019. the effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this annual report . public company costs we completed our initial public offering in october 2019. there are additional costs associated with operating as a public company , hiring additional personnel , enhancing technology and expanding our capabilities . we expect that these costs will include legal , regulatory , accounting , investor relations and other expenses that we did not incur as a private company . sarbanes-oxley , as well as rules adopted by the u.s. securities and exchange commission , or sec , the fdic and national securities exchanges also requires public companies to implement specified corporate governance practices . in addition , due to regulatory changes in the banking industry and the implementation of new laws , rules and regulations , we are now subject to higher regulatory compliance costs . these additional rules and regulations also increase our legal , regulatory , accounting and financial compliance costs and make some activities more time-consuming . 52 story_separator_special_tag an increase in the average balance of our residential mortgage loans which grew $ 168.5 million to $ 702.8 million at december 31 , 2018. total interest , loan fee and dividend income was $ 72.9 million in 2018 compared to $ 60.5 million in 2017 , an increase of $ 12.4 million , or 20.4 % . this increase was primarily due to the growth of our loan portfolio . interest and fees on loans was $ 70.2 million in 2018 compared to $ 59.1 million in 2017 , an increase of $ 11.1 million , or 18.8 % . this increase in interest income on loans was primarily due to a 18.6 % increase in the average balance of loans outstanding , primarily attributable to an increase of $ 168.5 million in average balance outstanding of residential real estate loans . interest income on total investments was $ 2.6 million in 2018 compared to $ 1.4 million in 2017. the increase in interest income on total investments was primarily due to a 39.3 % increase in the average balance of federal funds sold and other investments . interest income on federal funds sold and other investments increased $ 1.0 million to $ 1.8 million in 2018 from $ 742,000 in 2017 , due to a $ 22.5 million increase in the average balance of federal funds sold and other investments coupled with a 91 basis point increase in the average yield on federal fund sold and other investments . additionally , securities purchased under agreements to resell were purchased in 2017 and a full year of interest income in 2018 contributed $ 187,000 to the increase in interest income on total investments . total interest expense was $ 14.7 million in 2018 compared to $ 8.6 million in 2017 , an increase of $ 6.1 million , or 70.3 % . the increase was primarily due to increases in interest expense on deposits . interest expense on deposits was $ 14.0 million in 2018 compared to $ 7.7 million in 2017 , an increase of $ 6.3 million , or 81.3 % . this increase was primarily due to a $ 174.7 million increase in the average balance for time deposits , coupled with a 52 basis point increase in the average interest rate paid . net interest margin for the years ended december 31 , 2018 and 2017 was 4.48 % and 4.76 % , respectively . 54 average balances , interest and yields the following tables present , for the years ended december 31 , 2019 , 2018 and 2017 , information about : ( i ) weighted average balances , the total dollar amount of interest income from interest-earning assets and the resultant average yields ; ( ii ) average balances , the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates ; ( iii ) net interest income ; ( iv ) the interest rate spread ; and ( v ) the net interest margin . replace_table_token_4_th ( 1 ) includes income and average balances for term federal funds , interest-earning cash accounts , and other miscellaneous earning assets . ( 2 ) average loan balances include nonaccrual loans and loans held for sale . 55 rate/volume analysis increases and decreases in interest income and interest expense result from changes in average balances ( volume ) of interest-earning assets and interest-bearing liabilities , as well as changes in average interest rates . the following table sets forth the effects of changing rates and volumes on our net interest income during the period shown . information is provided with respect to ( i ) effects on interest income attributable to changes in volume ( change in volume multiplied by prior rate ) and ( ii ) effects on interest income attributable to changes in rate ( changes in rate multiplied by prior volume ) . change applicable to both volumes and rate have been allocated to volume . replace_table_token_5_th ( 1 ) includes income and average balances for term federal funds , interest-earning cash accounts , and other miscellaneous earning assets . ( 2 ) loan balances include nonaccrual loans and loand held for sale . provision for loan losses credit risk is inherent in the business of making loans .
| results of operations net income year ended december 31 , 2019 compared to year ended december 31 , 2018 we recorded net income of $ 44.7 million for the year ended december 31 , 2019 compared to $ 41.3 million for the same period in 2018 , an increase of $ 3.4 million , or 8.2 % . the increase was due to a $ 2.8 million increase in net interest income , a $ 2.3 million increase in noninterest income , and a $ 1.2 million decrease in provision for loan losses , partially offset by a $ 1.4 million increase in noninterest expense . basic and diluted earnings per common share for the year ended december 31 , 2019 was $ 1.82 and $ 1.81 , respectively , compared to $ 1.71 and $ 1.69 for the basic and diluted earnings per common share for the same period in 2018. year ended december 31 , 2018 compared to year ended december 31 , 2017 we reported net income for the year ended december 31 , 2018 of $ 41.3 million compared to net income of $ 31.9 million for the year ended december 31 , 2017 , an increase of $ 9.4 million , or 29.6 % . the increase was due to a $ 6.3 million increase in net interest income , a $ 5.2 million increase in noninterest income , a $ 1.8 million decrease in provision for loan losses , and a $ 3.5 million decrease in provision for income taxes . these changes were offset by a $ 7.4 million increase in noninterest expense .
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the carrying value of the shocking investment at december 29 , 2012 represents the company 's best estimate of the fair value of its investment as of that date . shocking is currently seeking additional funding , and if these fund-raising efforts are not successful , further impairment of this investment may occur . 7. debt the carrying amounts of debt at december 29 , 2012 and december 31 , 2011 are as follows ( in thousands ) : replace_table_token_21_th term loan story_separator_special_tag littelfuse , inc. and its subsidiaries ( the “ company ” or “ littelfuse ” ) design , manufacture and sell circuit protection devices for use in the electronics , automotive and electrical markets throughout the world . the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide the reader with information that will assist in understanding the company 's 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 the consolidated financial statements . the discussion also provides information about the financial results of the various business unit segments to provide a better understanding of how those segments and their results affect the financial condition and results of operations of littelfuse as a whole . business segment information u.s. story_separator_special_tag unconsolidated affiliate was $ 7.3 million in 2012. during the fourth quarter , the company determined that it had the ability to exert significant influence over shocking technologies , inc. ( “ shocking ” ) and as a result began accounting for the investment using the equity method . in accordance with accounting standards codification ( “ asc ” ) 323 , the company retroactively recorded its proportional share of shocking 's operating losses , which amounted to approximately $ 4.0 million in 2012. the proportional amount of operating losses in 2011 was not material . in addition , the company concluded that there was an other-than-temporary impairment which existed for its remaining investment in shocking . the company engaged a third-party valuation firm to assist in developing the fair value of the investment in shocking . based on the then fair value , the company determined that there was an impairment of approximately $ 3.3 million which was recorded as a non-operating impairment and equity loss of unconsolidated affiliate in the consolidated statements of net income . see note 6 of the notes to consolidated financial statements included in this report . other expense ( income ) , net , consisting of interest income , royalties , non-operating income and foreign currency items was $ 2.2 million of income in 2012 compared to $ 2.9 million of income in 2011.the year-over-year decrease in income primarily reflects the impact of unfavorable currency translation effects ( primarily due to the weakening of the euro against the u.s. dollar ) in 2012. income before income taxes was $ 100.1 million in 2012 compared to $ 115.1 million in 2011. income tax expense was $ 24.7 million in 2012 compared to $ 28.1 million in 2011. the 2012 effective income tax rate was 24.7 % compared to 24.4 % in 2011. the 2012 effective tax rate is lower than the statutory tax rate primarily due to the result of more income earned in low tax jurisdictions . 24 results of operations — 2011 compared with 2010 net sales increased $ 57.0 million or 9 % to $ 665.0 million for fiscal year 2011 compared to $ 608.0 million in fiscal year 2010 due primarily to an incremental $ 50.1 million from business acquisitions and growth in protection relays , custom mining products and automotive products , offset by lower electronics sales . the company also experienced $ 10.4 million in favorable foreign currency effects in 2011 as compared to 2010. the favorable foreign currency impact primarily resulted from sales denominated in euros and , to a lesser extent , canadian dollars and japanese yen . excluding acquisitions and currency effects , net sales decreased $ 3.5 million or 1 % year over year . the automotive business segment sales increased $ 58.5 million or 42 % to $ 197.6 million . the electronics business segment sales decreased $ 18.9 million or 5 % to $ 354.5 million , and the electrical business segment sales increased $ 17.4 million or 18 % to $ 112.9 million . sales levels in 2011 , excluding acquisitions and currency effects , were negatively impacted by slowing demand for the company 's electronics products coupled with inventory de-stocking in the supply chain . sales levels in 2010 were positively impacted by the global economic recovery , distributor inventory replenishment and effective execution of the company 's strategic growth plans . the increase in automotive sales was primarily due to an incremental $ 46.9 million in sales related to cole hersee , organic growth in all regions and favorable currency effects . excluding cole hersee , automotive sales increased $ 11.6 million or 8.4 % year over year . currency effects added $ 4.3 million to sales in 2011 compared to 2010 primarily due to the stronger euro . the decrease in electronics sales reflected slowing demand across all geographies coupled with inventory de-stocking in the supply chain . in addition , the effects of the japan disaster in march 2011 negatively impacted sales by approximately $ 3 to $ 4 million in 2011. the negative impact from a decrease in volume was partially offset by net favorable currency effects of $ 4.0 million primarily from sales denominated in euros and japanese yen . the increase in electrical sales was due to continued strong growth for protection relays and custom mining products and steady improvement in the industrial fuse market . this was partially offset by a slowdown in the solar market . the electrical segment experienced net favorable currency effects of $ 2.0 million primarily from sales denominated in canadian dollars . story_separator_special_tag term loan on september 29 , 2008 , the company entered into a loan agreement with various lenders that provided the company with a five-year term loan facility of up to $ 80.0 million for the purposes of ( i ) refinancing certain existing indebtedness ; ( ii ) funding working capital needs ; and ( iii ) funding capital expenditures and other lawful corporate purposes , including permitted acquisitions . the company terminated this loan agreement on june 13 , 2011 at which time any outstanding amounts were refinanced under the company 's new revolving credit facility effective june 13 , 2011. revolving credit facilities the company had an unsecured domestic financing arrangement , which expired on july 21 , 2011 , consisting of a credit agreement with banks that provided a $ 75.0 million revolving credit facility , with a potential to increase up to $ 125.0 million upon request of the company and agreement with the lenders . the company refinanced this loan agreement with proceeds from a new revolving credit facility on june 13 , 2011. the company 's revolving credit facility is an uncommitted and discretionary facility , subject to withdrawal at any time by the lender upon due notice to the company . on june 13 , 2011 , the company entered into a new credit agreement with certain commercial banks that provides an unsecured revolving credit facility in an amount of up to $ 150.0 million , with a potential to increase up to $ 225.0 million . at december 29 , 2012 , the company had available approximately $ 65.0 million of borrowing capacity under the revolving credit agreement at an interest rate of libor plus 1.25 % ( 1.46 % as of december 29 , 2012 ) . the credit agreement replaces the company 's previous credit agreement dated july 21 , 2006 and term loan agreement dated september 29 , 2008 , and , unless terminated earlier , will terminate on june 13 , 2016. during the second quarter of 2011 , $ 0.2 million of previously capitalized debt issuance costs were written off as a non-cash charge and $ 0.7 million of new debt issuance costs incurred was capitalized and will be amortized over the life of the new credit agreement . this arrangement contains covenants that , among other matters , impose limitations on the incurrence of additional indebtedness , future mergers , sales of assets , payment of dividends , and changes in control , as defined in the agreement . in addition , the company is required to satisfy certain financial covenants and tests relating to , among other matters , interest coverage and leverage . at december 29 , 2012 , the company was in compliance with all covenants under the revolving credit facility . during the second quarter of 2011 , as part of the new refinancing arrangement discussed above , $ 47.0 million of indebtedness that was due on the previous term loan was settled and rolled-over into the revolving credit facility by the lender . other obligations for the fiscal year ended december 29 , 2012 , the company had $ 0.8 million outstanding in letters of credit . no amounts were drawn under these letters of credit at december 29 , 2012. for the fiscal year ended december 31 , 2011 , the company had $ 2.3 million available in letters of credit . no amounts were drawn under these letters of credit at december 31 , 2011 . 27 cash flows and working capital the company started 2012 with $ 164.0 million of cash . net cash provided by operating activities in 2012 was approximately $ 116.2 million and included $ 75.3 million in net income and $ 46.0 million in non-cash adjustments ( primarily $ 31.4 million in depreciation and amortization ) , partially offset by $ 5.2 million of changes in operating assets and liabilities . changes in operating assets and liabilities in 2012 ( including short-term and long-term items ) that negatively impacted cash flows in 2012 consisted of changes in accounts receivable ( $ 1.6 million ) , accrued expenses including post-retirement ( $ 9.6 million ) , accrued payroll and severance ( $ 4.4 million ) , accrued taxes ( $ 0.4 million ) , and prepaid expenses and other ( less than $ 0.1 million ) . accrued expenses including post-retirement included $ 10.0 million in pension contributions in 2012. positively impacting cash flows were changes in inventory ( $ 5.4 million ) and accounts payable ( $ 5.4 million ) . net cash used in investing activities in 2012 was approximately $ 51.7 million and included $ 22.5 million in purchases of property , plant and equipment ( primarily production equipment for capacity expansion and new products at the company 's facilities in mexico , china and the philippines ) , $ 4.6 million for purchases of short-term investments , $ 34.0 million for the acquisitions of accel and terra power , a $ 2.0 million secured loan to and $ 10.0 million of additional investment in shocking technologies . offsetting the cash used in investing activities was $ 3.7 million in proceeds from sales of property , plant and equipment and $ 17.8 million in proceeds from maturities of short-term investments . net cash provided by financing activities in 2012 was approximately $ 0.8 million , which included $ 1.8 million in net payments from borrowing , $ 2.7 million in excess tax benefits on share-based compensation and $ 16.4 million in cash proceeds from the exercise of stock options . additionally the company paid cash dividends of $ 16.6 million during the year . information regarding the company 's debt is provided in note 7 of the notes to consolidated financial statements included in this report . the effect of exchange rate changes increased cash by $ 6.2 million in 2012. the net cash provided by operating activities less net cash used in financing and provided by investing activities plus the effect of exchange rate changes , resulted in a $ 71.4
| generally accepted accounting principles ( “ gaap ” ) dictates annual and interim reporting standards for an enterprise 's operating segments and related disclosures about its products , services , geographic areas and major customers . within u.s. gaap , an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses , and about which separate financial information is regularly evaluated by the chief operating decision maker ( “ codm ” ) in deciding how to allocate resources . the codm is the company 's president and chief executive officer . 21 the company reports its operations by three business unit segments : electronics , automotive and electrical . the following table is a summary of the company 's operating segments ' net sales by business unit and geography ( in millions ) : replace_table_token_6_th ( a ) sales by geography represent sales to customer or distributor locations . ( b ) 2012 and 2011 include cole hersee net sales of $ 47.2 million and $ 46.9 million for fiscal years 2012 and 2011 , respectively . ( c ) 2012 and 2011 include selco net sales of $ 6.0 million and $ 3.2 million for fiscal years 2012 and 2011 , respectively . ( d ) 2012 includes accel and terra power net sales of $ 11.2 million and $ 1.7 million , respectively . business unit segment information is described more fully in note 16 of the notes to consolidated financial statements .
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see story_separator_special_tag results of operations management has elected to apply the fast act modernization and simplification of regulation s-k , which provides the option to limit the discussion to the two most recent calendar years . the discussion and analysis disclosed herein apply to material changes in the consolidated financial statements for 2020 and 2019. for the comparison of 2019 and 2018 , see the management 's discussion and analysis of financial condition and results of operations in part ii , item 7 of the company 's 2019 annual report on form 10-k , filed with the securities and exchange commission on march 2 , 2020. the following discussion and analysis of the results of operations and financial condition of invesco ltd. and its subsidiaries ( collectively , the “ company ” or “ invesco ” ) should be read in conjunction with the “ forward-looking statements ” disclosure set forth in part i and the “ risk factors ” set forth in item 1a of part i of this annual report on form 10‑k , each of which describe our risks , uncertainties and other important factors in more detail . 28 executive overview the following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented . this overview and the remainder of this management 's discussion and analysis supplements and should be read in conjunction with the consolidated financial statements of invesco and the notes thereto contained elsewhere in this annual report on form 10-k. throughout 2020 , global markets experienced record levels of volatility , transitioning quickly from highs in the beginning of the year to extreme lows as global markets first reacted to the covid-19 pandemic . the pandemic had a severe impact on the economy , increasing unemployment and decreasing consumer spending throughout the global markets . however , beginning in april 2020 , equity markets in many major indices experienced near continual gains throughout the remainder of 2020 , more than reversing losses earlier in the year . the increasing equity markets were driven by the softening of social containment measures and reopening of businesses following shut-downs earlier in the year , accommodative fiscal and monetary policies enacted by many central governments and the authorization of multiple covid-19 vaccines . despite the increase in equity markets , the economy contracted in many developed and developing countries in 2020. the table below summarizes the year ended december 31 returns based on price appreciation/ ( depreciation ) of several major market indices for 2020 and 2019 : replace_table_token_4_th the company 's financial results are impacted by the fluctuations in exchange rates against the u.s. dollar . our revenues are directly influenced by the level and composition of our aum . therefore , movements in global capital market levels , net new business inflows ( or outflows ) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period . as fee rates differ across geographic locations , changes to exchange rates have an impact on the net revenue yields . invesco benefits from our long-term efforts to ensure a diversified base of aum . one of invesco 's core strengths , and a key differentiator for the company within the industry , is our broad diversification across client domiciles , asset classes and distribution channels . our geographic diversification recognizes growth opportunities in different parts of the world . this broad diversification mitigates the impact on invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels . update on significant events and transactions over the past decade , we 've been highly focused on investing ahead of shifts in client demand , putting us in a strong position to take advantage of key industry tailwinds in the future . during 2020 , we continued to invest in capabilities where we see client demand or future opportunities by hiring strong talent , further upgrading our technology platform and launching new products . we believe the ability to leverage the capabilities developed by our investment teams to meet client demand across the globe is a significant differentiator for our firm . as previously disclosed , we are undertaking a strategic evaluation of our business focusing on four key areas of our expense base : our organizational model , our real estate footprint , management of third party spend , and technology and operations efficiency . we plan to invest in key areas of growth aligned with our strategic plan , including etfs , fixed income , china , solutions , alternatives and global equities , while creating permanent annual net operating expense improvements of $ 200 million . a significant element of the savings will be generated from realigning our workforce to support key areas of growth as well as repositioning some of our workforce to lower cost locations . we expect $ 150 million of the savings to be achieved by 29 the end of 2021 with the remainder by the end of 2022. remaining restructuring costs related to the strategic evaluation are estimated to be in a range of $ 150 to $ 175 million over the next two years , with $ 119.0 million incurred in 2020. in 2019 , invesco completed the acquisition of oppenheimerfunds ( ofi ) , and the integration of our two firms . building on the combination with ofi , in 2020 we further deepened our relationships with clients in the us , expanded the capabilities we offered globally and further scaled our business for the benefit of clients and shareholders . the firm is also highly focused on delivering the additional capabilities achieved through the combination to institutional and non-us markets . managing our business and meeting client needs through covid-19 invesco is committed to helping our employees , our clients and our communities navigate the challenges presented by the impacts of covid-19 . story_separator_special_tag the company is required to consolidate certain of these managed funds from time-to-time , as discussed more fully in item 8 , financial statements and supplementary data , note 1 , `` accounting policies -- basis of accounting and consolidation . '' investment products that are consolidated are referred to in this form 10-k ( report ) as consolidated investments products ( cip ) . the company 's economic risk with respect to each investment in cip is limited to its equity ownership and any uncollected management and performance fees . the majority of the company 's cip balances are clo-related . the collateral assets of the clos are held solely to satisfy the obligations of the clos . the company has no right to the benefits from , nor does it bear the risks associated with , the collateral assets held by the clos , beyond the company 's direct investments in , and management and performance fees generated from , the clos . if the company were to liquidate , the collateral assets would not be available to the general creditors of the company , and as a result , the company does not consider them to be company assets . likewise , the investors in the clos have no recourse to the general credit of the company for the notes issued by the clos . the company therefore does not consider this debt to be a company liability . the impact of cip is so significant to the presentation of the company 's consolidated financial statements that the company has elected to deconsolidate these products in its non-gaap disclosures . the following discussion therefore combines the results presented under u.s. generally accepted accounting principles ( u.s. gaap ) with the company 's non-gaap presentation . this management 's discussion and analysis of financial condition and results of operations contains four distinct sections , which follow after the assets under management discussion : results of operations ( year ended december 31 , 2020 compared to december 31 , 2019 ) ; schedule of non-gaap information ; balance sheet discussion ; and liquidity and capital resources . to assess the impact of cip on the company 's results of operations and balance sheet discussion , refer to part ii , item 8 , financial statements , note 21 , `` consolidated investment products . '' the impact on the company 's results of operations is illustrated by a column which shows the dollar-value change in the consolidated figures , as caused by the consolidation of cip . for example , the impact of cip on operating revenues for the year ended december 31 , 2020 was a reduction of $ 39.8 million . this indicates that their consolidation reduced consolidated revenues by this amount , reflecting the elimination upon their consolidation of the operating revenues earned by invesco for managing these investment products . wherever a non-gaap measure is referenced , a disclosure will follow in the narrative or in the note referring the reader to the schedule of non-gaap information , where additional details regarding the use of the non-gaap measure by the company are disclosed , along with reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . to further enhance the readability of the results of operations section , separate tables for each of the revenue , expense , and other income and expenses ( non-operating income/expense ) sections of the income statement introduce the narrative that follows , providing a section-by-section review of the company 's income statements for the periods presented . 31 story_separator_special_tag assets under management the following presentation and discussion of aum includes passive and active aum . passive aum include index-based etfs , unit investment trusts ( uits ) , non-management fee earning aum and other passive mandates . active aum is total aum less passive aum . non-management fee earning aum includes non-management fee earning etfs , uit and product leverage . the net flows in non-management fee earning aum can be relatively short-term in nature and , due to the relatively low revenue yield , these can have a significant impact on overall net revenue yield . the aum tables and the discussion below refer to certain aum as long-term . long-term inflows and the underlying reasons for the movements in this line item include investments from new clients , existing clients adding new accounts/funds or contributions/subscriptions into existing accounts/funds . long-term outflows reflect client redemptions from accounts/funds and include the return of invested capital on the maturity . we present net flows into money market funds separately because shareholders of those funds typically use them as short-term funding vehicles and because their flows are particularly sensitive to short-term interest rate movements . changes in aum were as follows : replace_table_token_7_th ( 1 ) the acquisition of oppenheimerfunds business on may 24 , 2019 added $ 224.4 billion in aum at that date . the acquisition of guggenheim investments ' etf business on april 6 , 2018 added $ 38.1 billion in aum at that date . as of july 1 , 2018 , we began including 100 % of invesco great wall , which added $ 9.5 billion in aum during the third quarter of 2018 . ( 2 ) gross revenue yield on aum is equal to annualized total operating revenues divided by average aum , excluding invesco great wall aum . prior to the third quarter 2018 , management reflected its interests in invesco great wall on a proportional consolidation basis , which was consistent with the presentation of our share of the aum from these investments .
| summary operating information summary operating information for 2020 , 2019 and 2018 is presented in the table below . replace_table_token_5_th _ ( 1 ) net revenues is a non-gaap financial measure . net revenues are operating revenues plus the net revenues of our great wall joint venture ; less pass-through revenue adjustments to investment management fees , service and distribution fees and other ; plus management and performance fees earned from cip . see `` schedule of non-gaap information '' for the reconciliation of operating revenues to net revenues . ( 2 ) adjusted operating income and adjusted operating margin are non-gaap financial measures . adjusted operating margin is adjusted operating income divided by net revenues . adjusted operating income includes operating income plus the net operating income of our joint venture investments , the operating income impact of the consolidation of investment products , transaction , integration and restructuring adjustments , compensation expense related to market valuation changes in deferred compensation plans and other reconciling items . see `` schedule of non-gaap information , '' for the reconciliation of operating income to adjusted operating income . ( 3 ) adjusted net income attributable to invesco ltd. and adjusted diluted eps are non-gaap financial measures . adjusted net income attributable to invesco ltd. is net income attributable to invesco ltd. adjusted to exclude the net income of cip , transaction , integration and restructuring adjustments , the net income impact of deferred compensation plans and other reconciling items . adjustments made to net income attributable to invesco ltd. are tax-affected in arriving at adjusted net income attributable to invesco ltd. by calculation , adjusted diluted eps is adjusted net income attributable to invesco ltd. divided by the weighted average number of common shares outstanding ( for diluted eps ) . see `` schedule of non-gaap information , '' for the reconciliation of net income attributable to invesco ltd. to adjusted net income attributable to invesco ltd. 32 investment capabilities performance overview invesco 's first strategic objective is to achieve strong investment performance over the long-term for our clients .
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the fiscal 2017 reporting period presented and discussed below ended february 3 , 2018 and contained 53 weeks . the fiscal 2016 reporting period presented and discussed below ended january 28 , 2017 and contained 52 weeks . for comparability purposes , where noted , some of the information discussed below is based upon comparison of the 52 weeks ended february 2 , 2019 to the 52 weeks ended february 3 , 2018. additionally , where noted , some of the information discussed below is based upon comparison of the 52 weeks ended january 27 , 2018 to the 52 weeks ended january 28 , 2017. executive overview fiscal 2018 the company 's performance during fiscal 2018 reflected positive sales trends during each quarter . comparable retail sales increased 2 % for the 52-week period ended february 2 , 2019 compared to the 52-week period ended february 3 , 2018. gross margin from retail operations was flat as a percentage of sales at 33.6 % for the 52 weeks ended february 2 , 2019 compared to the 53 weeks ended february 3 , 2018. consolidated gross margin for the 52 weeks ended february 2 , 2019 declined 45 basis points of sales compared to the 53 weeks ended february 3 , 2018. the disparity between retail and consolidated gross margin performance is attributable to increased operations at cdi , which is a substantially lower margin business . consolidated selling , general and administrative ( `` sg & a '' ) expenses during the 52 weeks ended february 2 , 2019 decreased 30 basis points of sales compared to the 53 weeks ended february 3 , 2018. net income decreased to $ 170.3 million , or $ 6.23 per share , during fiscal 2018 from $ 221.3 million , or $ 7.51 per share , in the prior year . included in net income for fiscal 2018 is $ 2.9 million ( $ 0.11 per share ) in tax benefits related to additional federal tax credits and an update of the provisional amounts recorded for the income tax effects of the tax cuts and jobs act of 2017. included in net income for fiscal 2017 is a pretax gain of $ 4.9 million ( $ 3.2 million after tax or $ 0.11 per share ) on disposal of assets related to the sale of a store property and insurance recovery on a previously damaged full-line store location partially offset by a loss on the sale of equipment and a pretax loss of $ 0.8 million ( $ 0.5 million after tax or $ 0.02 per share ) related to the write-off of certain deferred financing fees in connection with the amendment and extension of the company 's senior unsecured revolving credit facility . also included in net income for the fiscal year is an estimated tax benefit of approximately $ 77.4 million ( $ 2.62 per share ) related to the tax cuts and jobs act of 2017. during fiscal 2018 , the company repurchased $ 127.9 million , or 1.8 million shares , of class a common stock under the company 's stock repurchase plans , with $ 406.9 million in authorization remaining under the march 2018 stock plan at february 2 , 2019. as of february 2 , 2019 , we had working capital of $ 837.0 million ( including cash and cash equivalents of $ 123.5 million ) and $ 565.6 million of total debt outstanding , excluding capital lease obligations , with no scheduled maturities in fiscal 2019. we operated 265 dillard 's locations , 26 clearance centers and one internet store as of february 2 , 2019 . 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_7_th * based upon the 52 weeks ended february 2 , 2019 and the 52 weeks ended february 3 , 2018 * * based upon the 52 weeks ended january 27 , 2018 and the 52 weeks ended january 28 , 2017. 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 . if we have to reduce our retail selling prices , the cost of sales on our consolidated statement of income will correspondingly rise , thus reducing our net income and cash flow . success of brand—the success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends . sourcing—our store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources . our ability to attract and retain compelling vendors as well as in-house design talent , the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and , thus , our ability to sell merchandise at profitable prices . store growth—our ability to open new stores is dependent upon a number of factors , such as the identification of suitable markets and locations and the availability of shopping developments , especially in a weak economic environment . store growth can be further hindered by mall attrition and subsequent closure of underperforming properties . seasonality and inflation our business , like many other retailers , is subject to seasonal influences , with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season . story_separator_special_tag 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 february 2 , 2019 and february 3 , 2018 , 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 2018 , 2017 or 2016. a 1 % change in the dollar amount of markdowns would have impacted net income by approximately $ 14 million for fiscal 2018. 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 $ 15.1 million and $ 14.3 million and return assets of $ 10.2 million and $ 9.5 million as of february 2 , 2019 and february 3 , 2018 , 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 2018 , 2017 and 2016. the company 's share of income under the wells fargo alliance and the company 's former long-term marketing and servicing alliance with synchrony financial , which expired in 2014 ( `` synchrony 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 $ 94 million , $ 101 million and $ 104 million from the alliance in fiscal 2018 , 2017 and 2016 , respectively . the company participates in the marketing of the private label credit cards , which includes the cost of customer reward programs . through the reward programs , customers earn points that are redeemable for discounts on future purchases . the company defers a portion of its net sales upon the sale of merchandise to its customer reward program members that is recognized in net sales when the reward is redeemed or expired at a future date . revenues from cdi construction contracts are generally measured based on the ratio of costs incurred to total estimated contract costs ( the `` cost-to-cost method '' ) . some of our contracts with customers contain multiple performance obligations . for these contracts , we account for individual performance obligations separately if they are distinct . the transaction price is allocated to the separate performance obligations based on stand-alone selling prices . construction contracts are often modified to account for changes in contract specifications and requirements . we consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations . most of our contract modifications are for goods and services that are not distinct from the existing contracts ; therefore , the modifications are accounted for as if they were part of the existing contract . the effect of a contract modification on the transaction price and our measure of progress for the performance obligation for which it relates , is recognized as an adjustment to revenue on a cumulative catch-up basis . the length of each contract varies but is typically nine to eighteen months . the progress towards completion is 22 determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts . estimated contract losses are recognized in full when determined . construction contracts give rise to accounts receivable , contract assets and contract liabilities . we record accounts receivable based on amounts billed to customers . we also record costs and estimated earnings in excess of billings on uncompleted contracts ( contract assets ) and billings in excess of costs and estimated earnings on uncompleted contracts ( contract liabilities ) in other current assets and trade accounts payable and accrued expenses , respectively , on the condensed consolidated balance sheets . vendor allowances . the company receives concessions from vendors through a variety of programs and arrangements , including co-operative advertising , payroll reimbursements and margin maintenance programs . cooperative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred . if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of our product advertising , which could increase or decrease our expenditures .
| results of operations the following table sets forth the results of operations and percentage of net sales , for the periods indicated : replace_table_token_9_th ( 1 ) see note 1 , description of business and summary of significant accounting policies , in the `` notes to consolidated financial statements '' in item 8 hereof . 24 sales replace_table_token_10_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_11_th _ ( 1 ) based upon the 52 weeks ended february 2 , 2019 and 52 weeks ended february 3 , 2018 ( 2 ) based upon the 52 weeks ended january 27 , 2018 and 52 weeks ended january 28 , 2017 2018 compared to 2017 net sales from the retail operations segment increased $ 12.7 million during the 52-week period ended february 2 , 2019 compared to the 53-week period ended february 3 , 2018 , remaining unchanged on a percentage basis in total stores . sales in comparable stores increased 2 % for the 52-week period ended february 2 , 2019 compared to the 52-week period ended february 3 , 2018. during the same 52-week periods , sales of home and furniture increased significantly . sales of ladies ' accessories and lingerie , men 's apparel and accessories , juniors ' and children 's apparel and cosmetics increased moderately . sales of ladies ' apparel remained essentially flat , while sales of shoes decreased slightly . the number of sales transactions during the 52-week period ended february 2 , 2019 decreased 2 % over the 52-week period ended february 3 , 2018 while the average dollars per sales transaction increased 3 % . net sales from the construction segment increased $ 81.9 million or 53.4 % during fiscal 2018 as compared to fiscal 2017 due to an increase in construction projects . the backlog of awarded construction contracts at february 2 , 2019 totaled $ 335.1 million , increasing approximately 5 % from february 3 , 2018 .
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if the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount , there is no story_separator_special_tag business summary arc document solutions , inc. ( “ arc document solutions , ” “ arc , ” “ we , ” “ us , ” or “ our ” ) is a leading document solutions provider to design , engineering , construction , and facilities management professionals , while also providing document solutions to businesses of all types . our customers need us to manage the scale , complexity and workflow of their documents . we help them reduce their costs and increase their efficiency by improving their access and control over documents , and we offer a wide variety of ways to access , distribute , collaborate on , and store documents . each of our service offerings is enabled through a suite of supporting proprietary technology and a wide variety of value-added services . we have categorized our service and product offerings to report distinct sales recognized from : construction document and information management ( cdim ) , which consists of software services and professional services to manage and distribute documents and information primarily related to construction projects . cdim sales include software services such as skysite® , our cloud-based project communication application , as well as providing document and information management services that are often technology-enabled . the bulk of our current revenue from cdim comes from large-format and small-format printing services we provide in both black and white and in color . software services are a smaller part of overall cdim . the sale of services addresses a variety of customer needs including the provision of project communication tools , project information management , building information modeling , digital document distribution services , printing services , and others . managed print services ( mps ) , consists of placement , management , and optimization of print and imaging equipment in our customers ' offices , job sites , and other facilities . mps relieves our customers of the burden of owning and managing print devices and print networks , and shifts their costs to a “ per-use ” basis . mps is supported by our proprietary technology , abacus , which allows our customers to capture , control , manage , print , and account for their documents . mps services revenue is derived from two sources : 1 ) an engagement with the customer to place primarily large-format equipment , that we own or lease , at a construction site or in our customers ' offices , and 2 ) an arrangement by which our customers outsource their printing function to us , including all office printing , copying , and reprographics printing . in both cases this is recurring , contracted revenue with most contracts ranging from 3 to 5 years and we are paid a single cost per unit of material used , often referred to as a “ click charge. ” mps sales are driven by the ongoing print needs of our customers at their facilities . archiving and information management ( aim ) , combines software and professional services to facilitate the capture , management , access and retrieval of documents and information that have been produced in the past . aim includes our skysite software to organize , search and retrieve documents , as well as the provision of services that include the capture and conversion of hardcopy and electronic documents , and their cloud-based storage and maintenance . aim sales are driven by the need to leverage past intellectual property for present or future use , facilitate cost savings and efficiency improvements over current hardcopy and digital storage methods , as well as comply with regulatory and records retention requirements . equipment and supplies , which consists of reselling printing , imaging , and related equipment to customers primarily to architectural , engineering and construction firms . we have expanded our business beyond the services we traditionally provided to the architectural , engineering , construction , and building owner/operator ( aec/o ) industry in the past and are currently focused on growing mps , aim and cdim , as we believe the mix of services demanded by the aec/o industry continues to shift toward document management at customer locations and in the cloud , and away from its historical emphasis on large-format construction drawings produced “ offsite ” in our service centers . we deliver our services via the cloud , through a nationwide network of service centers , regionally-based technical specialists , locally-based sales executives , and a national/regional sales force known as global solutions . based on our analysis of our operating results , we estimate that sales to the aec/o industry accounted for approximately 78 % of our net sales for 2017 , with the remaining 22 % consisting of sales to businesses outside of construction . 21 costs and expenses our cost of sales consists primarily of materials ( paper , toner and other consumables ) , labor , and “ indirect costs ” which consist primarily of equipment expenses related to our mps contracts and our service center facilities . facilities and equipment expenses include maintenance , repairs , rents , insurance , and depreciation . paper is the largest component of our material cost ; however , paper pricing typically does not significantly affect our operating margins due , in part , to our efforts to pass increased costs on to our customers . we closely monitor material cost as a percentage of net sales to measure volume and waste . we also track labor utilization , or net sales per employee , to measure productivity and determine staffing levels . we maintain low levels of inventory . historically , our capital expenditure requirements have varied due to the cost and availability of capital lease lines of credit . story_separator_special_tag equipment and supplies sales decreased by $ 2.0 million , or 4.1 % in 2016 , due to a decline in equipment sales in the u.s. during 2016. equipment and supplies sales represented approximately 12 % of total net sales for both 2016 and 2015. equipment and supplies sales derived from uds were $ 20.8 million in 2016 , as compared to $ 20.9 million in 2015. gross profit gross profit and gross margin decreased to $ 133.2 million , and 32.8 % , in 2016 , compared to $ 148.1 million , and 34.6 % , in 2015 , on a sales decrease of $ 22.3 million . the decline in our gross margins in 2016 was primarily driven by the impact of lower revenue reducing our ability to leverage the fixed portion of our overhead and labor costs . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 7.1 million or 6.6 % in 2016 compared to 2015. general and administrative expenses in 2016 decreased $ 2.6 million or 4.2 % compared to 2015. the reduction in expenses was primarily due to cost reduction initiatives undertaken in 2016 and a decline in stock-based compensation expense , which were partially offset by investments in general and administrative staff to support our new technology-enabled offerings . 26 year-over-year sales and marketing expenses decreased $ 4.5 million in 2016 compared to 2015. decreases in sales and marketing expenses was primarily due to a reduction in sales compensation as a result of our sales decrease . amortization of intangibles amortization of intangibles of $ 4.8 million in 2016 deceased compared to 2015 , primarily due to the completed amortization of certain customer relationships related to historical acquisitions . goodwill impairment at june 30 , 2016 , we determined that there were sufficient indicators to trigger an interim goodwill impairment analysis . the company 's analysis indicated that five of our eight reporting units , four in the united states and one in canada , had a goodwill impairment as of june 30 , 2016. accordingly , the company recorded a pretax , non-cash charge in 2016 to reduce the carrying value of goodwill by $ 73.9 million . see note 3 , “ goodwill and other intangibles ” for further information regarding the process of assessing goodwill impairment . loss on extinguishment and modification of debt as of december 31 , 2016 , we had paid $ 54.0 million in aggregate principal of our original $ 175.0 million term loan made under our credit agreement , which was $ 19.0 million above the required term loan principal payments since the inception of the credit agreement . principal payments of $ 22.0 million in 2016 resulted in a loss on extinguishment and modification of debt of $ 0.2 million in for the year ended december 31 , 2016. interest expense , net net interest expense totaled $ 6.0 million in 2016 , compared to $ 7.0 million in 2015. the decrease was primarily as a result of the early extinguishment of our long-term debt as described above . income taxes we recorded an income tax benefit of $ 4.4 million in relation to pretax loss of $ 51.9 million for 2016 , which resulted in an effective income tax rate of 8.4 % . our low effective tax rate was primarily related to $ 41.3 million of goodwill impairment related to historical stock acquisitions which can not be deducted for income tax purposes until the related stock is disposed of . excluding the impact of the goodwill impairment , our 2016 effective income tax rate would have been 39.9 % . noncontrolling interest net income attributable to noncontrolling interest represents 35 % of the income of uds and its subsidiaries , which together comprise our chinese joint-venture operations . net ( loss ) income attributable to arc net loss attributable to arc was $ 47.9 million in 2016 , as compared to net income attributable to arc of $ 97.0 million in 2015. the decrease in net income attributable to arc in 2016 versus the prior year is primarily due to the goodwill impairment charge in 2016 and the reversal of the valuation allowance on certain of our deferred tax assets in 2015. quarterly results of operations the following table sets forth certain quarterly financial data for the eight quarters ended december 31 , 2017 . this quarterly information has been prepared on the same basis as the annual financial statements and , in our opinion , reflects all adjustments necessary for a fair presentation of the information for the periods presented . operating results for any quarter are not necessarily indicative of results for any future period . 27 replace_table_token_6_th ( 1 ) see `` non-gaap financial measures '' following `` results of operations '' for more information related to our non-gaap disclosures . we believe that quarterly revenues and operating results may vary significantly in the future and that quarter-to-quarter comparisons of our results of operations are not necessarily indications of future performance . in addition , our quarterly operating results , particularly those of our cdim offerings , are typically affected by seasonal factors , primarily the number of working days in a quarter and the holiday season in the fourth quarter . therefore , historically , in regards to our service offerings , our fourth quarter has generally been the slowest and the least profitable . while our cdim business is still influenced by the nature of building cycles , our remaining offerings are less so . mps services are driven by the production of office documents and our customer 's desire to improve business processes and reduce print management costs . we recorded a goodwill impairment charges of $ 17.6 million during the quarter ended september 30 , 2017 and $ 73.9 million during the quarter ended june 30 , 2016. the income tax provision of $ 13.7 million in the three months ended december 31 , 2017 included a $ 11.9 million impact related to the tcja enacted on december 22 , 2017.
| results of operations replace_table_token_4_th ( 1 ) column does not foot due to rounding . ( 2 ) see `` non-gaap financial measures '' following `` results of operations '' for more information related to our non-gaap disclosures . 23 the following table provides information on the percentages of certain items of selected financial data as a percentage of net sales for the periods indicated : replace_table_token_5_th ( 1 ) column does not foot due to rounding . ( 2 ) see `` non-gaap financial measures '' following `` results of operations '' for more information related to our non-gaap disclosures . fiscal year ended december 31 , 2017 compared to fiscal year ended december 31 , 2016 net sales net sales in 2017 decrease d 2.9 % , compared to 2016 . the decrease in net sales was due primarily to declines in our print-based service offerings . cdim . cdim services in 2017 decrease d $ 7.4 million , or 3.5 % , compared to 2016 . the decrease in sales of cdim services was primarily due to the continued but moderating reduction in demand for printed construction drawings and related services driven by the ongoing adoption of technology replacing traditional print-based service offerings , and softness in our color imaging sales . also contributing to the decline in sales of cdim for the year was the extended closure of our service centers in the southeastern u.s. which were impacted by hurricanes during the third quarter of 2017. cdim services represented 52 % of total net sales for both 2017 and 2016 . mps . mps services in 2017 decrease d $ 2.3 million or 1.7 % , due to the decline in print volumes from existing customers . the decline in print volumes was driven in part by the continued optimization of our customers ' in-house print environment partially offset by new customer acquisitions .
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for those consolidated subsidiaries in which the company 's ownership is less than 100 percent , the outside stockholders ' interests are shown as story_separator_special_tag overview vishay intertechnology , inc. is a global manufacturer and supplier of semiconductors and passive components , including power mosfets , power integrated circuits , transistors , diodes , optoelectronic components , resistors , capacitors , and inductors . discrete semiconductors and passive components manufactured by vishay are used in virtually all types of electronic products , including those in the industrial , computing , automotive , consumer electronic products , telecommunications , power supplies , military/aerospace , and medical industries . on july 6 , 2010 , we completed the spin-off of vishay precision group , inc. ( “ vpg ” ) through a tax-free stock dividend to our stockholders . our common stockholders received 1 share of vpg common stock for every 14 shares of vishay common stock they held on the record date , june 25 , 2010 , and our class b common stockholders received 1 share of vpg class b common stock for every 14 shares of vishay class b common stock they held on the record date . until july 6 , 2010 , vpg was part of vishay and its results of operations and cash flows are included in the balances reported in our consolidated financial statements for periods prior to the spin-off . prior to the completion of the spin-off of vpg , we operated in six product segments , mosfets , diodes , optoelectronic components , resistors & inductors , capacitors , and vishay precision group . following the spin-off we operate in five product segments . on june 4 , 2011 , dr. felix zandman , our founder and executive chairman of the board of directors , chief technical officer , and chief business development officer , passed away . dr. zandman will never be forgotten as his legacy will live on across the world through all vishay employees . we will continue to implement the vision , strategy , and culture articulated by dr. zandman as we continue to work tirelessly to enhance value for our stockholders . in accordance with our succession plan , marc zandman was elected as executive chairman of the board . marc zandman also succeeded dr. zandman as our chief business development officer . dr. gerald paul will continue leading vishay as our president and chief executive officer . since 1985 , we have pursued a business strategy of growth through acquisitions and focused research and development . through this strategy , we have grown to become one of the world 's largest manufacturers of discrete semiconductors and passive components . we expect to continue our strategy of acquisitions while also maintaining a prudent capital structure . we are focused on enhancing stockholder value by repurchasing our stock and improving earnings per share . in the fourth fiscal quarter of 2010 and second fiscal quarter of 2011 , we completed the repurchase of 21.7 million shares of our common stock for $ 275 million and 8.6 million shares of our common stock for $ 150 million , respectively . on september 8 , 2011 , we entered into an amendment to our credit facility that effectively permits us to repurchase up to $ 300 million of additional shares , conditioned upon maintaining specific pro forma financial ratios and a required minimal amount of available liquidity , as defined in the amendment . beginning in 2012 , our capacity to repurchase shares of stock will increase each quarter by an amount equal to 20 % of net income . we will continue to evaluate attractive stock repurchase opportunities . our business and operating results have been and will continue to be impacted by worldwide economic conditions . our revenues are dependent on end markets that are impacted by consumer and industrial demand , and our operating results can be adversely affected by reduced demand in those global markets . for several years , we implemented aggressive cost reduction programs . we continue to monitor the current environment and its potential effects on our customers and the end markets that we serve . additionally , we continue to closely monitor our costs , inventory , and capital resources to respond to changing conditions and to ensure we have the management , business processes , and resources to meet our future needs . see additional information regarding our competitive strengths and key challenges as disclosed in part 1 . despite uncertain short-term global economic conditions , we are confident of the long-term prospects of our business and the electronics industry in general . 36 contents we utilize several financial metrics , including net revenues , gross profit margin , segment operating income , end-of-period backlog , book-to-bill ratio , inventory turnover , change in average selling prices , net cash and short-term investments ( debt ) , and free cash generation to evaluate the performance and assess the future direction of our business . ( see further discussion in “ financial metrics ” and “ financial condition , liquidity , and capital resources. ” ) the downturn in demand that much of our industry experienced in the last six fiscal months of 2011 has resulted in a reduction in nearly all key financial metrics compared with the prior year . net revenues for the year ended december 31 , 2011 were $ 2.594 billion , compared to net revenues of $ 2.725 billion and $ 2.042 billion for the years ended december 31 , 2010 and 2009 , respectively . the net earnings attributable to vishay stockholders for the year ended december 31 , 2011 was $ 238.8 million , or $ 1.42 per diluted share , compared to net earnings attributable to vishay stockholders of $ 359.1 million , or $ 1.89 per share , and a net loss attributable to vishay stockholders of $ 57.2 million , or $ 0.31 per share , for the years ended december 31 , 2010 and 2009 , respectively . story_separator_special_tag an important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each fiscal quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . 38 contents pricing in our industry can be volatile . we analyze trends and changes in average selling prices to evaluate likely future pricing . the erosion of average selling prices of established products is typical for semiconductor products . we attempt to offset this deterioration with ongoing cost reduction activities and new product introductions . our specialty passive components are more resistant to average selling price erosion . the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , operating income , end-of-period backlog , book-to-bill ratio , inventory turnover , and changes in asp for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2010 through the fourth fiscal quarter of 2011 ( dollars in thousands ) : replace_table_token_6_th see “ financial metrics by segment ” below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . like many of the companies in our industry , our results for the fourth fiscal quarter of 2011 were impacted by low demand from distributors which led to a reduction of all key financial metrics compared to the prior fiscal quarters . the reduction in distributor inventory levels that started in asia in the third fiscal quarter of 2011 due to reduced consumer product demand spread to distributors in the u.s. and europe in the fourth fiscal quarter of 2011 despite fairly strong industrial and automotive demand . this reduction in distributor demand has further reduced our backlog and resulted in a decrease in net revenues over the prior year period and the previous fiscal quarters . typical pricing pressure , particularly for our established semiconductor products , has resulted in a decrease in average selling prices versus the third fiscal quarter of 2011. despite the slight decline in average selling prices versus the third fiscal quarter of 2011 , average year-to-date selling prices for 2011 remain relatively stable versus the prior year period . lower sales volume and increasing metal prices led to a reduction in gross margins for the fourth fiscal quarter versus the prior year period and the previous fiscal quarters . due to the reduction in cancellations and a slight increase in orders , the book-to-bill ratio increased to 0.80 in the fourth fiscal quarter of 2011 from 0.67 in the third fiscal quarter of 2011. the book-to-bill ratios for distributors and original equipment manufacturers ( “ oem ” ) were 0.77 and 0.83 , respectively , versus ratios of 0.55 and 0.82 , respectively , during the third fiscal quarter of 2011 . 39 contents financial metrics by segment the following table shows net revenues , book-to-bill ratio , gross profit margin , and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2010 through the fourth fiscal quarter of 2011 ( dollars in thousands ) : replace_table_token_7_th 40 contents acquisition and divestiture activity as part of our growth strategy , we seek to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets , reputations for product quality and reliability , and product lines with which we have substantial marketing and technical expertise . this includes exploring opportunities to acquire targets to gain market share , penetrate different geographic markets , enhance new product development , round out our product lines , or grow our high margin niche market businesses . acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier ; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies . to limit our financial exposure , we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) . for these purposes , we will calculate pro forma ebitda as the adjusted ebitda of vishay and the target for vishay 's four preceding fiscal quarters , with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by vishay at the beginning of the four fiscal quarter period . our growth plan targets adding , through acquisitions , approximately $ 100 million of revenues per year over the next five years . depending on the opportunities available , we might make several smaller acquisitions or a few larger acquisitions . we intend to make such acquisitions using mainly cash , rather than debt or equity , although we do have capacity under our revolving credit facility if necessary . we are not currently targeting acquisitions larger than $ 500 million . there is no assurance that we will be able to identify and acquire additional suitable acquisition candidates at price levels and on terms and conditions we consider acceptable .
| results of operations statement of operations ' captions as a percentage of net revenues and the effective tax rates were as follows : replace_table_token_8_th net revenues net revenues were as follows ( dollars in thousands ) : replace_table_token_9_th changes in net revenues were attributable to the following : replace_table_token_10_th our results for the year ended december 31 , 2011 represent the effects of macroeconomic concerns , which reduced demand for our products in the last six fiscal months of the year , and the resulting quick adaptation of our manufacturing capacities in response thereto . this period of macroeconomic concerns followed a period of favorable business conditions through the first six fiscal months of the year in which we achieved significantly higher annualized earnings than before the beginning of the 2008-2009 global economic recession at the same sales volume . 49 contents the recovery of our business that we began experiencing in the second half of 2009 continued throughout 2010 due to historically high overall demand for electronic components , a favorable pricing environment , and the effects of our restructuring programs initiated in the prior year and our on-going cost controlling programs . our results in 2010 and 2011 were dramatically improved versus our 2009 results , which were substantially impacted by the 2008-2009 global economic recession . we deduct , from the sales that we record to distributors , allowances for future credits that we expect to provide for returns , scrapped product , and price adjustments under various programs made available to the distributors . we make deductions corresponding to particular sales in the period in which the sales are made , although the corresponding credits may not be issued until future periods . we estimate the deductions based on sales levels to distributors , inventory levels at the distributors , current and projected market trends and conditions , recent and historical activity under the relevant programs , changes in program policies , and open requests for credits .
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the loan was guaranteed by the united states department of agriculture rural development ( “ usda ” ) , in the amount of 90 % of the principal amount of the loan . the company paid a guarantee fee to the usda in the amount of $ 270,000 at the time of closing and was required to pay to the usda an annual fee in the amount of 0.50 % of the guaranteed portion of the outstanding principal balance of the loan as of december 31 of each year . the costs associated with obtaining the green bank loan of $ 0.8 million were recorded as a reduction to the carrying amount of the note and were being amortized as interest expense over the twenty-one year life of the loan . amortization of the deferred financing costs was $ 36,000 for both of the years ended december 31 , 2020 and december 31 , 2019 , respectively . on december 10 , 2020 , the company retired the loan with veritex community bank ( `` veritex `` ) , the successor in interest to green bank . amr utilized insurance proceeds including $ 7.9 million held in an escrow account at veritex as well as the $ 1.0 million certificate of deposit held by veritex , as collateral for the note , to pay the balance of the loan . as part of the loan payoff , the company expensed the remaining unamortized loan costs of $ 0.6 million . in addition , the company incurred a prepayment penalty of $ 0.4 million , which is also included in interest expense . on may 7 , 2020 , the company received loan proceeds in the amount of approximately $ 332,000 under the paycheck protection program ( “ ppp ” ) . the ppp , established as part of the coronavirus aid , relief and economic security act ( “ cares act ” ) , provided for loans to qualifying businesses . the loans and accrued interest are forgivable if the borrower uses the loan proceeds for eligible purposes , including payroll , benefits , rent and utilities , and maintains its payroll levels . the amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during a prescribed period . the unforgiven portion of the ppp loans are now payable over five years at an interest rate of 1 % , with a deferral of payments until september of 2021. the company believes it has used the loan proceeds for purposes consistent with the ppp requirements and has applied for loan forgiveness . subsequent to december 31 , 2020 , one of the company 's two ppp loans for $ 131,000 was forgiven . the company believes the remaining ppp loan will also qualify for forgiveness . however , there is no assurance that the company will be eligible for forgiveness of the remaining outstanding loan , in whole or in part . 47 notes payable is comprised of the following ( in thousands ) : replace_table_token_20_th the future principal payments related to the paycheck protection program obligations are as follows as of december 31 , 2020 ( in thousands ) : replace_table_token_21_th 12. leases the company currently maintains one finance lease for equipment and two operating leases for real estate . our finance lease is immaterial to our consolidated financial statements . the company 's operating leases have terms of 76 and 42 months and include one or more options to extend the duration of the agreements . these operating leases are included in `` other assets `` on the company 's december 31 , 2020 consolidated balance sheet and represent the company 's right to use the underlying assets for the term of the leases . the company 's obligation to make lease payments are included in `` lease liability , current portion `` and `` lease liability , non-current portion `` on the company 's december 31 , 2020 consolidated balance sheet . the company recognized sublease income of $ 433,000 and $ 359,000 for the twelve months ended december 31 , 2020 and december 31 , 2019 , respectively . based on the present value of the lease payments for the remaining lease term of the company 's existing leases , as of december 31 , 2020 , total right-of-use assets were approximately $ 0.7 million and operating lease liabilities were approximately $ 0.8 million . as of december 31 , 2019 , total right-of-use assets were approximately $ 1.2 million and operating lease liabilities were approximately $ 1.4 million . the right-of-use assets are reported in `` other assets `` in the condensed consolidated balance sheet . 48 information related to the company 's right-of-use assets and related lease liabilities were as follows ( in thousands ) : twelve months ended twelve months ended december 31 , 2020 december 31 , 2019 cash paid for operating lease liabilities $ 642 $ 624 operating lease cost $ 577 $ 577 december 31 , 2020 weighted-average remaining lease term ( years ) 1.2 weighted-average discount rate 9.66 % maturities of lease liabilities as of december 31 , 2020 were as follows ( in thousands ) : due in 12 -month period ended december 31 , replace_table_token_22_th note : excludes a finance lease with current liability of $ 6 and a non-current liability of $ 20 . 13. stockholders ' equity authorized capital the authorized capital stock of the company consists of 100,000,000 shares of common stock , par value $ 0.001 per share . in the event of liquidation of the company , dissolution or winding up , the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities . story_separator_special_tag during the year ended december 31 , 2020 , we recognized an $ 11.7 million expense for impairment on fixed assets and $ 0.5 million for the elimination of our asset retirement obligation . during the year ended december 31 , 2019 , we recognized non-cash payments to veolia of approximately $ 9.0 million for shares issued and warrant expense . net cash provided by ( used in ) investing activities net cash provided by investing activities for the year ended december 31 , 2020 was $ 6.6 million compared to net cash used in investing activities of $ 10.6 million for the year ended december 31 , 2019. net cash used in investing activities during each of these periods consists primarily of purchases of fixed assets and insurance proceeds received . net cash provided by financing activities net cash provided by financing activities for the year ended december 31 , 2020 consisted of $ 3.7 million net proceeds from atm shares sales . net cash provided by financing activities for the year ended december 31 , 2019 consisted of $ 29.4 million in net proceeds from two public share offerings , which was partially offset by a $ 6.7 million payoff of the interstate battery convertible note . as of december 31 , 2020 , we had total cash of $ 6.5 million and working capital of $ 4.9 million . as of the date of this report , we believe that we may require additional capital in order to fund our current level of ongoing costs over the next twelve months and move forward with our capital light licensing strategy . there can be no assurance that we will be able to acquire the necessary funding on commercially reasonable terms or at all . we intend to seek funds through the recovery of potential remaining insurance proceeds and the possible sale of equipment that is not required for our capital light strategy . however , there can be no assurance that such funds will be available . if needed , we may seek funding through the sale of equity or debt financing . funding that includes the sale of our equity may be dilutive . if such financing is not available on satisfactory terms , we may be unable to further pursue our business plan and we may be unable to continue operations . off-balance sheet arrangements we do not have any off-balance sheet financing arrangements . 25 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . the preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , and the reported amounts of expenses during the period . significant items subject to such estimates and assumptions include the carrying amount and valuation of long-lived assets , the valuation of conversion features of convertible debt , valuation allowances for deferred tax assets , the determination of estimated asset retirement obligations , the determination of stock option expense , and the determination of the fair value of stock warrants issued . our actual results could differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to the consolidated financial statements included in item 8 of this annual report on form 10-k , we believe that the following accounting policies are the most critical to assist stockholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations . accounts receivable we sell our products to large well-established companies and extend credit without requiring collateral , based on an ongoing evaluation of the customer 's business prospects and financial condition . in the event that payment of a customer 's account receivable is doubtful , we would reserve the receivable under an allowance for doubtful accounts . inventory inventory is stated at the lower of cost or net realizable value . inventory cost is recorded on a first-in , first-out basis using the weighted average method . net realizable value is determined as the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . property and equipment property and equipment are stated at cost net of accumulated depreciation . depreciation on property and equipment is calculated on the straight-line basis over the estimated useful lives of the assets . leasehold improvements are depreciated over the shorter of the life of the asset or the remaining term of the lease . we periodically evaluate our property and equipment assets for indications that the carrying amount of an asset may not be recoverable . at december 31 , 2020 , management reviewed the remaining estimated lives of our long-lived assets . any reduction in the useful life assumption will result in increased depreciation and amortization expense in the period when such determination is made , as well as in subsequent periods . we evaluate the need to record impairment during each reporting period . we determined that the remaining useful lives of the equipment has decreased due to our focus on a capital light strategy . we recognized a $ 11.7 million impairment during the period . the impairment expense included a write-down of $ 7.7 million to equipment under construction that was not yet capitalized .
| general aqua metals ( nasdaq : aqms ) is engaged in the business of equipment supply , technology licensing and related services for recycling lead through a novel , proprietary and patented process we developed and named aquarefining . aquarefining is a room temperature , water and organic acid-based process that greatly reduces environmental emissions . lead is a globally traded commodity with a worldwide market value in excess of $ 20 billion . we believe our suite of patented and patent pending aquarefining technologies will allow the lead-acid battery industry to simultaneously improve the environmental impact of lead recycling and scale recycling production to meet demand . furthermore , our aquarefining technologies result in high purity lead . we were formed as a delaware corporation on june 20 , 2014 and since our formation , we have focused our efforts on the development and testing of our aquarefining process , the construction of our initial lead acid battery , or lab , recycling facility at the tahoe reno industrial center , or tric , located in mccarran , nevada and commercializing the aquarefining process . we completed the development of our lab recycling facility at tric , and commenced production of battery breaking and limited operations during the first quarter of 2017. in april 2017 , we commenced the shipment of products for sale , consisting of lead compounds as well as plastics . in april 2018 , we commenced the limited production of lead bullion , including aquarefined lead . in july 2018 , we commenced the sale of pure aquarefined lead in the form of two tonne blocks and in october 2018 , we commenced the sale of aquarefined lead in the form of battery manufacturing ready ingots . in november 2018 , we received official vendor certification from clarios for our aquarefined lead and in december 2018 , we commenced shipments directly to clarios owned and partner battery manufacturing facilities .
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under the credit facility , we are subject to customary covenants , including certain financial covenants and reporting requirements . we story_separator_special_tag the following is a discussion of our consolidated financial condition , results of operations , liquidity and capital resources . this discussion should be read in conjunction with our consolidated financial statements and the notes thereto . see “ financial statements and supplementary data ” in item 8. general we are an independent energy company primarily engaged in the acquisition , exploration , exploitation , development and production of oil and gas in the united states . historically , we have grown through the acquisition and subsequent development and exploitation of producing properties , principally through the redevelopment of old fields utilizing new technologies such as modern log analysis and reservoir modeling techniques as well as 3-d seismic surveys and horizontal drilling . as a result of these activities , we believe that we have a number of development opportunities on our properties . in addition , we intend to expand upon our development activities with complementary acreage acquisitions in our core areas of operation . success in our development and exploration activities is critical in the maintenance and growth of our current production levels and associated reserves . while we have attained positive net income in three of the last five years , there can be no assurance that operating income and net earnings will be achieved in future periods . our financial results depend upon many factors which significantly affect our results of operations including the following : commodity prices and the effectiveness of our hedging arrangements ; the level of total sales volumes of oil and gas ; 44 the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs ; the level of and interest rates on borrowings ; and the level and success of exploration and development activity . commodity prices and hedging arrangements . the results of our operations are highly dependent upon the prices received for our oil and gas production . the prices we receive for our production are dependent upon spot market prices , differentials and the effectiveness of our derivative contracts , which we sometimes refer to as hedging arrangements . substantially all of our sales of oil and gas are made in the spot market , or pursuant to contracts based on spot market prices , and not pursuant to long-term , fixed-price contracts . accordingly , the prices received for our oil and gas production are dependent upon numerous factors beyond our control . significant declines in prices for oil and gas could have a material adverse effect on our financial condition , results of operations , cash flows and quantities of reserves recoverable on an economic basis . oil and gas prices have been volatile , and this volatility is expected to continue . as a result of the many uncertainties associated with the world political environment , worldwide supplies of oil , ngl and gas , the availability of other worldwide energy supplies and the relative competitive relationships of various energy sources in the view of consumers , we are unable to predict what changes may occur in oil , ngl , and gas prices in the future . the market price of oil and condensate , ngl and gas in 2018 will impact the amount of cash generated from operating activities , which will in turn impact our financial position . as of march 9 , 2018 , the nymex oil and gas price was $ 62.02 per bbl of oil and $ 2.71 per mcf of gas , respectively . during 2017 , the nymex future price for oil averaged $ 50.85 per barrel as compared to $ 43.47 per barrel in 2016 and the nymex future spot price for gas averaged $ 3.14 per mcf compared to $ 2.55 per mcf in 2016. prices closed on december 29 , 2017 at $ 60.42 per bbl of oil and $ 2.95 per mcf of gas . if commodity prices decline from these levels , our revenue and cash flows from operations will also likely decline . in addition , lower commodity prices could also reduce the amount of oil and gas that we can produce economically . if oil and gas prices decline , our revenues , profitability and cash flows from operations will also likely decrease which could cause us to alter our business plans , including reducing our drilling activities . such declines could also require us to write down the carrying value of our oil and gas assets which would also cause a reduction in net income . finally , low commodity prices will likely cause a reduction of the borrowing base under our credit facility . the borrowing base under our credit facility is scheduled to be redetermined on april 1 , 2018. the realized prices that we receive for our production differ from nymex futures and spot market prices , principally due to : basis differentials which are dependent on actual delivery location ; adjustments for btu content ; quality of the hydrocarbons ; and gathering , processing and transportation costs . the following table sets forth our average differentials for the years ended december 31 , 2015 , 2016 and 2017 : replace_table_token_16_th _ ( 1 ) average realized prices are before the impact of hedging activities . the company 's derivative contracts as of december 31 , 2017 consisted of nymex-based fixed price swaps and basis differential swaps . under fixed price swaps , we receive a fixed price for our production and pay a variable market price to the contract counter-party . our hedging arrangements equate to approximately 63 % of the oil production of our estimated net proved developed producing reserves ( as of december 31 , 2017 ) through december 31 , 2018 , and 70 % for 2019 . subsequent to december 31 , 2017 , we have entered into additional fixed price commodity swaps . story_separator_special_tag at december 31 , 2017 , we had a total of $ 84.0 million outstanding under our credit facility and total indebtedness of $ 87.6 million ( including the current portion ) . as of march 9 , 2018 , we had a total of $ 103.0 million outstanding under our credit facility and total indebtedness of $ 106.6 million ( including the current portion ) . if interest expense increases as a result of higher interest rates or increased borrowings , more cash flow from operations would be used to meet debt service requirements . as a result , we would need to increase our cash flow from operations in order to fund the development of our drilling opportunities which , in turn , will be dependent upon the level of our production volumes and commodity prices . exploration and development activity . we believe that our high quality asset base , high degree of operational control and inventory of drilling projects position us for future growth . at december 31 , 2017 , we operated properties comprising approximately 96 % of the boe 's of our estimated net proved reserves , giving us substantial control over the timing and incurrence of operating and capital expenditures . we have identified numerous additional drilling locations on our existing leaseholds , the successful development of which we believe could significantly increase our production and proved reserves . over the five years ended december 31 , 2017 , we drilled or participated in 121 gross ( 54.7 net ) wells of which 98 % were commercially productive . our future oil and gas production , and therefore our success , is highly dependent upon our ability to find , acquire and develop additional reserves that are profitable to produce . the rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves , conduct successful development and exploration activities or , through engineering studies , identify additional behind-pipe zones or secondary recovery reserves . we can not assure you that our exploration and development activities will result in increases in our proved reserves . if our proved reserves decline in the future , our production may also decline and , consequently , our cash flows from operations and the amount that we are able to borrow under our credit facility may also decline . in addition , approximately 67 % of our estimated proved reserves on a boe basis at december 31 , 2017 were undeveloped . by their nature , estimates of undeveloped reserves are less certain . recovery of such reserves will require significant capital expenditures and successful drilling operations . we may be unable to acquire or develop additional reserves , in which case our results of operations and financial condition could be adversely affected . story_separator_special_tag $ 4.58 for the same period of 2016. stock-based compensation . options granted to employees and directors are valued at the date of grant and expense is recognized over the options vesting period . in addition to options , restricted shares of common stock have been granted and are valued at the date of grant and expense is recognized over their vesting period . stock-based compensation was consistent at $ 3.2 48 million for the years ended december 31 , 2017 and 2016. there were no significant grants of stock options or restricted stock in 2017. depreciation , depletion , and amortization ( “ dd & a ” ) expenses . dd & a expense increased to $ 26.2 million for the year ended december 31 , 2017 from $ 24.4 million in 2016. dd & a expense increased primarily due to higher future development costs included in the december 31 , 2017 reserve report as well as higher production volumes in 2017 as compared to 2016. dd & a per boe for 2017 was $ 9.72 compared to $ 10.80 in 2016. the decrease in dd & a expense per boe was primarily due to a higher reserve volumes in 2017 as compared to 2016. interest expense . interest expense decreased to $ 2.9 million in 2017 from $ 4.3 million for 2016. the decrease was primarily due to lower debt levels in 2017 as compared to 2016 , partially offset by higher interest rates in 2017 as compared to 2016. income taxes . due to losses incurred and loss carry forwards , we did not recognize any income tax expense for the years ended december 31 , 2017 and 2016 . ( gain ) loss on derivative contracts . derivative gains or losses are determined by actual derivative settlements during the period and by periodic mark to market valuation of derivative contracts in place . we have elected not to apply hedge accounting to our derivative contracts as prescribed by accounting standards codification 815 , derivatives and hedging `` asc 815 '' ; therefore , fluctuations in the market value of the derivative contracts are recognized in earnings during the current period . our derivative contracts consisted of fixed price swaps , basis differential swaps and collar contracts in 2017 and 2016. the net estimated value of our commodity derivative contracts was a liability of approximately $ 13.2 million as of december 31 , 2017. when our derivative contract prices are higher than prevailing market prices , we incur gains and conversely , when our derivative contract prices are lower than prevailing market prices , we incur losses . for the year ended december 31 , 2017 , we recognized a loss on our derivative contracts of approximately $ 1.8 million , consisting of a gain of $ 2.5 million on closed contracts and a loss of $ 4.3 million on the mark to market valuation of open contracts . for the year-ended december 31 , 2016 , we incurred a loss of $ 18.0 million , consisting of a gain of $ 1.8 million on closed contracts and a loss of $ 19.8 million related to open contracts .
| results of operations selected operating data . the following table sets forth operating data from continuing operations for the periods presented . replace_table_token_19_th 47 replace_table_token_20_th _ ( 1 ) revenue and average sales prices are before the impact of hedging activities . comparison of year ended december 31 , 2017 to year ended december 31 , 2016 operating revenue . during the year ended december 31 , 2017 , operating revenue increased to $ 86.2 million from $ 56.5 million in 2016. the increase in revenue was primarily due to higher commodity prices in 2017 as well as higher sales volumes in 2017 as compared to 2016. higher commodity prices added $ 20.8 million to revenue , while higher sales volumes contributed $ 8.9 million to revenue in 2017. during 2017 we experienced an increase in the average realized oil price of approximately 26 % from 2016 levels . average realized gas prices increased by approximately 41 % and average realized ngl prices increased by approximately 181 % from 2016 levels . oil sales volumes increased to 1,574 mbbls for the year ended december 31 , 2017 from 1,372 mbbls for the same period of 2016. the increase in oil sales volumes was due to new production brought on line offset by natural field declines and sales of non-core properties . new production brought on line added 538 mboe to sales in 2017. gas sales volumes increased to 3,889 mmcf for the year ended december 31 , 2017 from 3,160 mmcf for the year ended december 31 , 2016. the increase in gas sales volumes was primarily due to new wells brought on line as well as the acquisition of additional interests in existing wells .
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eventually , when we develop a new reserve , we intend to incur additional debt and restructure our existing credit facility . we have no material off-balance sheet arrangements . during may 2010 we declared our first cash dividend of $ 0.10 per common share of which there were 27,782,028 outstanding . furthermore , our board approved that the dividend would also apply to the 1,150,000 outstanding rsus and to the 434,167 outstanding stock options on that date . the total cash payment for all the outstanding securities was about $ 2.9 million . during may 2011 we declared another special dividend of $ 0.12 per share . as was done last year , the dividend also applied to our outstanding rsus and stock options . the total cash payment for all the outstanding securities was about $ 3.5 million . we evaluated our cash position and capital requirements and decided to declare another special cash dividend of $ .14 per share payable in april 2012. the total payment , which also covers our outstanding rsus and options , will be about $ 4.1million . in late august 2010 we decided to drop the property insurance on our underground mining equipment . we feel comfortable with this decision as such equipment is allocated among four mining units spread out over eight miles . the historical cost of such equipment is about $ 93 million . project update new reserve ( unassigned ) – allerton see page three of this report for a discussion of our allerton project . msha reimbursements two of our major contracts allow us to pass on certain costs incurred resulting from changes in costs to comply with mandates issued by msha or other government agencies . in late december 2010 , we submitted a report which was reviewed by an outside consulting firm engaged by our customers . in january 2011 the two customers agreed to reimburse us about $ 1.9 million for costs incurred by us during 2008 and 2009. during those years we were not able to accurately estimate what the ultimate outcome of these reimbursable costs would be so we did not record them until we were certain of the amounts and certain of collection . such amounts were recorded during the first quarter of 2011 . 21 we submitted our incurred costs for 2010 in september of 2011 for $ 4 million . one of the customers paid $ 2 million in february 2012 and we continue discussions with the other customer . accounting recognition for these 2010 reimbursements will be made in 2012. oil and gas properties orri we have an orri of about 2 % on 22,500 acres and a 4 % orri on 2,500 acres in laramie county , wyoming . this orri was obtained from leases we sold to sm energy company ( formerly st. mary land ) ( nyse : sm ) in october 2008. this is a niobrara oil shale play in the northern d-j basin . during 2010 , sm energy drilled a discovery well ( the atlas 1-19 ) on this acreage . through 2011 this well has produced 121,000 barrels of oil . during 2011 three additional wells were drilled and completed on our acreage with mixed results . it is uncertain how many more wills be drilled by sm . for 2011 we received $ 114,000 from these orri 's . north dakota lease play ( patriots prospect ) we invested about $ 2.5 million in a lease play located in slope , hettinger and stark counties of north dakota which resulted in the purchase of about 10,600 net acres of oil and gas leases . on june 10 , 2011 , we signed a letter of intent with chesapeake energy corporation ( nyse : chk ) to sell such acreage and on july 29 , 2011 , the deal closed . chk purchased a 90 % working interest for $ 13.2 million resulting in a pre-tax gain of about $ 10.6 million considering selling expenses and non-executive employee bonuses ; due to some post-closing curative work about $ 1.5 million of the gain was recognized during the fourth quarter . we retained a 10 % working interest and an approximate 3 % average orri . if and when a well is proposed , we expect to participate in the drilling . story_separator_special_tag 100 % , in other words not shown proportionate to our 45 % interest ( financial statement data in thousands ) : replace_table_token_2_th 24 critical accounting estimates and significant accounting policies we believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical accounting estimates . since the carlisle mine has only been in production since february 2007 we do not have a long history to rely on . the reserve estimates are used in the dd & a calculation , in our impairment test and in our internal cash flow projections . if these estimates turn out to be materially under or over-stated ; our dd & a expense and impairment test may be affected . furthermore , if our coal reserves are materially overstated our liquidity and stock price could be adversely affected . we have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns , as well as all open tax years in these jurisdictions . we identified our federal tax return and our indiana state tax return as “ major ” tax jurisdictions . none of our corporate tax returns have been examined in the last ten years . we were recently advised by the irs that they will perform an examination of our 2009 and 2010 tax returns ; such exam is to commence in mid-march 2012. we were also notified by indiana tax representatives that they will examine our 2008-2010 tax returns ; such exam is to commence this summer . we story_separator_special_tag eventually , when we develop a new reserve , we intend to incur additional debt and restructure our existing credit facility . we have no material off-balance sheet arrangements . during may 2010 we declared our first cash dividend of $ 0.10 per common share of which there were 27,782,028 outstanding . furthermore , our board approved that the dividend would also apply to the 1,150,000 outstanding rsus and to the 434,167 outstanding stock options on that date . the total cash payment for all the outstanding securities was about $ 2.9 million . during may 2011 we declared another special dividend of $ 0.12 per share . as was done last year , the dividend also applied to our outstanding rsus and stock options . the total cash payment for all the outstanding securities was about $ 3.5 million . we evaluated our cash position and capital requirements and decided to declare another special cash dividend of $ .14 per share payable in april 2012. the total payment , which also covers our outstanding rsus and options , will be about $ 4.1million . in late august 2010 we decided to drop the property insurance on our underground mining equipment . we feel comfortable with this decision as such equipment is allocated among four mining units spread out over eight miles . the historical cost of such equipment is about $ 93 million . project update new reserve ( unassigned ) – allerton see page three of this report for a discussion of our allerton project . msha reimbursements two of our major contracts allow us to pass on certain costs incurred resulting from changes in costs to comply with mandates issued by msha or other government agencies . in late december 2010 , we submitted a report which was reviewed by an outside consulting firm engaged by our customers . in january 2011 the two customers agreed to reimburse us about $ 1.9 million for costs incurred by us during 2008 and 2009. during those years we were not able to accurately estimate what the ultimate outcome of these reimbursable costs would be so we did not record them until we were certain of the amounts and certain of collection . such amounts were recorded during the first quarter of 2011 . 21 we submitted our incurred costs for 2010 in september of 2011 for $ 4 million . one of the customers paid $ 2 million in february 2012 and we continue discussions with the other customer . accounting recognition for these 2010 reimbursements will be made in 2012. oil and gas properties orri we have an orri of about 2 % on 22,500 acres and a 4 % orri on 2,500 acres in laramie county , wyoming . this orri was obtained from leases we sold to sm energy company ( formerly st. mary land ) ( nyse : sm ) in october 2008. this is a niobrara oil shale play in the northern d-j basin . during 2010 , sm energy drilled a discovery well ( the atlas 1-19 ) on this acreage . through 2011 this well has produced 121,000 barrels of oil . during 2011 three additional wells were drilled and completed on our acreage with mixed results . it is uncertain how many more wills be drilled by sm . for 2011 we received $ 114,000 from these orri 's . north dakota lease play ( patriots prospect ) we invested about $ 2.5 million in a lease play located in slope , hettinger and stark counties of north dakota which resulted in the purchase of about 10,600 net acres of oil and gas leases . on june 10 , 2011 , we signed a letter of intent with chesapeake energy corporation ( nyse : chk ) to sell such acreage and on july 29 , 2011 , the deal closed . chk purchased a 90 % working interest for $ 13.2 million resulting in a pre-tax gain of about $ 10.6 million considering selling expenses and non-executive employee bonuses ; due to some post-closing curative work about $ 1.5 million of the gain was recognized during the fourth quarter . we retained a 10 % working interest and an approximate 3 % average orri . if and when a well is proposed , we expect to participate in the drilling . story_separator_special_tag 100 % , in other words not shown proportionate to our 45 % interest ( financial statement data in thousands ) : replace_table_token_2_th 24 critical accounting estimates and significant accounting policies we believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical accounting estimates . since the carlisle mine has only been in production since february 2007 we do not have a long history to rely on . the reserve estimates are used in the dd & a calculation , in our impairment test and in our internal cash flow projections . if these estimates turn out to be materially under or over-stated ; our dd & a expense and impairment test may be affected . furthermore , if our coal reserves are materially overstated our liquidity and stock price could be adversely affected . we have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns , as well as all open tax years in these jurisdictions . we identified our federal tax return and our indiana state tax return as “ major ” tax jurisdictions . none of our corporate tax returns have been examined in the last ten years . we were recently advised by the irs that they will perform an examination of our 2009 and 2010 tax returns ; such exam is to commence in mid-march 2012. we were also notified by indiana tax representatives that they will examine our 2008-2010 tax returns ; such exam is to commence this summer . we
| results of operations for 2011 , we sold 3,307,000 tons at an average price of $ 41.71/ton . for 2010 we sold 3,050,000 tons at an average price of $ 42.31/ton . our average price for 2012 , based on our contracts , is expected to be about $ 42.35/ton . the 2011 “ other income ” is due to the msha reimbursements discussed above . the 2010 “ other loss ” of $ 772,000 was attributable primarily to our participating in the drilling of a dry hole in michigan on a gas prospect developed by savoy . our share of the dry hole was about $ 1 million . operating costs and expenses averaged $ 23.31/ton in 2011 compared to $ 23.69 in 2010. we expect such costs to average $ 24-25/ton for 2012 . 22 the increase in dd & a was due to additions to plant and equipment . sg & a increased primarily due to higher expenses related to the new allerton reserve , increases in certain salaries and increases in attending industry and investor conferences . also we incurred higher curative costs to perfect our coal leases . our effective tax rate for 2011 and 2010 was in the 37-39 % range and we expect such rate to be in the 32-36 % range for 2012 . 45 % ownership in savoy savoy operates almost exclusively in michigan . they have an interest in the trenton-black river play in southern michigan . they hold 200,000 gross acres ( about 100,000 net ) in hillsdale and lenawee counties .
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69 the following summarizes the fair value of consideration exchanged as part of the settlement agreement : ( in thousands ) equity issued $ 25,904 cash received ( 25,000 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with selected consolidated financial data and our consolidated financial statements and related notes appearing 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 include historical information and other information with respect to our plans and strategy for our business and contain 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 certain factors , including but not limited to those set forth under the risk factors section of this report and elsewhere in this annual report on form 10-k. overview vanda pharmaceuticals inc. ( we , our or vanda ) is a global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients . we commenced operations in 2003 and our product portfolio includes : hetlioz ® ( tasimelteon ) , a product for the treatment of non-24-hour sleep-wake disorder ( non-24 ) , was approved by the u.s. food and drug administration ( fda ) in january 2014 and launched commercially in the u.s. in april 2014. in july 2015 , the european commission ( ec ) granted centralized marketing authorization with unified labeling for hetlioz ® for the treatment of non-24 in totally blind adults . hetlioz ® was commercially launched in germany in august 2016. hetlioz ® has potential utility in a number of other circadian rhythm disorders and is presently in clinical development for the treatment of pediatric non-24 , jet lag disorder and smith-magenis syndrome ( sms ) . fanapt ® ( iloperidone ) , a product for the treatment of schizophrenia , the oral formulation of which was approved by the fda in may 2009 and launched commercially in the u.s. by novartis pharma ag ( novartis ) in january of 2010. novartis transferred all the u.s. and canadian commercial rights to the fanapt ® franchise to us on december 31 , 2014. additionally , our distribution partners launched fanapt ® in israel and mexico in 2014. fanapt ® has potential utility in a number of other disorders . an assessment of new fanapt ® clinical opportunities is ongoing . tradipitant ( vly-686 ) , a small molecule neurokinin-1 receptor ( nk-1r ) antagonist , which is presently in clinical development for the treatment of chronic pruritus in atopic dermatitis and gastroparesis . trichostatin a , a small molecule histone deacetylase ( hdac ) inhibitor . aqw051 , a phase ii alpha-7 nicotinic acetylcholine receptor partial agonist . operational highlights hetlioz ® enrollment of patients for a jet lag disorder clinical study is ongoing . results are expected in the second half of 2017. enrollment in the smith-magenis syndrome ( sms ) clinical study is ongoing with results expected in 2018. a pharmacokinetic study of the hetlioz ® pediatric formulation is enrolling with results expected in 2018. fanapt ® an expansion of the fanapt ® u.s. field sales team is expected to be completed during the first quarter of 2017. the marketing authorization application ( maa ) for oral fanaptum ® tablets is under evaluation by the european medicines agency for the treatment of schizophrenia in adults . a decision on the fanaptum ® maa is expected during the second half of 2017. an assessment of new fanapt ® clinical opportunities is ongoing . tradipitant enrollment in a tradipitant clinical study for the treatment of chronic pruritus in patients with atopic dermatitis is approaching completion . results are expected in mid 2017. a tradipitant clinical study for the treatment of gastroparesis began enrolling patients in the fourth quarter of 2016. results are expected in the fourth quarter of 2017 . 41 trichostatin a vanda expects to submit an investigational new drug application to the fda in mid 2017 for trichostatin a , which will seek clearance to begin a clinical study of hematologic malignancies . since we began operations in march 2003 , we have devoted substantially all of our resources to the in-licensing , clinical development and commercialization of our products . our ability to generate meaningful product sales and achieve profitability largely depends on our ability to successfully commercialize hetlioz ® and fanapt ® in the u.s. and europe , on our ability , alone or with others , to complete the development of our products , and to obtain the regulatory approvals for and to manufacture , market and sell our products . the results of our operations will vary significantly from year-to-year and quarter-to-quarter and depend on a number of factors , including risks related to our business , risks related to our industry , and other risks which are detailed in risk factors reported in item 1a of part i of this annual report on form 10-k. as described in part i , item 3 , legal proceedings , of this annual report on form 10-k , we have initiated lawsuits to enforce our patent rights against certain generic pharmaceutical companies . critical accounting policies the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . 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 apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag we accrue service fees at the time of revenue recognition , resulting in a reduction of product sales and the recognition of an accrued liability , unless it receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received . in which case , service fees are recorded as selling , general and administrative expense . co-payment assistance : patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance . co-pay assistance utilization is based on information provided by our third-party administrator . the allowance for co-pay assistance is based on actual sales and an estimate for pending sales based on either historical activity or pending sales for which we have validated the insurance benefits . product returns : consistent with industry practice , we generally offer direct customers a limited right to return as defined within our returns policy . we consider several factors in the estimation process , including historical return activity , expiration dates of product shipped to specialty pharmacies , inventory levels within the distribution channel , product shelf life , prescription trends and other relevant factors . the following table summarizes sales discounts and allowance activity as of and for the years ended december 31 , 2016 , 2015 and 2014 : 43 replace_table_token_4_th the provision for rebates and chargebacks of $ 56.1 million and $ 57.4 million for the years ended december 31 , 2016 and 2015 , respectively , primarily represents medicaid rebates and contracted rebate programs applicable to sales of fanapt ® . the provision for discounts , returns and other of $ 19.5 million and $ 17.9 for the years ended december 31 , 2016 and 2015 , respectively , primarily represents wholesaler distribution fees applicable to sales of fanapt ® and prompt pay discounts applicable to the sales of both hetlioz ® and fanapt ® . license revenue . our license revenues in 2014 were derived from the amended and restated sublicense agreement with novartis and include an upfront payment and future milestone and royalty payments . pursuant to the amended and restated sublicense agreement , novartis had the right to commercialize and develop fanapt ® in the u.s. and canada . under the amended and restated sublicense agreement , we received an upfront payment of $ 200.0 million . revenue related to the upfront payment was recognized ratably from the date the amended and restated sublicense agreement became effective ( november 2009 ) through the expected duration of the novartis commercialization of fanapt ® in the u.s. which was estimated to be through the expiry of the fanapt ® composition of patent , including a granted hatch-waxman extension ( november 2016 ) . in connection with the settlement agreement , we recognized the remaining deferred revenue as of december 31 , 2014 as part of the gain on arbitration settlement . see note 3 , settlement agreement with novartis , to the consolidated financial statements included in part ii of this annual report on form 10-k for additional information . stock-based compensation . we use the black-scholes-merton option pricing model to determine the fair value of stock options . the determination of the fair value of stock options 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 the expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rate and expected dividends . expected volatility rates are based on the historical volatility of our publicly traded common stock and other factors . the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected term of the option in effect at the time of the grant . we have not paid dividends to our stockholders since our inception ( other than a dividend of preferred share purchase rights which was declared in september 2008 ) and do not plan to pay dividends in the foreseeable future . stock-based compensation expense is also affected by the expected forfeiture rate for the respective option grants . if our estimates of the fair value of these equity instruments or expected forfeitures are too high or too low , it would have the effect of overstating or understating expenses . research and development expenses . research and development expenses consist primarily of fees for services provided by third parties in connection with the clinical trials , costs of contract manufacturing services , milestone payments made under licensing agreements prior to regulatory approval , costs of materials used in clinical trials and research and development , costs for regulatory consultants and filings , depreciation of capital resources used to develop products , related facilities costs , and salaries , other employee-related costs and stock-based compensation for research and development personnel . we expense research and development costs as they are incurred for products in the development stage , including manufacturing costs and milestone payments made under license agreements prior to fda approval . upon and subsequent to fda approval , manufacturing and milestone payments made under license agreements are capitalized . milestone payments are accrued when it is deemed probable that the milestone event will be achieved . costs related to the acquisition of intellectual property are expensed as incurred if the underlying technology is developed in connection with our research and development efforts and has no alternative future use . 44 selling , general and administrative expenses . selling , general and administrative expenses consist primarily of salaries , other related costs for personnel , including stock-based compensation , related to executive , finance , accounting , information technology , marketing , medical affairs and human resource functions . other costs include facility costs not otherwise included in research and development expenses and fees for marketing , medical affairs , legal , accounting and other professional services .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , including our and our partners ' ability to successfully commercialize our products , any possible payments made or received pursuant to license or collaboration agreements , progress of our research and development efforts , the timing and outcome of clinical trials and related possible regulatory approvals . our limited operating history makes predictions of future operations difficult . since our inception , we have incurred significant losses resulting in an accumulated deficit of $ 345.9 million as of december 31 , 2016. our total stockholders ' equity was $ 131.3 million as of december 31 , 2016. year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues . total revenues increased by $ 36.1 million , or 33 % , to $ 146.0 million for the year ended december 31 , 2016 compared to $ 109.9 million for the year ended december 31 , 2015. during the years ended december 31 , 2016 and 2015 , revenues consisted of the following : replace_table_token_7_th hetlioz ® product sales increased by $ 27.4 million , or 62 % , to $ 71.7 million for the year ended december 31 , 2016 compared to $ 44.3 million for the year ended december 31 , 2015. fanapt ® product sales increased by $ 8.7 million , or 13 % , to $ 74.3 million for the year ended december 31 , 2016 compared to $ 65.6 million for the year ended december 31 , 2015. cost of goods sold . cost of goods sold was $ 24.7 million for the year ended december 31 , 2016 , compared to $ 23.5 million for the year ended december 31 , 2015. cost of goods sold includes third party manufacturing costs of product sold , third party royalty costs and distribution and other costs .
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading risk factors. overview background we are a leading provider of specialized online content and brand advertising that brings together buyers and sellers of corporate information technology ( it ) products . we sell customized marketing programs that enable it vendors to reach corporate it decision makers who are actively researching specific it purchases . we operate a network of over 150 websites , each of which focuses on a specific it sector , such as storage , security or networking . throughout the critical stages of the purchase decision process , our content offerings meet it professionals ' needs for expert , peer and it vendor information , and provide a platform on which it vendors can launch targeted marketing campaigns that generate measurable , high return on investment ( roi ) . as it professionals have become increasingly specialized , they have come to rely on our sector-specific websites for purchasing decision support . our content enables it professionals to navigate the complex and rapidly changing it landscape where purchasing decisions can have significant financial and operational consequences . based upon the logical clustering of our users ' respective job responsibilities and the marketing focus of the products that our customers are advertising , we currently categorize our content offerings across nine distinct media groups : application architecture and development ; channel ; cio/it strategy ; data center and virtualization technologies ; business applications and analytics ; networking ; security ; storage ; and technologyguide.com . on april 26 , 2011 we announced that we had completed the acquisition of the websites , product offerings , and events associated with computer weekly and its sister channel-targeted brand , microscope , from reed business information limited for $ 2.0 million in cash . computer weekly , through its websites and events ( and print properties , which were not continued ) , has served united kingdom-based managers , directors and cios monitoring the technology landscape , and the advertisers looking to reach them . computer weekly and microscope also serve united kingdom it decision makers by bringing technology news and it management focused content . these two websites complement our established offerings in the region , including searchdatamanagement.co.uk , searchnetworking.co.uk , searchsecurity.co.uk , searchstorage.co.uk , and searchvirtualdatacentre.co.uk , by giving advertisers new ways to reach key uk and european it decision makers . on december 17 , 2012 we announced that we had acquired e-magine médias sas , which we call lemagit , a strategic partner with techtarget since 2010 , for $ 2.2 million in cash plus a potential future earnout valued at $ 0.7 million at the time of the acquisition . approximately $ 1.2 million of the cash payment was made at closing , with the remainder due in two equal installments in fiscal years 2013 and 2014. the second installment payment of approximately $ 0.6 million was made in the fourth quarter of 2013. the third installment is subject to certain revenue growth targets and may be reduced based on actual results . since its launch in 2008 , lemagit 's network of sites has offered french-language news and analysis for it decision makers on core enterprise it topics such as cloud computing , virtualization , security , and storage and attracts over 250,000 visits per month . the acquisition strengthens our value proposition to deliver focused content , targeted audiences and innovative capabilities to enterprise it providers trying to make progress in europe . the third installment , to be paid in 2014 , is included in accrued liabilities in our consolidated balance sheet ; the earnout is included in long-term liabilities on our consolidated balance sheet . executive summary during 2012 and 2013 , we made progress on our strategy to grow our business and increase the reach of our offerings . it continues to be the case that , central to these efforts , is the progress that we are making with our new product platform , activity intelligence , and the continued expansion of our direct international capabilities . 38 key strategic activities during the period ended december 31 , 2013 included : international update international geo-targeted revenue increased by 23 % in the year ended december 31 , 2013 as compared to the same period a year ago . we believe that our integrated product offering across regions continues to resonate with international marketers and is contributing to our successful results . we plan on continuing to invest in these capabilities as we seek opportunities to increase our global reach . during 2013 , we launched direct operations in germany after a long-term partnership expired . site launches and updates : in the twelve month period ended december 31 , 2013 , we launched and updated the following websites : searchsdn.com , a new website designed to help network professionals make informed decisions as they transition to software-defined networking . software-defined networking ( sdn ) is a disruptive technology that promises to revolutionize networking . searchsdn.com is dedicated to covering all aspects of software-defined networking to provide more focused coverage of evolving sdn technology and business issues . it provides news and technical content on software-defined networking deployment , building service provider/cloud networks based on sdn , as well as sdn implementation and management in data centers , remote branches and in local area networks ( lans ) . technologyguide.com , a website that focuses on growing trends including consumerization and bring your own device ( byod ) . test centers in cincinnati and boston enable technologyguide 's experienced editorial staff to carefully evaluate and compare products in a controlled environment . this makes it a must-read resource for technology-savvy enthusiasts , it professionals , and other buyers searching for trusted purchase information . story_separator_special_tag sponsorship includes access to the registrant information and visibility before , during and after the event . 40 our branding offerings provide it vendors exposure to targeted audiences of it professionals actively researching information related to their products and services and include display advertising and custom offerings . display advertising can be purchased on specific websites within our network and against specific technology segments . these offerings give it vendors the ability to increase their brand awareness to highly specialized it sectors . our other offerings include the following : custom content creation . in support of our advertisers lead generation programs , we will sometimes create white papers , case studies , webcasts , or videos to our customers ' specifications through our custom media team . these content assets are then promoted to our audience in the context of the advertisers ' lead generation programs . our custom offerings allow customers to have content or entire microsites created that focus on topics related to their marketing objectives and include promotion of these vehicles to our users . content sponsorships . it vendors pay us to sponsor editorially created content vehicles on specific technology topics , such as e-zines , e-books , and e-guides. in some cases , these vehicles are supported by multiple sponsors in a single segment , with the registrant information provided to all participating sponsors . because these offerings are editorially driven , advertisers get the benefit of association with independently created content , and access to qualified sales leads that are researching the topic . list rentals . we also offer it vendors the ability to message relevant registered members on topics related to their interests . it vendors can rent our e-mail and postal lists of registered members using specific criteria such as company size , geography or job title . third party revenue sharing arrangements . we have arrangements with certain third parties , including for the licensing of our online content , for the renting of our database of opted-in e-mail subscribers and for which advertising from customers of certain third parties is made available to our website visitors . in each of these arrangements we are paid a share of the resulting revenue . it deal alert . it deal alert is a suite of services for advertisers that leverages the detailed purchase intent data that we collect about end-user it organizations . through proprietary scoring methodologies , we use this data to help advertisers identify and prioritize accounts whose content consumption around specific it topics indicates that they are in-market for a particular product or service . we also use the data directly to identify and further profile accounts ' upcoming purchase plans . based on this information , we provide advertisers with detailed qualified sales opportunities that profile specific in-progress purchase projects , including information on scope and purchase considerations . events . events revenue represented 10 % , 12 % and 13 % of total revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . most of our media groups operate revenue generating events . the majority of our events are free to it professionals and are sponsored by it vendors . attendees are pre-screened based on event-specific criteria such as sector-specific budget size , company size , or job title . we offer three types of events : multi-day conferences , single-day seminars and custom events . multi-day conferences provide independent expert content for our attendees and allow vendors to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees . we also hold single-day seminars on various topics in major cities . these seminars provide independent content on key sub-topics in the sectors we serve , are free to qualified attendees , and offer multiple vendors the ability to interact with specific , targeted audiences actively focused on buying decisions . our custom events differ from our seminars in that they are exclusively sponsored by a single it vendor , and the content is driven primarily by the sole sponsor . cost of revenues , operating expenses and other expenses consist of cost of revenues , selling and marketing , product development , general and administrative , depreciation , and amortization expenses . personnel-related costs are a significant component of most of these expense categories except for depreciation and amortization . 41 cost of online revenue . cost of online revenue consists primarily of : salaries and related personnel costs ; member acquisition expenses ( primarily keyword purchases from leading internet search sites ) ; freelance writer expenses ; website hosting costs ; vendor expenses associated with the delivery of webcast , podcast , videocast and similar content , and list rental offerings ; stock-based compensation expenses ; facilities and other related overhead . cost of events revenue . cost of events revenue consists primarily of : facility expenses , including food and beverages for the event attendees as well as office space ; salaries and related personnel costs ; travel-related expenses ; event speaker expenses ; stock-based compensation expenses ; and other related overhead . selling and marketing . selling and marketing expense consists primarily of : salaries and related personnel costs ; sales commissions ; travel-related expenses ; stock-based compensation expenses ; facilities and related overhead . sales commissions are recorded as expense when earned by the employee , based on recorded revenue . product development . product development expense includes the creation and maintenance of our network of websites , advertiser offerings and technical infrastructure . product development expense consists primarily of salaries and related personnel costs ; stock-based compensation expenses ; facilities and other related overhead . general and administrative . general and administrative expense consists primarily of : salaries and related personnel costs ; facilities and other related overhead ; accounting , legal and other professional fees ; and stock-based compensation expenses . depreciation . depreciation expense consists of the depreciation of our property and equipment .
| results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_9_th comparison of fiscal years ended december 31 , 2013 and 2012 revenues replace_table_token_10_th online . the decrease in online revenue was primarily attributable to a $ 11.6 million decrease in lead generation offerings as well as a $ 1.4 million decrease in branding revenues , primarily due to lower banner sales volume . the decrease in lead generation and branding revenues is primarily in north american sales , caused by continued delays in it purchases due to uncertainty in the macro environment . this decrease is offset in part by an increase in international revenues as we continue to migrate from a partnership model to international direct operations . additionally , there was a $ 4.1 million increase in revenues from new product offerings , primarily it deal alert , and a $ 0.5 million increase in third party revenues . 47 events . the decrease in events revenue is primarily due to a reduction in the number of seminars and custom events that we conducted . cost of revenues and gross profit replace_table_token_11_th cost of online revenue . the decrease in cost of online revenues was primarily attributable to a reduction in variable direct , third party and employee-related costs due to the decrease in online revenues year over year , offset in part by costs related to new product offerings . cost of events revenue . cost of events revenues decreased in the year ended december 31 , 2013 ( fiscal 2013 ) as compared to the same period a year ago , primarily due to decreases in variable direct costs as a result of the decrease in the number of events that we conducted . gross profit . our gross profit is equal to the difference between our revenues and our cost of revenues for the period .
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the loan agreement provides for monthly interest payments through december 31 , 2018 ; provided that , ( i ) if the company requests and silicon valley bank funds tranche b or tranche c , this interest-only period automatically extends through june 30 , 2019 , and ( ii ) if the company has received a pma in the united states for its r-snm system and the company requests and silicon valley bank funds tranche c , the interest-only period automatically extends through december 31 , 2019. on the first day of the end of the interest-only period , the company will be required to repay the term loan in equal monthly installments of principal plus interest through maturity . outstanding principal balances under the term loan bear interest at the prime rate plus 1.75 % . in october 2018 , the company and silicon valley bank entered into an amendment to the loan agreement ( the “ loan amendment ” ) in connection with which the company requested the full $ 5.0 million from tranche b and the story_separator_special_tag overview we are a medical technology company that has developed and is commercializing innovative and minimally invasive implantable snm used to treat patients with uui and uuf , together referred to as oab , as well as fi , and non-obstructive ur . 75 oab affects an estimated 87 million adults in the united states and europe . another estimated 40 million adults are reported to suffer from fi . snm therapy is an effective and durable treatment that has been widely used and reimbursed in europe and the united states for the past two decades . snm is the only oab treatment with proven clinical superiority to standard medical therapy and oab patients who receive snm report significantly higher quality of life than patients undergoing drug treatment . we believe our proprietary r-snm system offers significant advantages , including being the first and only rechargeable snm system . it is designed to last approximately 15 years and is 60 % smaller than existing technology . we believe our r-snm system has the potential to disrupt and grow the approximately $ 650 million , as of 2018 , global snm market , which has historically been served by medtronic , as a single participant . since we commenced operations in late 2013 , our activities have consisted primarily of developing our r-snm system , conducting our relax-oab post-market clinical follow up study in europe and our artisan-snm pivotal clinical study in the united states and europe , filing for regulatory approvals and hiring and training our u.s. commercial team . we have marketing approvals in europe , canada , and australia for all relevant clinical indications and initiated limited commercial efforts in europe and canada in late 2018. revenue in 2019 from international operations in select markets , including england , the netherlands and canada , was $ 5.4 million . on september 6 , 2019 , our pma application for our r-snm system for the treatment of fi was approved by the fda and on november 13 , 2019 , our pma application for our r-snm system for the treatment of oab and ur was approved by the fda . accordingly , we began u.s. commercialization of our r-snm system in the middle of the fourth quarter of 2019 and generated $ 8.4 million in revenue during that period . our ability to generate revenue and become profitable will depend on our ability to successfully commercialize our r-snm system and any product enhancements we may advance in the future . although we have limited commercial activities in europe and canada , our main priority is the united states , where we began to commercialize and market our r-snm system in the fourth quarter of 2019. during the first half of 2019 , we established a significant commercial infrastructure in advance of fda approval of our r-snm system and we continued to make significant investments to build our sales and marketing organization by hiring dedicated sales and clinical personnel to market and support our product in the united states and canada . specifically , we hired and trained a dedicated direct sales organization , comprised of approximately 100 sales professionals , 11 regional sales managers and 48 clinical specialists . we hired and trained sales representatives and clinical specialists with strong sales backgrounds and experience in snm therapy and other neurostimulation applications , and with relationships with urologists and urogynecologists . if we are unable to accomplish any of these objectives , it could have a significant negative impact on our future revenue . if we fail to generate revenue in the future , our business , results of operations , financial condition , cash flows , and future prospects would be materially and adversely affected . we also intend to continue to make investments in research and development efforts to develop improvements and enhancements to our r-snm system . we expect to derive future revenue by increasing patient and physician awareness of our r-snm system . in the united states , the cost required to treat each patient is reimbursed through various third-party payors , such as commercial payors and government agencies . most large insurers have established coverage policies in place to cover snm therapy . certain commercial payors have a patient-by-patient prior authorization process that must be followed before they will provide reimbursement for snm therapy . outside the united states , reimbursement levels vary significantly by country and by region , particularly based on whether the country or region at issue maintains a single-payor system . snm therapy is eligible for reimbursement in canada , australia , and certain countries in europe , such as germany , france , and the united kingdom . annual healthcare budgets generally determine the number of snm systems that will be paid for by the payor in these single-payor system countries and regions . we currently outsource the manufacture of the implantable components of our r-snm system . story_separator_special_tag this license granted by us to amf explicitly excludes uses of the axonics licensed ip that are within the scope of the exclusive license of the amf ip granted by amf to us . such license is irrevocable unless we terminate the license agreement and amf does not agree to pay us compensation for such license mutually agreed between us and amf or determined by arbitration in accordance with the terms of the license agreement . any and all improvements to amf ip made by us will be owned by amf and licensed to us under the license agreement . to date , we have not made any improvements to the inventions claimed in the amf ip that constitute axonics licensed ip . in addition , the license agreement provides amf with the amf option to license from us any intellectual property owned by us or otherwise in our control that is related to electrical stimulation of human tissue , separate from the axonics licensed ip and amf ip , on terms that are materially consistent with the terms upon which we license the amf ip pursuant to the license agreement , and subject to field of use restrictions that would be determined upon the exercise of the amf option . amf has expressly declined in writing to exercise the amf option . under the license agreement , for each calendar year beginning in 2018 , we are obligated to pay amf a royalty on an amf licensed product-by-amf licensed product basis if one of the following conditions applies : ( i ) one or more valid claims within any of the patents licensed to us by amf covers such amf licensed products or the manufacture of such amf licensed products or ( ii ) for a period of 12 years from the first commercial sale anywhere in the world of such amf licensed product , in each case . the foregoing royalty is calculated as the greater of ( a ) 4 % of all net revenue derived from the amf licensed products , and ( b ) the minimum royalty , payable quarterly . the minimum royalty automatically increases each year , subject to a maximum amount of $ 200,000 per year . during the years ended december 31 , 2019 and 2018 , we have recorded related royalties of $ 0.6 million and $ 0.1 million , respectively . we have 60 days to pay amf the royalty amount due under the license agreement , and if we fail to pay amf within such 60-day period , amf may , at its election , convert the exclusive license to a non-exclusive license or terminate the license agreement . each party may terminate the license agreement if the other party commits a material breach of any obligation under the license agreement and such breach is not cured within 90 days following receipt of notice of such breach from the other party . amf may terminate the license agreement upon ( i ) notice to us in the event we challenge or assist any other person or entity in challenging the patentability , enforceability or validity of any of the amf patents licensed to us under the license agreement , subject to certain exceptions including challenges that we are not infringing any such amf patent , and ( ii ) upon our filing of or the institution of bankruptcy , reorganization , liquidation or receivership proceedings , or upon an assignment of a substantial portion of our assets for the benefit of creditors , and in the case of involuntary bankruptcy , in the event we consent to such bankruptcy and it is not dismissed within 90 days . lastly , we may terminate the license agreement in full for any reason effective upon 60 days written notice to amf . the license agreement was amended twice in february 2014 in order to , among other things , include the field of the treatment of bladder and bowel dysfunction in humans through the application of electrical energy anywhere in or on the human body , within the scope of the licenses granted therein . the license agreement allows amf the right to use the amf ip for non-commercial research , educational and scholarly purposes . 78 components of our results of operations net revenue since we commenced operations in late 2013 , our activities have consisted primarily of developing our r-snm system , conducting our relax-oab post-market clinical follow up study in europe and our artisan-snm pivotal clinical study in the united states and europe , filing for regulatory approvals and hiring and training our u.s. commercial team . we have marketing approvals in europe , canada , and australia for all relevant clinical indications and initiated limited commercial efforts in europe and canada in late 2018. revenue in 2019 from international operations in select markets , including england , the netherlands and canada , was $ 5.4 million . on september 6 , 2019 , our pma application for our r-snm system for the treatment of fi was approved by the fda and on november 13 , 2019 , our pma application for our r-snm system for the treatment of oab and ur was approved by the fda . accordingly , we began u.s. commercialization of our r-snm system in the middle of the fourth quarter of 2019 and generated $ 8.4 million in revenue during that period . our ability to generate revenue and become profitable will depend on our ability to successfully commercialize our r-snm system and any product enhancements we may advance in the future . although we have limited commercial activities in europe and canada , our main priority is the united states , where we began to commercialize and market our r-snm system and generate revenue from product sales in the fourth quarter of 2019. we have established a significant commercial infrastructure to support our product launch in the united states . we expect to derive future revenue by increasing patient and physician awareness of our r-snm system .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table shows our results of operations for the years ended december 31 , 2019 and 2018 ( in thousands , except percentages ) : replace_table_token_2_th net revenue net revenue was $ 13.8 million in fiscal year 2019 and was derived from the sale of our r-snm systems to customers in the united states , europe and canada . net revenue was $ 0.7 million in fiscal year 2018 and was derived from the sale of our r-snm systems to customers in europe and canada . the increase in net revenue is primarily due to $ 8.4 million attributable to our commercial launch in the united states . cost of goods sold and gross margin we incurred $ 6.5 million of cost of goods sold in fiscal year 2019 , compared to $ 0.4 million in fiscal year 2018 . gross margin was 53.0 % in fiscal year 2019 , compared to 49.7 % gross margin in fiscal year 2018 . the increase in gross margin is primarily due to country and product mix . research and development expenses research and development expenses increased $ 0.8 million , or 4.0 % , to $ 20.2 million in fiscal year 2019 , compared to $ 19.4 million in fiscal year 2018 . the in crease in research and development expenses was primarily attributable to an in crease of $ 3.5 million in personnel costs including salaries and wages , stock-based compensation and other employee-related benefits , an in crease of $ 3.1 million in contract research and development and consulting expenses , partially offset by a decrease of $ 3.2 million in clinical development costs to demonstrate the safety and 81 effectiveness of our r-snm system and to support regulatory submissions and a decrease of $ 2.9 million in contract fabrication and manufacturing costs .
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the black-scholes valuation model takes into account , as of the valuation date , factors including the current exercise price , the expected life of the warrant , the current price of the underlying stock and its expected volatility , expected dividends on f-14 biodel inc. ( a development stage company ) notes to financial statements ( continued ) ( in thousands , except share and per share amounts ) the stock , and the risk-free interest rate for the term of the 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 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 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 the `` risk factors '' section of this form 10-k ( see part i-item 1a above ) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a specialty biopharmaceutical company focused on the development and commercialization of innovative treatments for diabetes that may be safer , more effective and more convenient for patients . we develop our product candidates by applying our proprietary formulation technologies to existing drugs in order to improve their therapeutic profiles . our proprietary insulin formulations are designed to be more rapid-acting than the formulations currently available to type 1 and type 2 diabetes patients . we refer to these as `` ultra-rapid-acting '' formulations . our glucagon formulations and presentations are designed to be stable at room temperature and are intended for use by caregivers with no medical training as a rescue treatment for diabetes patients experiencing severe hypoglycemia , or very low concentrations of blood glucose . our most advanced ultra-rapid-acting insulin formulation , biod-123 , combines recombinant human insulin , or rhi , with our proprietary combination of excipients to increase the rate of absorption following injection when compared to other commercially available insulin formulations , including `` rapid-acting '' mealtime insulin analogs such as humalog® , marketed by eli lilly , novolog® , marketed by novo nordisk and apidra® , marketed by sanofi-aventis . we are also using our proprietary excipients to develop ultra-rapid-acting insulin analog-based formulations using either insulin lispro , the active pharmaceutical ingredient in humalog® , or insulin aspart , the active pharmaceutical ingredient in novolog® . an earlier rhi-based formulation known as linjeta ( and previously referred to as viaject® ) was the subject of a new drug application , or nda , that we submitted to the fda in december 2009. in october 2010 , the fda issued a complete response letter stating that the nda for linjeta could not be approved in its submitted form and that we should conduct two new phase 3 clinical trials using our preferred commercial formulation of linjeta prior to re-submitting the nda . based upon the complete response letter and subsequent feedback that the fda provided , we decided to develop newer rhi-based formulations with the goal of identifying a formulation with a pharmacokinetic and pharmacodynamic profile similar to linjeta , but with improved injection site toleration characteristics . from january 2011 to april 2012 , we studied several such newer formulations , including biod-123 , in phase 1 clinical trials . in these trials , we used humalog® as the comparator drug rather than the comparator drug we used in our phase 3 linjeta clinical trials . in our phase 3 clinical trials , the comparator drug was humulin® r , an rhi-based insulin formulation marketed by eli lilly that is less rapid-acting than the insulin analog humalog® . biod-123 achieved our target pharmacokinetic , pharmacodynamic and injection site toleration profiles for a candidate rhi-based formulation in a phase 1 clinical trial completed in april 2012 , and in the third calendar quarter of 2012 we began enrolling patients in a phase 2 clinical trial of biod-123 . the phase 2 clinical trial of biod-123 was a randomized , open label , parallel group study conducted at 32 investigative centers in the united states . in the trial , 132 patients with type 1 diabetes were randomized to receive either biod-123 or humalog® to use as their mealtime insulin during an 18-week treatment period . both arms of the study used insulin glargine , sold as lantus® , as the basal insulin . the clinical trial was designed to evaluate hba1c control as the primary endpoint , and secondary endpoints included postprandial glucose excursions , glycemic variability , hypoglycemic event rates and weight changes . the phase 2 clinical trial of biod-123 completed patient dosing in the second calendar quarter of 2013 , and in september 2013 we announced preliminary results from the trial . biod-123 achieved the primary endpoint of noninferiority for hba1c relative to humalog® . the mean hba1c change from baseline in the biod-123 group was -0.08 ± 0.064 % and -0.25± 0.063 % in the humalog® group . the 95 % confidence 42 interval ( -0.01 , 0.35 ) of the between group differences in change from baseline hba1c did not exceed the fda-designated threshold of 0.40 % , thereby establishing non-inferiority . we expect to provide an update on our further development plans for biod-123 after completing our analysis of the data from the phase 2 clinical trial and following discussions with fda on clinical trial design , safety and chemistry , manufacturing and controls relating to potential future studies . in addition to biod-123 , we have other rhi-based formulations in earlier stages of development . in particular , we are developing ultra-rapid-acting formulations of concentrated insulin that are characterized by a rapid onset of action and a prolonged duration of action . story_separator_special_tag research and development expenses research and development expenses consist of the costs associated with our basic research activities , as well as the costs associated with our drug development efforts , conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consist of : external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites , third-party manufacturing organizations and consultants ; employee-related expenses , which include salaries and benefits for the personnel involved in our preclinical and clinical drug development and manufacturing activities ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment and laboratory and other supplies . we intend to focus our research and development efforts on conducting preclinical studies and phase 1 and phase 2 clinical trials to determine our preferred development , clinical and regulatory program for our ultra-rapid-acting insulin formulations and our stable glucagon presentations . we also expect to conduct a pivotal clinical trial in support of an nda for our dual-chamber glucagon rescue product candidate . we anticipate that our research and development expenses for the fiscal year ending september 30 , 2014 will increase as compared to the fiscal year ended september 30 , 2013 , as we continue to : conduct the development work necessary to finalize the formulation and design of our dual-chamber glucagon rescue product candidate , as well as the preclinical studies , clinical trials and manufacturing activities necessary to support the filing of an nda to the fda for that product candidate ; conduct additional formulation development work to improve the stability , pharmacokinetic , and pharmacodynamic properties of our ultra-rapid-acting insulin analog-based formulations , our concentrated insulin formulations and our liquid glucagon formulations , or purchase rights related to proprietary technologies that are compatible with our product candidates ; purchase active pharmaceutical ingredients and other materials to support our research and development activities . over the longer term , we anticipate that these expenses will increase further as we : conduct later stage clinical trials of our ultra-rapid-acting insulin formulations and our dual-chamber glucagon rescue product , including one or more pivotal clinical trials required for fda approval of ndas for these product candidates ; and prepare and file an nda for our dual-chamber glucagon rescue product candidate . 44 we have used our employee and infrastructure resources across multiple research projects and our drug development programs for our ultra-rapid-acting insulin formulations , including biod-123 , biod-238 and biod-250 , our concentrated insulin formulations and our stable glucagon presentations . substantially all of our research and development expenses incurred to date are attributable to our ultra-rapid-acting insulin program . in july and september 2012 , we were awarded two national institutes of health grants for the development of a concentrated ultra-rapid-acting insulin formulation and a stable glucagon formulation , respectively , for use in an artificial pancreas . the july 2012 award is intended to fund research to develop a proprietary ultra-rapid-insulin product candidate at high concentrations suited to provide sufficient quantities of insulin in an external artificial pancreas pump device that has limited volume capacity . the july 2012 award is for two years and totals $ 582 thousand . the september 2012 award is intended to fund research to develop a proprietary glucagon product candidate optimized to algorithmically deliver glucagon as part of a bi-hormonal closed loop system to mitigate hypoglycemic events . the september 2012 award is for two years and totals $ 583 thousand . the following table illustrates , for each period presented , our research and development costs by nature of the cost . replace_table_token_4_th the following table illustrates , for each period presented , our research and development costs by project . the year ended september 30 , 2011 and inception to date are not noted because we did not track expenses by project in prior years , and therefore can not accurately reflect past expense history by project . replace_table_token_5_th the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of , or the period , if any , in which material net cash inflows may commence from our product candidates . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the progress , timing or success of our research and development and clinical programs for our product candidates ; 45 the degree to which our ongoing assessment of the data from our recently completed phase 2 clinical trial of biod-123 , our lead candidate for an ultra-rapid-acting insulin formulation , and our related chemistry , manufacturing and controls development work , support further clinical development by us or our potential partners ; our ability to successfully use the data from our phase 2 clinical trial of biod-123 to design and conduct the pivotal clinical trials required by the fda to secure approval to commercialize that candidate ; the success of our formulation development work to improve the stability of our newer ultra-rapid-acting insulin analog-based formulations while maintaining the pharmacokinetic and injection site toleration characteristics associated with earlier formulations ; our ability to conduct the development work necessary to finalize the formulation and design of our dual-chamber glucagon rescue product candidate , as well as the preclinical studies , clinical trials and manufacturing activities necessary to support the filing of an nda to the fda for that product candidate ; the results of our real-time stability programs for our rhi- , insulin analog- and glucagon-based product candidates , including the reproducibility of earlier , smaller scale , stability studies and our ability to accurately project long term stability on the basis of accelerated testing ; our ability to accurately anticipate technical challenges that we may face
| results of operations year ended september 30 , 2013 compared to year ended september 30 , 2012 revenue . we did not recognize any revenue during the years ended september 30 , 2013 or 2012. research and development expenses . replace_table_token_6_th 50 research and development expenses were $ 14.3 million for the year ended september 30 , 2013 , an increase of $ 2.0 million , or approximately 16.1 % , from $ 12.3 million for the year ended september 30 , 2012. this increase was primarily attributable to increases of $ 1.2 million in external expenses associated with our clinical trials , $ 0.4 million in personnel and stock-based compensation expenses , $ 0.2 million in consulting fees , and $ 0.1 million in preclinical animal studies . research and development expenses for the year ended september 30 , 2013 and 2012 include $ 0.7 million each in stock-based compensation expense related to options granted to employees . in july and september 2012 , we received two national institutes of health awards for the development of concentrated ultra-rapid-acting insulin formulation and glucagon formulation for use in an artificial pancreas . the july 2012 award is intended to fund research to develop a proprietary ultra-rapid-insulin product candidate at high concentrations suited to provide sufficient quantities of insulin in an external artificial pancreas pump device that has limited volume capacity . the july award is for two years and totals $ 582 thousand . the september 2012 award is intended to fund research to develop a proprietary glucagon product candidate optimized to algorithmically deliver glucagon as part of a bi-hormonal closed loop system to mitigate hypoglycemic events . the september 2012 award is for two years and totals $ 583 thousand . for the year ended september 30 , 2013 , we reported $ 327 thousand in government grants for the high concentration ultra-rapid-insulin product candidate and $ 219 thousand for the glucagon formulation work . general and administrative expenses .
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plant and buildings are depreciated over estimated useful lives of twenty-five years , equipment over useful lives from three to five years , internal-use software over useful lives from three to seven years , tooling over useful lives from six months to one year , and leasehold improvements over the lesser of the useful life of the improvement or the term of the lease . when property and equipment is retired or otherwise disposed of , the cost and accumulated depreciation are relieved from the accounts and the net gain or loss is included in operating expenses . intangible assets the company 's intangible assets principally include goodwill , story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these statements as a result of certain factors , including those set forth above in item 1a , risk factors , and below in item 7a , quantitative and qualitative disclosures about market risk . please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. overview of our company logitech is a world leader in designing , manufacturing and marketing products that help connect people to digital and cloud experiences . more than 35 years ago , logitech created products to improve experiences around the personal pc platform , and today it is a multi-brand , multi-category company designing products that enable better experiences consuming , sharing and creating any digital content such as music , gaming , video and computing , whether it is on a computer , mobile device or in the cloud . logitech 's brands include logitech , jaybird , ultimate ears , logitech g , astro gaming and blue microphones . our products participate in five large market opportunities : creativity & productivity , gaming , video collaboration , music and smart home . we sell our products to a broad network of domestic and international customers , including direct sales to retailers and e-tailers , and indirect sales through distributors . our worldwide channel network includes consumer electronics distributors , retailers , mass merchandisers , specialty stores , computer and telecommunications stores , value-added resellers and online merchants . from time to time , we may seek to partner with or acquire when appropriate , companies that have products , personnel , and technologies that complement our strategic direction . we continually review our product offerings and our strategic direction in light of our profitability targets , competitive conditions , changing consumer trends and the evolving nature of the interface between the consumer and the digital world . on august 21 , 2018 , we acquired all equity interests in blue microphones holding corporation ( blue microphones ) for a total consideration of $ 134.8 million in cash ( the blue microphones acquisition ) , which included a working capital adjustment and repayment of debt on behalf of blue microphones . blue microphones is a leading audio manufacturer that designs and produces microphones , headphones , recording tools , and accessories for audio professionals , musicians and consumers . the blue microphones acquisition supplements our product portfolio . on august 11 , 2017 , we acquired certain assets and liabilities constituting the astro gaming business ( astro ) from ag acquisition corporation for a purchase price of $ 85.0 million in cash ( the astro acquisition ) . astro is a leading console gaming accessory brand with a history of producing award-winning headsets for professional gamers and enthusiasts . astro provides a strong growth platform in the console gaming accessories market . summary of financial results our total sales for fiscal year 2019 increased 9 % in comparison to fiscal year 2018 . the growth was broad-based across our regions and across most of our product categories . the results of operations for blue microphones have been included in our consolidated statements of operations from the acquisition date . for fiscal year 2019 , blue microphones contributed approximately 2 percentage points of the sales growth rate . sales for fiscal year 2019 increased 6 % , 5 % and 17 % in the americas , emea and asia pacific , respectively . gross margin increased by 180 basis points to 37.2 % during fiscal year 2019 , compared to fiscal year 2018 . the increase in gross margin was primarily driven by favorable product mix and cost reductions . in addition , extra costs from the transition of the distribution center in north america in the third quarter of fiscal year 2018 negatively affected the gross margin in fiscal year 2018. operating expenses for fiscal year 2019 were $ 773.8 million , or 27.8 % of sales , compared to $ 679.5 million , or 26.5 % of sales , for fiscal year 2018 . the increase in operating expenses was primarily driven by : $ 47.8 million higher personnel-related cost due to restructuring charges in the current period , increased performance-based variable compensation and additional headcount from business acquisitions ; $ 32.6 million higher third-party costs , primarily advertising and marketing expenses to support our new product introductions and new market logitech international s.a. | fiscal 2019 form 10-k | 38 opportunities ; $ 5.0 million higher amortization of intangible assets from the business acquisitions ; and a $ 4.9 million non-recurring credit for change in fair value of contingent consideration from an acquisition recorded in fiscal year 2018. net income for fiscal year 2019 was $ 257.6 million , compared to $ 208.5 million for fiscal year 2018 . trends in our business our strategy focuses on five large multi-category market opportunities including creativity & productivity , gaming , video collaboration , music and smart home . we see opportunities to deliver growth with products in all these markets . the following discussion represents key trends specific to our market opportunities . story_separator_special_tag certain customer programs require management to estimate the percentage of those programs which will not be claimed or will not be earned by customers based on historical experience and on the specific terms and conditions of particular programs . the percentage of these customer programs that will not be claimed or earned is commonly referred to as `` breakage '' . if we receive a separately identifiable benefit from a customer and can reasonably estimate the fair value of that benefit , the cost of the customer programs is recognized in operating expenses . cooperative marketing arrangements . we enter into customer marketing programs with many of our customers , and with certain indirect partners , allowing customers to receive a credit equal to a set percentage of their purchases of our products , or a fixed dollar credit for various marketing programs . the objective of these arrangements is to encourage advertising and promotional events to increase sales of our products . customer incentive programs . customer incentive programs include performance-based incentives and consumer rebates . we offer performance-based incentives to our customers and indirect partners based on pre-determined performance criteria . consumer rebates are offered from time to time at our discretion for the primary benefit of end-users . cooperative marketing arrangements and customer incentive programs are considered variable consideration , which we estimate and record as a reduction to revenue at the time of sale based on negotiated terms , historical experiences , forecasted incentives , the anticipated volume of future purchases , and inventory levels in the channel . pricing programs . we have agreements with certain customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction . at our discretion , we also offer special pricing discounts to certain customers . special pricing discounts are usually offered only for limited time periods or for sales of selected products to specific indirect partners . our decision to make price reductions is influenced by product life cycle stage , market acceptance of products , the competitive environment , new product introductions and other factors . accruals for estimated expected future pricing actions are recognized at the time of sale based on analysis of historical pricing actions by customer and by product , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information , such as stage of product life-cycle . product returns . we grant limited rights to return products . return rights vary by customer and range from just the right to return the defective product to stock rotation rights limited to a percentage of sales approved by management . estimates of expected future product returns are recognized at the time of sale based on analyses of logitech international s.a. | fiscal 2019 form 10-k | 40 historical return trends by the customer and by product , inventories owned by and located at customers , current customer demand , current operating conditions , and other relevant customer and product information . upon recognition , we reduce sales and cost of goods sold for the estimated return . return trends are influenced by product life cycle status , new product introductions , market acceptance of products , sales levels , product sell-through , the type of customer , seasonality , product quality issues , competitive pressures , operational policies and procedures , and other factors . return rates can fluctuate over time but are sufficiently predictable to allow us to estimate expected future product returns . we apply a breakage rate to reduce our accruals of customer programs based on the estimated percentage of these customer programs that will not be claimed or earned . the breakage rate is applied at the time of sale . significant management judgments and estimates are used to determine the breakage of the programs in any accounting period . we regularly evaluate the adequacy of our accruals for customer programs and product returns . future market conditions and product transitions may require us to take action to increase such programs . in addition , when the variables used to estimate these costs change , or if actual costs differ significantly from the estimates , we would be required to record incremental increases or reductions to revenue or operating expenses . inventory valuation we must order components for our products and build inventory in advance of customer orders . further , our industry is characterized by rapid technological change , short-term customer commitments and rapid changes in demand . we record inventories at the lower of cost and net realizable value and record write-downs of inventories that are obsolete or in excess of anticipated demand or net realizable value . a review of inventory is performed each fiscal quarter that considers factors including the marketability and product lifecycle stage , product development plans , component cost trends , historical sales and demand forecasts which consider the assumptions about future demand and market conditions . inventory on hand which is not expected to be sold or utilized is considered excess , and we recognize the write-down in the cost of goods sold at the time of such determination . the write-down is determined by the excess of cost over net realizable value . net realizable value is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal and transportation . at the time of loss recognition , new cost basis per unit and the lower-cost basis for that inventory is established and subsequent changes in facts and circumstances would not result in an increase in the cost basis . if there is an abrupt and substantial decline in demand for logitech 's products or an unanticipated change in technological or customer requirements , we may be required to record additional write-downs that could adversely affect gross margins in the period when the write-downs are recorded .
| results of operations net sales during fiscal year 2019 , sales increased 9 % in comparison to fiscal year 2018 . if currency exchange rates had been constant in 2019 and 2018 , our constant currency sales growth rate would have been 10 % . we grew across most of our product categories , with double-digit growth in our gaming , video collaboration , tablet & other accessories and audio & wearables product categories and strong growth in keyboards & combos . sales declined for mobile speakers and smart home product categories . blue microphones contributed approximately 2 percentage points of the sales growth rate . the adoption of topic 606 increased our sales for fiscal year 2019 by $ 3.7 million . during fiscal year 2018 , sales increased 16 % in comparison to fiscal year 2017. if currency exchange rates had been constant in 2018 and 2017 , our constant currency sales growth rate would have been 13 % . we grew across almost all our product categories . tablet & other accessories , video collaboration , gaming , and smart logitech international s.a. | fiscal 2019 form 10-k | 43 home grew double digits , with gaming contributing more than 8 percentage points of the sales growth rate during the year , including approximately 2 percentage points contributed by astro . sales denominated in other currencies although our financial results are reported in u.s. dollars , a portion of our sales was generated in currencies other than the u.s. dollar , such as the euro , chinese renminbi , japanese yen , canadian dollar , taiwan dollar , british pound and australian dollar . for each of the fiscal years 2019 , 2018 and 2017 , 50 % of our sales were denominated in currencies other than the u.s. dollar .
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the amount recognized is the largest amount of tax benefit that is greater than 50 % likely of being realized on examination . for tax positions not meeting the more likely than not test , story_separator_special_tag this management 's discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this annual report on form 10-k. forward-looking statements in this management 's discussion and analysis are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected . see “ cautionary note regarding forward-looking statements '' above and “ item 1a . risk factors ” for discussions of these risks and uncertainties . a comparative discussion of results of operations for the years ended december 31 , 2019 and 2018 is provided in “ item 7. management 's discussion and analysis of financial condition and results of operations ” in the company 's annual report on form 10-k for the year ended december 31 , 2019 and is incorporated by reference herein . executive summary internal review , investigations and regulatory matters related to the advantage loan program on december 9 , 2019 , the company announced it had voluntarily suspended its advantage loan program in connection with the internal review . the primary focus of the internal review , which has been led by outside legal counsel under the direction of the special committee , has involved the origination of residential real estate loans under the advantage loan program and related matters . the internal review has indicated that certain employees engaged in misconduct in connection with the origination of a significant number of such loans . as a result , the company permanently discontinued the advantage loan program , and a significant number of officers and employees have been terminated or resigned , including the top loan producers within the advantage loan program . while the internal review is substantially complete , the company expects it to remain open during the pendency of the government investigations discussed below , and it is possible additional work will be required in connection with the internal review . the bank is currently under formal investigation by the occ , is responding to grand jury subpoenas from the doj and is responding to a formal investigation recently initiated by the sec that is related to the advantage loan program . the bank also continues to be subject to the occ agreement , which relates primarily to certain aspects of the bank 's bsa/aml compliance program as well as its credit administration . the occ agreement requires the bank to : ( i ) establish a compliance committee to monitor and oversee the bank 's compliance with the provisions of occ agreement ; ( ii ) develop a revised customer due diligence and enhanced due diligence program ; ( iii ) develop a revised suspicious activity monitoring program ; ( iv ) engage an independent , third-party consultant to review and provide a written report on the bank 's suspicious activity monitoring ; ( v ) develop revised policies and procedures to ensure effective bsa/aml model risk management for the bank 's automated suspicious activity monitoring system , which must be validated by a qualified , independent third party ; ( vi ) ensure that the bank 's bsa department maintains sufficient personnel ; and ( vii ) develop revised policies and procedures to ensure effective controls over loan underwriting . in addition to these requirements , while the occ agreement remains in effect , the bank is subject to certain restrictions on expansion activities , such as growth through acquisition or branching to supplement organic growth of the bank . the company incurred significant legal , consulting and other third-party expenses in 2020 in connection with the internal review , the occ and doj investigations , compliance with the occ agreement and defending litigation related to the advantage loan program . for additional information regarding risks related to the internal review , the government investigations and the occ agreement , as well as other aspects of and consequences arising from the advantage loan program , see the risk factors under “ item 1a . risk factors-risks related to the advantage loan program. ” impact of covid-19 economic impact the covid-19 pandemic , which was declared a national emergency in the united states in march 2020 , continues to create extensive disruptions to u.s. and global economic conditions and financial markets and to businesses and the lives of individuals throughout the world . federal and state governments are taking unprecedented actions to contain the spread of the disease , including quarantines , travel bans , shelter-in-place orders , closures of businesses and schools , fiscal stimulus , and legislation designed to deliver monetary aid and other relief to businesses and individuals impacted by the pandemic . although in various locations certain activity restrictions have been relaxed with some level of success , in many states and localities the number of individuals diagnosed with 59 covid-19 has increased significantly , causing a freezing or , in certain cases , a reversal of previously announced relaxation of activity restrictions and prompting the need for additional aid and other forms of relief . moreover , although multiple covid-19 vaccines have received regulatory approval and currently are being distributed to certain at-risk populations , it is too early to know how quickly these vaccines can be distributed to the broader population and how effective the vaccination of the broader population will be in mitigating the adverse social and economic effects of the pandemic . further , variant strains of the covid-19 virus have appeared , further complicating efforts of the medical community and federal , state and local governments in response to the pandemic . the governmental and social response to the covid-19 pandemic has resulted in an unprecedented slowdown in economic activity and a related increase in unemployment . story_separator_special_tag we have many employees working remotely , and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees , customers and business partners . we continue to actively monitor developments related to covid-19 and its impact on our business , customers , employees , counterparties , vendors , and service providers . during the year ended december 31 , 2020 , the most notable financial impacts to our results of operations was a higher provision for loan losses primarily reflecting the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods because of the covid-19 pandemic . our customers are facing varying degree of financial stress , which is expected to continue into 2021 , especially if covid-19 infections increase and previously announced activity restrictions are reinforced . our commercial real estate and construction loan portfolios have been and are likely to continue to be significantly impacted by the covid-19 pandemic . we continue to monitor these loan portfolios closely . the economic disruptions related to the covid-19 pandemic have resulted in a significant increase in delinquencies and loans on nonaccrual status across our commercial real estate loan , construction loan and residential real estate loan portfolios as certain industries have been particularly hard-hit by the covid-19 pandemic , which has adversely affected the ability of many of our borrowers to repay their loans . for example , as of december 31 , 2020 , our commercial real estate loan portfolio includes loans secured by sros , hotels , retail properties and offices , totaling $ 110.9 million , representing 4.4 % of total loans , including $ 67.6 million of loans secured by sros and hotels . according to data from cushman & wakefield , the office vacancy rate in san francisco rose 11 percentage points from the fourth quarter of 2019 , to 16.7 % in the fourth quarter of 2020 , partially as a result of changes in work patterns caused by the covid-19 pandemic . in addition , operating cash flows from tenants have decreased as a result of the covid-19 pandemic , and decreased travel as a result of the covid-19 pandemic has affected our sro borrowers by reducing demand from tourists for travel accommodations in san francisco . our construction loan portfolio also includes similar substantial exposures . in addition , the elevated unemployment rate will continue to have a significant adverse impact on the ability of our residential real estate borrowers to repay their loans . after several years in which total charge offs were less than $ 200 thousand per year , total charge offs for the year ended december 31 , 2020 were $ 4.3 million . similarly , total loans 90 days or more past due , including nonaccrual loans but excluding loan forbearances related to the covid-19 pandemic , increased $ 71.7 million , or 485 % , from $ 14.8 million at december 31 , 2019 to $ 86.5 million at december 31 , 2020. during this volatile time , we remain focused on our capital and liquidity . our regulatory capital ratios remained well above the levels required to be considered well capitalized for regulatory purposes with a common equity tier 1 ratio for the company of 17.68 % and a ratio of tier 1 capital to adjusted tangible assets of 8.08 % . we have significantly increased the liquidity in our balance sheet over the past twelve months , with cash and due from banks as of december 31 , 2020 totaling $ 998.5 million . see “ liquidity and capital resources. ” 61 the duration and severity of the effect of covid-19 on economic , market and business conditions remain uncertain . we are subject to heightened business , operational , market , credit and other risks related to the covid-19 pandemic , which may have an adverse effect on our business , financial condition and results of operations . for further discussion regarding risks related to the covid-19 pandemic , see “ item 1a . risk factors-risks related to the covid-19 pandemic. ” overview of 2020 performance our historical lending strategy has been to offer a range of loan products to the residential and commercial markets . the majority of our loan portfolio consists of residential real estate mortgages , which accounted for 81 % of our loan portfolio as of december 31 , 2020. the balance of our loan portfolio consists of commercial real estate , construction , and commercial lines of credit . while we continued to originate residential real estate loans in 2020 , primarily conforming loans , for portfolio or for sale to the secondary market , we did not originate loans under the former advantage loan program . our focus for 2020 , which will continue for 2021 , was to continue to work hard to resolve our outstanding compliance issues and re-establish strong credit metrics for new lending initiatives . going forward , we plan to focus on the diversification of our overall loan production and develop new residential loan products . however , the implementation of any new loan products takes time and may be subject to the prior review and approval of applicable bank regulatory authorities . in addition , in 2020 we explored exiting unproductive or ancillary businesses and aggressively resolving problem loans . for example , the company closed the sale of substantially all of the assets of quantum capital management , its registered investment advisory business , on december 21 , 2020 , and placed $ 19.4 million of nonperforming loans into held for sale as of year- end .
| results of operations the following discussion compares our results of operations for the years ended december 31 , 2020 and 2019. general . a net loss of $ ( 13.0 ) million was recorded for the year ended december 31 , 2020 , reflecting a decrease of $ 42.2 million , or 144 % , compared to net income of $ 29.2 million for the year ended december 31 , 2019. the decrease in net income ( loss ) was primarily attributable to a $ 54.9 million provision for loan losses compared to a $ 133 thousand recovery of loan losses for the year ended december 31 , 2019. the decrease in net income ( loss ) also reflects a $ 26.7 million increase in professional fees ; a $ 15.2 76 million decrease in net interest income , as our asset mix changed and the net interest margin decreased to 2.94 % for the year ended december 31 , 2020 from 3.78 % for the previous year ; and a $ 6.0 million decrease in gain on sale of portfolio loans , due to the absence of portfolio loan sales in 2020. the decreases were partially offset by a net recovery of provision for contingent losses of $ 10.0 million for the year ended december 31 , 2020 compared to the provision for contingent losses of $ 25.0 million for the year ended december 31 , 2019. average balance sheet and related yields and rates . the following tables present average balance sheet information , interest income , interest expense and the corresponding average yields earned and rates paid for the years ended december 31 , 2020 , 2019 and 2018. the average balances are daily averages and , for loans , include both performing and nonperforming balances . interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments . replace_table_token_20_th ( 1 ) nonaccrual loans are included in the respective average loan balances .
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forward-looking statements include statements about the company 's expectations , beliefs , intentions , plans , objectives , goals , strategies , future events , performance and underlying assumptions and other statements that are not historical facts . forward-looking statements can be identified by their use of forward-looking words , such as “ may , ” “ will , ” “ anticipate , ” “ expect , ” “ believe , ” “ intend , ” “ plan , ” “ should , ” “ seek ” or comparable terms , or the negative use of those words , but the absence of these words does not necessarily mean that a statement is not forward-looking . the forward-looking statements are based on our beliefs , assumptions and expectations of our future performance , taking into account all information currently available to us . forward-looking statements are not predictions of future events . these beliefs , assumptions and expectations can change as a result of many possible events or factors , not all of which are known to us . some of these factors are described below and under the headings “ business ” , “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations ” . these and other risks , uncertainties and factors could cause our actual results to differ materially from those included in any forward-looking statements we make . any forward-looking statement speaks only as of the date on which it is made . new risks and uncertainties arise over time , and it is not possible for us to predict those events or how they may affect us . except as required by law , we are not obligated to , and do not intend to , update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . important factors that could cause actual results to differ materially from our expectations include , among others : the ability of our tenants to make payments under their respective leases , our reliance on certain major tenants and our ability to re-lease properties that are currently vacant or that become vacant ; our ability to obtain suitable tenants for our properties ; changes in real estate market conditions , economic conditions in the industrial sector and the market in which our properties are located and general economic conditions ; the inherent risks associated with owning real estate , including local real estate market conditions , governing laws and regulations and illiquidity of real estate investments ; our ability to sell properties at an attractive price ; our ability to repay debt financing obligations ; our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us ; the loss of any member of our management team ; our ability to comply with debt covenants ; our ability to integrate acquired properties and operations into existing operations ; continued availability of proceeds from issuances of our debt or equity securities ; the availability of other debt and equity financing alternatives ; market conditions affecting our debt and equity securities ; changes in interest rates under our current credit facility and under any additional variable rate debt arrangements that we may enter into in the future ; our ability to successfully implement our selective acquisition strategy ; our ability to maintain internal controls and procedures to ensure all transactions are accounted for properly , all relevant disclosures and filings are timely made in accordance with all rules and regulations , and any potential fraud or embezzlement is thwarted or detected ; changes in federal or state tax rules or regulations that could have adverse tax consequences ; declines in the market value of our investment securities ; and our ability to qualify as a reit for federal income tax purposes . 28 you should not place undue reliance on these forward-looking statements , as events described or implied in such statements may not occur . we undertake no obligation to update or revise any forward-looking statements as a result of new information , future events or otherwise . the following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein . overview the company is a reit . the company seeks to invest in well-located , modern industrial buildings , leased primarily to investment-grade tenants on long-term net leases . at september 30 , 2013 , the company held investments in seventy-six properties totaling approximately 9,586,000 square feet , consisting of seventy-five industrial properties and one shopping center . total net real estate investments were $ 536,799,412 at september 30 , 2013. these properties are located in twenty-six states : alabama , arizona , colorado , connecticut , florida , georgia , illinois , iowa , kansas , maryland , michigan , minnesota , mississippi , missouri , nebraska , new jersey , new york , north carolina , ohio , oklahoma , pennsylvania , south carolina , tennessee , texas , virginia , and wisconsin . all of these properties are wholly owned , with the exception of an industrial property in new jersey , in which the company owns a 51 % controlling equity interest , and the shopping center in new jersey , in which the company holds a two-thirds controlling equity interest . the company 's weighted-average lease expiration was 6.1 and 5.3 years as of september 30 , 2013 and 2012 , respectively and its average rent per occupied square foot as of september 30 , 2013 and 2012 was $ 5.53 and $ 5.62 , respectively . at september 30 , 2013 and 2012 , the company 's occupancy was 96.0 % and 95.2 % , respectively . during fiscal 2013 , the company acquired five industrial properties totaling approximately 1,050,000 square feet for approximately $ 63,750,000. the company has a concentration of properties leased to fedex corporation ( fdx ) . story_separator_special_tag the company received net proceeds from the common stock offering of approximately $ 16,200,000. the company used such net proceeds to purchase additional properties in the ordinary course of business and for general corporate purposes , including the repayment of indebtedness . on june 7 , 2012 and june 21 , 2012 , the company issued 2,000,000 and 300,000 shares , respectively , of 7.875 % series b cumulative redeemable preferred stock ( series b preferred stock ) at an offering price of $ 25.00 per share in an underwritten public offering . the company received net proceeds from the offering , after deducting the underwriting discount and other estimated offering expenses , of approximately $ 55,033,000 and used the net proceeds from the offering to purchase properties in the ordinary course of business and for general corporate purposes . see part i , item 1 – business and item 1a – risk factors for a more complete discussion of the economic and industry-wide factors relevant to the company and the opportunities and challenges , and risks on which the company is focused . significant accounting policies and estimates the discussion and analysis of the company 's financial condition and results of operation are based upon the company 's consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of the company 's consolidated financial statements . actual results may differ from these estimates under different assumptions or conditions . significant accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions . management believes the following significant accounting policies are affected by our more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . for a detailed description of these and other accounting policies , see note 1 in the notes to the company 's consolidated financial statements included in this form 10-k. real estate investments the company applies financial accounting standards board accounting standards codification ( asc ) 360-10 , property , plant & equipment ( asc 360-10 ) to measure impairment in real estate investments . rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows ( on an undiscounted basis without interest ) from a rental property is less than its historical net cost basis . these expected future cash flows consider factors such as future operating income , trends and prospects as well as the effects of leasing demand , competition and other factors . upon determination that a permanent impairment has occurred , rental properties are reduced to their fair value . for properties to be disposed of , an impairment loss is recognized when the fair value of the property , less the estimated cost to sell , is less than the carrying amount of the property measured at the time there is a commitment to sell the property and or it is actively being marketed for sale . a property to be disposed of is reported at the lower of its carrying amount or its estimated fair value , less its cost to sell . subsequent to the date that a property is held for disposition , depreciation expense is not recorded . upon acquisition of a property , the company allocates the purchase price of the property based upon the fair value of the assets acquired , which generally consist of land , buildings and intangible assets , including above and below market leases and in place leases . the company allocates the purchase price to the fair value of the tangible assets of an acquired property generally determined by third party appraisal of the property obtained in conjunction with the purchase . the purchase price is further allocated to acquired above and below market leases based on the present value of the difference between prevailing market rates and the in-place rates over the remaining lease term . in addition , any remaining amounts of the purchase price are applied to in-place lease values based on management 's 31 evaluation of the specific characteristics of each tenant 's lease . acquired above and below market leases are amortized to rental revenue over the remaining non-cancelable terms of the respective leases . the value of in-place lease intangibles is amortized to amortization expense over the remaining lease term . if a tenant terminates its lease early , the unamortized portion of the tenant improvements , leasing commissions , deferred rent , above and below market leases and the in-place lease value is charged to expense when there is a signed termination agreement , all of the conditions of the termination agreement are met , the tenant is no longer occupying the property and the termination consideration , if any , is probable of collection . the company conducted a comprehensive review of all real estate asset classes in accordance with asc topic 360 , which indicates that asset values should be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable .
| results of operations occupancy and rent per occupied square foot the company 's weighted-average lease expiration was 6.1 and 5.3 years as of september 30 , 2013 and 2012 , respectively and its average rent per occupied square foot as of september 30 , 2013 and 2012 was $ 5.53 and $ 5.62 , respectively . at september 30 , 2013 and 2012 , the company 's occupancy was 96.0 % and 95.2 % , respectively . all improved properties were 100 % occupied at september 30 , 2013 except for the following : replace_table_token_15_th lease renewals and extensions in fiscal 2013 , approximately 9 % of our gross leasable area , consisting of 11 leases totaling 896,813 square feet was originally set to expire . the company has renewed 10 of the 11 leases which were scheduled to expire in fiscal 2013. we have incurred or expect to incur tenant improvement costs of approximately $ 1,224,000 and leasing costs of approximately $ 541,000 in connection with these 10 lease renewals . the table below summarizes the lease term of the 10 leases which were renewed and includes both the tenant improvement costs and the leasing costs which are presented on a per square foot ( psf ) basis averaged over the renewal term . replace_table_token_16_th ( 1 ) amount calculated based on the total cost divided by the square feet , divided by the renewal term . of the total 896,813 square feet of gross leasable area originally set to expire during fiscal 2013 , 837,388 square feet or 93 % has been renewed . the lease renewals have been renewed for a weighted average term of 4.7 years and at an average lease rate of $ 4.71 per square foot as compared to $ 4.84 per square foot formerly , representing a weighted average reduction in the lease rate of 2.69 % .
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57 this discussion contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , section 21e of the securities exchange act of 1934 , as amended and the private securities litigation reform act of 1995 , and are intended to be covered by the safe harbor provided for under these sections . these statements may include words such as “ believe , ” “ estimate , ” “ project , ” “ intend , ” “ expect , ” “ plan , ” “ anticipate , ” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events . forward looking statements reflect management 's current expectations and observations with respect to future events and financial performance . where we express an expectation or belief as to future events or results , such expectation or belief is expressed in good faith and believed to have a reasonable basis . however , our forward-looking statements are subject to risks , uncertainties , and other factors , which could cause actual results to differ materially from future results expressed , projected , or implied by those forward-looking statements . the principal factors that affect our financial position , results of operations and cash flows include , charter market rates , which have declined significantly from historic highs , periods of charter hire , vessel operating expenses and voyage costs , which are incurred primarily in u.s. dollars , depreciation expenses , which are a function of the cost of our vessels , significant vessel improvement costs and our vessels ' estimated useful lives , and financing costs related to our indebtedness . our actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors which could include the following : ( i ) changes in demand in the dry bulk market , including , without limitation , changes in production of , or demand for , commodities and bulk cargoes , generally or in particular regions ; ( ii ) greater than anticipated levels of dry bulk vessel new building orders or lower than anticipated rates of dry bulk vessel scrapping ; ( iii ) changes in rules and regulations applicable to the dry bulk industry , including , without limitation , legislation adopted by international bodies or organizations such as the international maritime organization and the european union or by individual countries ; ( iv ) actions taken by regulatory authorities ; ( v ) changes in trading patterns significantly impacting overall dry bulk tonnage requirements ; ( vi ) changes in the typical seasonal variations in dry bulk charter rates ; ( vii ) changes in the cost of other modes of bulk commodity transportation ; ( viii ) changes in general domestic and international political conditions ; ( ix ) changes in the condition of the company 's vessels or applicable maintenance or regulatory standards ( which may affect , among other things , our anticipated drydocking costs ) ; ( x ) the outcome of our discussions with the agent of our revolving credit facility regarding the calculation of collateral covenants , ( xi ) the outcome of legal proceeding in which we are involved ; and ( xii ) and other factors listed from time to time in our filings with the sec . this discussion also includes statistical data regarding world dry bulk fleet and orderbook and fleet age . we generated some of this data internally , and some were obtained from independent industry publications and reports that we believe to be reliable sources . we have not independently verified this data nor sought the consent of any organizations to refer to their reports in this quarterly report . we disclaim any intent or obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as may be required under applicable securities laws . overview we are eagle bulk shipping inc. , a republic of marshall islands corporation headquartered in new york city . we own one of the largest fleets of supramax dry bulk vessels in the world . supramax dry bulk are handymax vessels ranging in size from 50,000 to 60,000 dwt . we transport a broad range of major and minor bulk cargoes , including iron ore , coal , grain , cement and fertilizer , along worldwide shipping routes . as of december 31 , 2011 , we owned and operated a modern fleet of 45 handymax segment dry bulk vessels , 43 of which are of the supramax class . we are focused on maintaining a high quality fleet that is concentrated primarily in one vessel type – handymax dry bulk carriers and its sub-category of supramax vessels . these vessels have the cargo loading and unloading flexibility of on-board cranes while offering cargo carrying capacities approaching that of panamax dry bulk vessels , which range in size from 60,000 to 100,000 dwt and rely on port facilities to load and offload their cargoes . we believe that the cargo handling flexibility and cargo carrying capacity of the supramax class vessels make them attractive to cargo interests and vessel charterers . the 45 vessels in our operating fleet , with an aggregate carrying capacity of 2,451,259 deadweight tons , have an average age of only five years compared to an average age for the world handymax dry bulk fleet of approximately 12 years . on september 26 , 2011 , we successfully entered into a sixth amendatory and commercial framework implementation agreement , as discussed in note 1 to the consolidated financial statements and in the “ liquidity and capital resources ” section below . in may 2011 , the company decided to sell the heron , a 2001-built supramax , and reached an agreement to sell the vessel for $ 22,511,226 , after brokerage commissions payable to a third party . the heron was not available for delivery until the third quarter . story_separator_special_tag · in august 2009 , we amended and reduced our revolving credit facility to $ 1,200,000,000 . · in september 2009 , we set up our own in-house technical management operation . · we took delivery of our third newbuilding vessel from china , bittern , in october 2009 . · we took delivery of our fourth newbuilding vessel from china , canary , in december 2009. we have employed all of our vessels on time and voyage charters . the following table represents certain information about the company 's owned vessel revenue earning charters : 60 the following table represents certain information about our revenue earning charters on our operating fleet as of december 31 , 2011 : replace_table_token_9_th 61 replace_table_token_10_th ( 1 ) the date range provided represents the earliest and latest date on which the charterer may redeliver the vessel to the company upon the termination of the charter . the time charter hire rates presented are gross daily charter rates before brokerage commissions , ranging from 0.625 % to 5.00 % , to third party ship brokers . ( 2 ) the charter rate does not include any shortfall between the vessels ' actual daily earnings and the $ 17,000 per day that klc is responsible for . revenue from klc will be recognized when collectability is assured . in addition , up to december 2015 eagle is entitled to 100 % profit share is between $ 17,000 to $ 21,000 and 50 % profit share thereafter , from january 2016 to dec 2018/apr 2019 with 50 % profit share above $ 17,000 . ( 3 ) upon conclusion of the previous charter the vessel will commence a short term charter for up to six months . ( 4 ) index , an average of the trailing baltic supramax index . ( 5 ) the charterer has an option to extend the charter by 2 periods of 11 to 13 months each . market overview the international shipping industry is highly competitive and fragmented with many market participants as of january 31 , 2011. there are approximately 8,997 dry bulk carriers ( over 10,000 dwt ) totaling 624 million dwt . the world dry bulk fleet remains very fragmented with no single owner accounting for more than 4 % in any particular sub-sector . we compete with other ( primarily private ) owners of dry bulk vessels in the handysize , handymax , and panamax asset classes . competition in drybulk trade is intense . demand is a function of world economic conditions and the consequent requirement for commodities , production and consumption patterns , as well as events which interrupt production , trade routes , and consumption . we compete for charters on the basis of price , vessel location , size , age , and condition , as well as on our reputation as an owner and operator . customers , or charterers , tend to prefer modern vessels ( over older ships ) due to their greater operational reliability , lower fuel consumption , and improved built-designs complying with more recent regulation standards . consequently , owners of large modern fleets tend to have a competitive advantage over owners operating older ships . 62 our strategy is to concentrate in one vessel category within the dry bulk segment- the handymax sector . handymax dry bulk vessels range in size from 35,000 to 64,999 dwt . within the handymax sector , the industry has migrated to a larger size vessel class called the supramax which ranges in size from 50,000 to 64,999 dwt . these vessels have the cargo loading and unloading flexibility offered by its on-board cranes while its cargo carrying capacity approaches that of panamax class vessels , which ranges in size between 65,000 and 100,000 dwt and requires onshore facilities to load and offload their cargoes . we believe that the cargo handling flexibility and cargo carrying capacity of the supramax class vessels make them attractive to potential charterers . forty-three of the 45 vessels in our operating fleet as of december 31 , 2011 are classified as supramax vessels . the supply of dry bulk vessels depends primarily on the level of the orderbook , the fleet age profile , and the operating efficiency of the existing fleet . as of january 2012 , 18 % of the world handymax fleet is 20 years or older . the 45 handymax vessels in our operating fleet have an average age of approximately 5 years as of december 31 , 2011 , compared to an average age for the world handymax dry bulk fleet of over 12 years . the handymax newbuilding orderbook currently stands at 32 % of the world handymax fleet . the handymax market drybulk shipping experienced a challenging year in 2011 as net supply growth exceeded demand . 2011 was a record year for scrapping , but it was not enough to absorb peak orderbook deliveries . as a result , net supply grew by over 14 % . global trade demand grew by a respectable 5 % thanks to a continued appetite for commodities , including coal , grain , iron ore , and other minor bulks . rates weakened across all asset classes in 2011 : handymax rates decreased 35 % to an average $ 14,400 per day , panamax rates decreased 44 % to an average $ 14,000 per day , and capesize rates decreased 53 % to average $ 15,600 per day . supramax segments outperformance can be attributed to better supply-demand fundamentals and to its ability to carry a diversified cargo mix as compared to the larger vessels . 63 industry research indicates estimated dry bulk vessel deliveries for 2012 and 2013 will be 122 million dwt and 54m dwt , respectively . it is widely believed that a material amount of these scheduled deliveries will not materialize due to a variety of reasons , including : inflated orderbook figures , owner and yard-related financing issues , and increasing labor cost and appreciating currency issues for yards .
| factors affecting our results of operations we believe that the important measures for analyzing future trends in our results of operations consist of the following : replace_table_token_13_th · ownership days : we define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us . ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period . there were twenty three vessels in the fleet at the beginning of 2009. during 2009 , we took delivery of four newbuilding vessels in january , march , october , and december 2009. ownership days in 2010 increased due to the delivery of twelve newbuilding vessels , reduced by the sale of one vessel in september 2010. ownership days in 2011 increased due to the delivery of eight newbuilding vessels , reduced by the sale of one vessel in may 2011 . · chartered-in under operating lease days : the company defines chartered-in under operating lease days as the aggregate number of days in a period during which the company chartered-in vessels . the company started to charter-in vessels on a spot basis during the fourth quarter of 2010 . 68 · available days : we define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition , scheduled repairs or repairs under guarantee , vessel upgrades or special surveys and drydockings , and the aggregate amount of time that we spend positioning our vessels . the shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues .
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these policies and procedures include , but are not limited to , staggering shift times to limit the number of people in common areas at one time , limiting meetings and meeting sizes , continual cleaning and disinfecting of high touch and high traffic areas , including door handles , bath rooms , bath houses , access elevators , mining equipment , and other areas , limiting contractor access to our properties , limiting business travel , and instituting work from home for administrative employees . we plan to keep these policies and procedures in place and continually evaluate further enhancements for as long as necessary . we recognize that the covid-19 outbreak and responses thereto will also impact both our customers and suppliers . to date , we have not had any significant issues with critical suppliers , and we continue to communicate with them and closely monitor their developments to ensure we have access to the goods and services required to maintain our operations and continue our leer south development . our customers have reacted , and continue to react , in various ways and to varying degrees to declining demand for their products . we have received force majeure letters from certain of our customers , primarily related to our thermal segments . during the year ended december 31 , 2020 , we concluded commercial negotiations with certain customers deferring over three million tons of powder river basin contractual obligations from 2020 to future periods in exchange for over eight million tons of additional commitments in future periods . approximately 0.25 million tons of north american coking coal contracted for 2020 have been deferred to 2021. our current view of our customer demand situation is discussed in greater detail in the “ overview ” section below . in the fourth quarter of 2020 , particularly november and december , we experienced a significant increase in the number of covid-19 cases in our workforce , in parallel to the trends seen in the counties in which we operate . by december 31 , 2020 approximately 11 % of our workforce had tested positive for covid-19 . this increase in case level and related absenteeism resulted in the idling of 57 continuous miner production shifts during november and december of 2020 , 52 of which were at our metallurgical operations . our current view of our operational situation is discussed in greater detail in the “ operational performance ” section below . overview our results for the year ended december 31 , 2020 were impacted by continued weakness in metallurgical and thermal coal markets . during the course of 2020 , the initial responses to the covid-19 pandemic in march and april precipitated significant demand destruction that further weakened already depressed thermal and metallurgical coal markets . these initial impacts were mitigated to some degree in certain areas of the national and global economy by august , stemming further declines in demand at that time . unfortunately , a fourth quarter resurgence of covid-19 cases again drew responses that negatively impacted our markets , though not as severely as the initial responses . the initial industrial shutdowns , particularly in the automotive and oil and gas sectors , that drove significant reductions in steel demand and the idling of multiple blast furnaces globally , began to reverse in the third quarter of 2020 , leading to increasing steel demand and the restarting of many idled blast furnaces . in particular , domestic auto production returned to pre-shutdown levels in july , but has declined slightly since . the return of industrial production to pre-pandemic levels has been , and will continue to be uneven ; for example , oil and gas drilling activity , although increasing slowly , remains significantly depressed as compared to pre-pandemic levels . the return of overall industrial production to pre-covid-19 levels is also likely to be lengthy and , as we have seen in the fourth quarter of 2020 , is subject to setbacks should covid-19 become resurgent . during 2020 , demand destruction elicited a supply side response , as significant high cost coking coal mine idlings and slowdowns were announced in north america and globally . the overall production volume removed from the markets this year is significant . while some of the curtailed production has returned or can return to the market with the right price signal , we believe that the cash cost of a 60 significant portion of the currently curtailed coking coal production exceeds current prompt pricing . to date , due to our low cost structure , we have avoided idling any of our coking coal operations . longer term , we believe continued limited global capital investment in new coking coal production capacity , economic pressure on higher cost production sources , and production responses to the covid-19 pandemic will provide support to coking coal markets as demand continues to return to the steel production supply chain . during the fourth quarter of 2020 , a major trade dispute escalated between china , a major importer of coking coal , and australia , the world 's largest exporter of coking coal . specifically , china has effectively banned the import of coking coal from australia . this disrupted historical trade patterns , and led to pricing anomalies in the international coking coal markets . through most of the fourth quarter of the year ended december 31 , 2020 , the prompt index price for united states east coast high-vol a ( hva ) , our main product , low-vol ( lv ) , and even high-vol b ( hvb ) coking coal exceeded the prompt index price for australian east coast premium low volatile ( plv ) coking coal . recently the plv index has rapidly risen significantly , returning to a more historically normal price relationship between products . uncertainty and volatility in pricing and pricing relationships are likely until the larger trade dispute between china and australia is settled . story_separator_special_tag during the year ended december 31 , 2017 , we sold lone mountain processing llc and cumberland river coal llc to revelation energy llc , generating a gain of approximately $ 21.3 million . in the year ended december 31 , 2019 , we recorded a subsequent loss on the sale of lone mountain of approximately $ 4.3 million related to recognition of certain contingent workers ' compensation liabilities , both occupational disease and traumatic , that may accrue to us as a result of the bankruptcy filing by revelation energy llc . for further information on these gains and losses , see note 4 , “ divestitures ” to the consolidated financial statements . other operating income , net . the increase in other operating income , net in 2020 versus 2019 results primarily from the favorable impact of certain coal derivative settlements of approximately $ 8.8 million , and increased outlease royalty income of $ 1.8 million , partially offset by reduced transloading income of approximately $ 4.3 million and a gain on sale of certain right of way rights in the prior year period of approximately $ 2.3 million . non-operating expense . the following table summarizes non-operating expense for the years ended december 31 , 2020 and 2019 : replace_table_token_8_th non-service related pension and postretirement benefit costs . the increase in non-service related pension and postretirement benefit costs in the year ended december 31 , 2020 versus the year ended december 31 , 2019 is primarily due to lower postretirement benefit gain amortization in 2020 . 64 provision for ( benefit from ) income taxes . the following table summarizes our provision for income taxes for the years ended december 31 , 2020 and 2019 : replace_table_token_9_th see note 15 , to the consolidated financial statements “ taxes , ” for a reconciliation of the statutory federal income tax provision ( benefit ) at the statutory rate to the actual benefit from taxes . operational performance year ended december 31 , 2020 and 2019 our mining operations are evaluated based on adjusted ebitda , per-ton cash operating costs ( defined as including all mining costs except depreciation , depletion , amortization , accretion on asset retirements obligations , and pass-through transportation expenses divided by segment tons sold ) , and on other non-financial measures , such as safety and environmental performance . adjusted ebitda is defined as net income ( loss ) attributable to the company before the effect of net interest expense , income taxes , depreciation , depletion and amortization , the amortization of sales contracts , the accretion on asset retirement obligations , and non-operating income ( expense ) . adjusted ebitda may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance . adjusted ebitda is not a measure of financial performance in accordance with generally accepted accounting principles , and items excluded from adjusted ebitda are significant in understanding and assessing our financial condition . therefore , adjusted ebitda should not be considered in isolation , nor as an alternative to net income ( loss ) , income ( loss ) from operations , cash flows from operations or as a measure of our profitability , liquidity or performance under generally accepted accounting principles . furthermore , analogous measures are used by industry analysts to evaluate the company 's operating performance . investors should be aware that our presentation of adjusted ebitda may not be comparable to similarly titled measures used by other companies . 65 the following table shows operating results of coal operations for the years ended december 31 , 2020 and 2019 . replace_table_token_10_th this table reflects numbers reported under a basis that differs from u.s. gaap . see the “ reconciliation of non-gaap measures ” below for explanation and reconciliation of these amounts to the nearest gaap figures . other companies may calculate these per ton amounts differently , and our calculation may not be comparable to other similarly titled measures . powder river basin — adjusted ebitda for the year ended december 31 , 2020 , declined from the year ended december 31 , 2019 due to decreased volume . pricing increased , and cash cost per ton sold increased , driven by the decrease in volume and the reimposition of a higher federal black lung excise tax rate . pricing in 2020 benefitted from our ability to recoup the reimposition of the higher federal black lung excise tax rate under certain of our term supply contracts . the volume decline was primarily due to historically low natural gas pricing , covid-19 related demand destruction , and the continued growth of subsidized renewable generation sources , particularly wind . natural gas pricing reached historical lows during the first half of 2020 , but pricing of the competing fuel was higher and volatile in the second half of 2020 , and exceeded prior year prices at times . natural gas production levels fell below 2019 levels in the second quarter of 2020 , and remained below 2019 production levels for the remainder of the year . however , 2020 natural gas storage levels remained above 2019 levels the entire year , and these opposing market forces led to pricing volatility in the second half of 2020. the continued buildout of subsidized renewable generation sources , particularly wind , significantly increased the market share of renewable generation in the year ended december 31 , 2020. during 2020 , we also experienced reduced electric generation related to demand destruction due to restrictive responses taken to combat the spread of covid-19 . in alignment with our stated objective of shrinking our thermal operational footprint , we are comfortable operating our powder river basin operations at our currently committed volumes in 2021. we have further determined to idle our coal creek operation by the end of 2022 or earlier when all remaining sales obligations have been fulfilled , and accelerate reclamation activities at the mine .
| results of operations year ended december 31 , 2020 and 2019 revenues . our revenues include sales to customers of coal produced at our operations and coal purchased from third parties . transportation costs are included in cost of coal sales and amounts billed by us to our customers for transportation are included in revenues . coal sales . the following table summarizes information about our coal sales for the years ended december 31 , 2020 and 2019 : replace_table_token_6_th on a consolidated basis , coal sales in 2020 decreased $ 826.8 million or 36.0 % from 2019 , and tons sold decreased 27.0 million tons or 29.9 % . coal sales from metallurgical operations decreased $ 349.0 million due primarily to lower realized pricing and secondarily decreased volume . powder river basin coal sales decreased $ 253.6 million due to lower volume , and other thermal coal sales decreased $ 237.7 million due to lower volume and pricing . in the year ended december 31 , 2019 , our coal-mac operation in our other thermal segment , which was sold in december 2019 , provided approximately $ 111.8 million in coal sales and 2.1 million tons sold in our other thermal segment . see discussion in “ operational performance ” for further information about segment results . 62 costs , expenses and other . the following table summarizes costs , expenses and other components of operating income for the years ended december 31 , 2020 and 2019 : replace_table_token_7_th cost of sales . our cost of sales for the year ended december 31 , 2020 decreased $ 494.5 million or 26.4 % versus 2019. in the prior year period , our coal-mac operation , which was sold in december 2019 , accounted for approximately $ 111.3 million in cost of sales .
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( 3 ) management contracts , compensatory plans and arrangements . management contracts , compensatory plans and arrangements are indicated by the symbol “ * ” in the applicable exhibits listed in item 15 ( b ) , below . ( b ) exhibits the exhibits listed below are filed as part of this form 10-k other than exhibit 32.1 , which shall be deemed furnished . replace_table_token_19_th 95 replace_table_token_20_th ( c ) financial statement schedules all financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements . item 16. form 10-k summary the company has elected not to include summary information . 96 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . ( principal executive cassava story_separator_special_tag this discussion and analysis should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report . operating results are not necessarily indicative of results that may occur in future periods . overview cassava sciences , inc. is a clinical-stage biotechnology company . our mission is to detect and treat neurodegenerative diseases , such as alzheimer 's disease . our novel science is based on stabilizing – but not removing – a critical protein in the brain . over the past 10 years , we have combined state-of-the-art technology with new insights in neurobiology to develop novel solutions for alzheimer 's disease and other neurodegenerative diseases . our strategy is to leverage our unique scientific/clinical platform to develop a first-in-class program for treating neurodegenerative diseases , such as alzheimer 's . we currently have two clinical-stage biopharmaceutical assets under development : · our lead therapeutic product candidate is called simufilam , and it is a novel treatment for alzheimer 's disease ; and · our lead investigational diagnostic product candidate is called savadx , and it is a novel way to detect the presence of alzheimer 's disease from a small sample of blood , possibly years before the overt appearance of clinical symptoms . our scientific approach for the treatment of alzheimer 's disease seeks to simultaneously improve both neurodegeneration and neuroinflammation . we believe our ability to improve multiple vital functions in the brain represents a new , different and crucial approach to address alzheimer 's disease . our lead therapeutic product candidate , simufilam , is a proprietary small molecule ( oral ) drug . simufilam targets an altered form of a protein called filamin a ( flna ) in the alzheimer 's brain . published studies have demonstrated that the altered form of flna causes neuronal dysfunction , neuronal degeneration and neuroinflammation . we believe simufilam improves brain health by reverting altered flna back to its native , healthy conformation , thus countering the downstream toxic effects of altered flna . we have generated and published experimental and clinical evidence of improved brain health with simufilam . importantly , simufilam is not dependent on clearing amyloid from the brain . s ince simufilam has a unique mechanism of action , we believe its potential therapeutic effects may be additive or synergistic with that of other therapeutic candidates aiming to treat neurodegeneration . simufilam has demonstrated a multitude of beneficial effects in animal models of disease , including normalizing neurotransmission , decreasing neuroinflammation , suppressing neurodegeneration , and restoring memory and cognition . in 2019 , we completed a small , first-in-patient , clinical-proof-of-concept , open-label phase 2a study of simufilam in the u.s. , with substantial support from the national institute on aging ( nia ) , a division of the nih . treatment with simufilam for 28 days significantly improved key biomarkers of alzheimer 's pathology , neurodegeneration and neuroinflammation ( p < 0.001 ) . biomarkers effects were seen in all patients in both cerebrospinal fluid ( csf ) and plasma . in september 202 0 , we announced final results of a phase 2b study with simufilam in alzheimer 's disease . in this clinical study funded by the nih , alzheimer 's patients treated with 50 mg or 100 mg of simufilam twice-daily for 28 days showed statistically significant ( p < 0.05 ) improvements in csf biomarkers of disease pathology , neurodegeneration and neuroinflammation , versus alzheimer 's patients who took placebo . in addition , alzheimer 's patients treated with simufilam showed improvements in validated tests of episodic memory and spatial working memory , versus patients on placebo ( effect size 17-46 % ) . cognitive improvements correlated most strongly ( r 2 =0.5 ) with decreases in levels of p-tau181 . in march 202 0 , we initiated a long-term open-label extension study to evaluate simufilam in patients with alzheimer 's disease . this open-label , multi-center , extension study is intended to monitor the long-term safety and tolerability of simufilam 100 mg twice-daily for 12 or more months . the study 's initial target enrollment was approximately 100 patients with m ild-to-moderate alzheimer 's disease and , in february 202 1 , was increased to approximately 150 patients . this study uses the alzheimer 's disease assessment scale-cognitive subscale ( adas-cog-11 ) to assess cognitive symptoms of 66 dementia and the neuropsychiatric inventory ( npi ) to assess the presence and severity of dementia-related behavior . both scales are widely used clinical tools in trials of alzheimer 's disease . on february 2 , 2021 , we announced results of the first of two preplanned interim analysis of our open-label study of simufilam . th e first interim analysis summarizes clinical data at the midway point of enrollment , i.e. , the first 50 patients who have completed at least 6 months of drug treatment . story_separator_special_tag our technology has been applied across certain of our portfolio of product candidates . data , know-how , personnel , clinical results , research results and other matters related to the research and development of any one of our product candidates also relate to , and further the development of , our other product candidates . as a result , costs allocated to a specific product candidate may not necessarily reflect the actual costs surrounding research and development of such product candidate due to cross application of the foregoing . estimating the dates of completion of clinical development , and the costs to complete development , of our product candidates would be highly speculative , subjective and potentially misleading . pharmaceutical products take a significant amount of time to research , develop and commercialize . the clinical study portion of the development of a new drug alone usually spans several years . we expect to reassess our future research and development plans based on our review of data we receive from our current research and development activities . the cost and pace of our future research and development activities are linked and subject to change . critical accounting policies the preparation of our financial statements in accordance with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and interest income in our financial statements and accompanying notes . we evaluate our estimates on an ongoing basis , including those estimates related to agreements and research collaborations . we base our estimates on historical experience and various other assumptions that we believe 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 68 may differ from these estimates under different assumptions or conditions . the following items in our financial statements require significant estimates and judgments : · research contract costs and accruals . the company has entered into various research and development contracts with research institutions and other third-party vendors . these agreements are generally cancelable , and related payments are recorded as research and development expenses as incurred . the company records accruals for estimated ongoing research costs . when evaluating the adequacy of the accrued liabilities , the company analyzes progress of the studies including the phase or completion of events , invoices received and contracted costs . significant judgments and estimates are made in determining the accrued balances at the end of any reporting period . actual results could differ from the company 's estimates . the company 's historical accrual estimates have not been materially different from the actual costs . · 2020 cash incentive bonus plan . i n 2020 , we established the 2020 cash incentive bonus plan ( the “ plan ” ) to incentivize plan participants . awards under the plan are accounted for as liability awards under asc 718 “ stock-based compensation ” . the fair value of each potential plan award will be determined once a grant date occurs and will be remeasured each reporting period . compensation expense associated with the plan will be recognized over the expected achievement period for each plan award , when a performance condition is considered probable of being met . the plan was established to promote the long-term success of the company by creating an “ at-risk ” cash bonus program that rewards plan participants with additional cash compensation in lockstep with significant increases in our market capitalization . the plan is considered “ at-risk ” because plan participants will not receive a cash bonus unless our market capitalization increases significantly and ( 1 ) we complete a merger or acquisition transaction that constitutes a sale of ownership of the company or its assets ( a merger transaction ) or ( 2 ) the compensation committee of the board ( the compensation committee ) determines the company has sufficient cash on hand , as defined in the plan , to render payment ( each , a “ performance condition ” ) , neither of which may ever occur . because of the inherent discretion and uncertainty regarding these requirements , we ha ve concluded that a plan grant date has not occurred as of december 31 , 2020. no actual cash payments were authorized or made to participants under the plan during the year ended december 31 , 2020 . · stock-based c ompensation . we recognize non-cash expense for the fair value of stock options and other share-based awards . we use the black-scholes option valuation model to calculate the fair value of stock options , using the single-option award approach and straight-line attribution method . it recognizes the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option , generally four years . we have granted share-based awards that vest upon achievement of certain performance criteria , or performance awards . we multiply the number of performance awards by the fair market value of our common stock on the date of grant to calculate the fair value of each award . we estimate an implicit service period for achieving performance criteria for each award . we recognize the resulting fair value as expense over the implicit service period when we conclude that achieving the performance criteria is probable . we periodically review and update as appropriate our estimates of implicit service periods and determinations on achievement of the performance criteria . performance awards vest and common stock is issued upon achievement of the performance criteria . · income taxes . the company accounts for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases .
| results of operations research and development expense research and development expense consist primarily of costs of drug development work associated with our product candidates , including : · clinical studies , · preclinical testing , · clinical supplies and related formulation and design costs , and · compensation and other personnel-related expenses . research and development expenses increased to $ 3.1 million in 2020 from $ 1.6 million in 2019 , representing a 95 % increase . this increase was due primarily to costs related to manufacture clinical trial supplies in anticipation of launching a phase 3 clinical prog ram in simufilam as well as lower nih reimbursement compared to the prior year . we received nih r eimbursement of $ 4 . 2 million from research grants in 20 20 recorded as a reduction to research and development expense , as compared to $ 4.7 million in 2019 . research and development expenses included non-cash stock-based compensation expenses of $ 0.5 million in both 2020 and 2019 . we expect research and development expense to increase in future periods as we plan to hire new personnel , manufacture drug supply , continue our development efforts and launch a phase 3 clinical program in simufilam . 70 general and administrative expense general and administrative expenses consist of personnel costs , allocated expenses and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs consist of salaries , bonus , benefits and stock-based compensation . allocated expenses consist primarily of facility costs . we incur expenses associated with operating as a public company , including expenses related to compliance with the rules and regulations of the sec and nasdaq , additional insurance expenses , additional audit expenses , investor relations activities , sox compliance expenses and other administrative expenses and professional services .
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some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to the company 's plans and strategy , constitutes forward-looking statements that involve risks and uncertainties . please see cautionary note regarding forward-looking statements at the end of this item 7 and risk factors in item 1a above for more information . you should review risk factors in item 1a above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein . recent developments on june 20 , 2016 , the company 's board of directors unanimously approved a plan for the company to redomicile from ireland to the cayman islands . on september 14 , 2016 , the company held a special meeting of the holders of its a ordinary shares and b ordinary shares and an extraordinary general meeting of its shareholders . all resolutions required to effectuate the redomestication were approved by the requisite shareholder vote . on october 21 , 2016 , the high court of ireland sanctioned global indemnity plc 's scheme of arrangement related to the redomestication from ireland to cayman islands . the redomestication transaction was completed on november 7 , 2016 and as a result , global indemnity limited , a cayman islands exempted company , replaced global indemnity plc as the ultimate holding company of the global indemnity group of companies . in connection with the redomestication to the cayman islands , each a ordinary share of global indemnity plc was cancelled and replaced with one a ordinary share of global indemnity limited and each b ordinary share of global indemnity plc was cancelled and replaced with one b ordinary share of global indemnity limited . the global indemnity limited a ordinary shares trade on the nasdaq global select market ( nasdaq ) under the ticker symbol gbli , the same symbol under which global indemnity plc 's a ordinary shares were previously listed . on september 30 , 2016 , diamond state insurance company sold all the outstanding shares of capital stock of one of its wholly owned subsidiaries , united national specialty insurance company , to an unrelated party . diamond state insurance company received a one-time payment of $ 18.7 million and recognized a pretax gain of $ 6.9 million which is reflected in other income . this transaction will not have an impact on the company 's ongoing business operations . going forward , any business previously written by united national specialty insurance company has been and will be written by other companies within the company 's u.s. insurance operations . james w. crystal and larry n. port resigned from the company 's board of directors effective july 24 , 2016 and july 28 , 2016 , respectively . overview in connection with the acquisition of american reliable in 2015 , the company reevaluated segment classifications and determined that the company will operate and manage its business through three business segments : commercial lines , personal lines , and reinsurance operations . the company 's commercial lines segment distribute property and casualty insurance products through a group of approximately 120 professional general agencies that have limited quoting and binding authority , as well as a number of wholesale insurance brokers who in turn sell the company 's insurance products to insureds through 54 retail insurance brokers . commercial lines operates predominantly in the excess and surplus lines marketplace . the company manages its commercial lines segment via product classification . these product classifications are : 1 ) penn-america , which includes property and general liability products for small commercial businesses distributed through a select network of wholesale general agents with specific binding authority ; 2 ) united national , which includes property , general liability , and professional lines products distributed through program administrators with specific binding authority ; and 3 ) diamond state , which includes property , casualty , and professional lines products distributed through wholesale brokers and program administrators with specific binding authority . the company 's personal lines segment , via american reliable , offers specialty personal lines and agricultural coverage through a group of approximately 290 agents , primarily comprised of wholesale general agents , with specific binding authority in the admitted marketplace . the company 's reinsurance operations , consisting solely of the operations of global indemnity reinsurance , currently provides reinsurance solutions through brokers and on a direct basis . global indemnity reinsurance is a bermuda based treaty reinsurer for specialty property and casualty insurance and reinsurance companies . global indemnity reinsurance conducts business in bermuda and is focused on using its capital capacity to write catastrophe-oriented placements and other niche or specialty-focused treaties meeting the company 's risk tolerance and return thresholds . the company derives its revenues primarily from premiums paid on insurance policies that it writes and from income generated by its investment portfolio , net of fees paid for investment management services . the amount of insurance premiums that the company receives is a function of the amount and type of policies it writes , as well as prevailing market prices . the company 's expenses include losses and loss adjustment expenses , acquisition costs and other underwriting expenses , corporate and other operating expenses , interest , investment expenses , and income taxes . losses and loss adjustment expenses are estimated by management and reflect the company 's best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates . the company records its best estimate of losses and loss adjustment expenses considering both internal and external actuarial analyses of the estimated losses the company expects to incur on the insurance policies it writes . the ultimate losses and loss adjustment expenses will depend on the actual costs to resolve claims . story_separator_special_tag the incurred development method is similar to the paid development method , but it uses case incurred losses instead of paid losses . since this method uses more data ( case reserves in addition to paid losses ) than the paid development method , the incurred development patterns may be less variable than paid development patterns . however , selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the paid development method . in addition , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available . the expected loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year . this method may be useful if loss development patterns are inconsistent , losses emerge very slowly , or there is relatively little loss history from which to estimate future losses . the selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis of inflationary trends , frequency trends , rate changes , underwriting changes , and other applicable factors . the bornhuetter-ferguson method using premiums and paid losses is a combination of the paid development method and the expected loss ratio method . this method normally determines expected loss ratios similar to the method used for the expected loss ratio method and requires analysis of the same factors described above . the method assumes that only future losses will develop at the expected loss ratio level . the percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid . the use of the pattern from the paid development method requires consideration of all factors listed in the description of the paid development method . the estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each accident year . this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation . the bornhuetter-ferguson method using premiums and incurred losses is similar to the bornhuetter-ferguson method using premiums and paid losses except that it uses case incurred losses . the use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid development patterns . however , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place . the method requires analysis of all the factors that need to be reviewed for the expected loss ratio and incurred development methods . the average loss method multiplies a projected number of ultimate incurred claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates . since projections of the ultimate number of claims are often less variable than projections of ultimate loss , this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively . in addition , this method can more directly account for changes in coverage that impact the number and size of claims . however , this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes . projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the company , the impact of judicial decisions , the impact of underwriting changes and other factors . estimating the ultimate average loss requires analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing property , changes in the cost of medical care , changes in the cost of wage replacement , judicial decisions , legislative changes and other factors . for many reserve categories , especially those that can be considered long-tail , a particular accident year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses . in such a 57 case , the company 's actuaries typically assign more weight to the incurred development method than to the paid development method . as claims continue to settle and the volume of paid losses increases , the actuaries may assign additional weight to the paid development method . for most of the company 's reserve categories , even the case incurred losses for accident years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses . in these cases , the company will not assign any weight to the paid and incurred development methods and will use the bornhuetter-ferguson and expected loss ratio methods . for short-tail exposures , the paid and incurred development methods can often be relied on sooner primarily because the company 's history includes a sufficient number of accident years to cover the entire period over which paid and incurred losses are expected to change . however , the company may also assign weights to the expected loss ratio , bornhuetter-ferguson and average loss methods for short-tail exposures when developing estimates of ultimate losses . generally , reserves for long-tail lines give more weight to the expected loss ratio method in the more recent immature years . as the accident years mature , weight shifts to the bornhuetter-ferguson methods and eventually to the incurred and or paid development method . claims related to umbrella business are usually reported later than claims for other long-tail lines .
| underwriting results the following table compares the company 's combined ratios by segment : replace_table_token_17_th ( 1 ) personal lines was a new segment in 2015 due to the american reliable acquisition on january 1 , 2015 . 67 personal lines the components of income from the company 's personal lines segment and corresponding underwriting ratios are as follows : replace_table_token_18_th nm not meaningful ( 1 ) includes business written by american reliable that is ceded to insurance companies owned by assurant under a 100 % quota share reinsurance agreement of $ 35.3 million , $ 55.8 million , and $ 0 during the years ended december 31 , 2016 , 2015 , and 2014 , respectively . ( 2 ) includes excise tax related to cessions from the company 's personal lines to its reinsurance operations of $ 1.2 million , $ 1.3 million , and $ 1.3 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . ( 3 ) includes business ceded to the company 's reinsurance operations . ( 4 ) represent unaudited pro forma results of operation for the year ended december 31 , 2014 as if the acquisition had occurred on january 1 , 2014 as opposed to january 1 , 2015. although the company did not acquire american reliable until january 1 , 2015 , unaudited proforma results of operations for 2014 were included in the table directly above for comparative purposes only . premiums see result of operations above for a discussion on consolidated premiums for 2016. gross premiums written decreased by 3.8 % for the year ended december 31 , 2015 as compared to 2014. the decrease is primarily due to a reduction in premiums on business written by american reliable that is ceded to insurance entities owned by assurant under a 100 % quota share reinsurance agreement .
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overview cassava sciences , inc. is a clinical stage biotechnology company . our mission is to detect and treat neurodegenerative diseases , such as alzheimer 's disease . our novel science is based on stabilizing – but not removing – a critical protein in the brain . over the past 10 years , we have combined state-of-the-art technology with new insights in neurobiology to develop novel solutions for alzheimer 's disease and other neurodegenerative diseases . our strategy is to leverage our unique scientific/clinical platform to develop a first-in-class program for treating neurodegenerative diseases , such as alzheimer 's . we currently have two clinical-stage biopharmaceutical assets under development : · our lead therapeutic product candidate , called pti-125 , for the treatment of alzheimer 's disease ; and · our lead investigational diagnostic product candidate , called savadx , to detect alzheimer 's disease from a small sample of blood , possibly years before the overt appearance of clinical symptoms . our scientific approach for the treatment of alzheimer 's disease seeks to simultaneously improve both neurodegeneration and neuroinflammation . we believe our ability to improve multiple vital functions in the brain represents a new , different and crucial approach to address alzheimer 's disease . our lead therapeutic product candidate , pti-125 , is a proprietary small molecule ( oral ) drug . pti-125 targets an altered form of a protein called filamin a ( flna ) in the alzheimer 's brain . published studies have demonstrated that the altered form of flna causes neuronal dysfunction , neuronal degeneration and neuroinflammation . we believe pti-125 improves brain health by reverting altered flna back to its native , healthy confirmation , thus countering the downstream toxic effects of altered flna . we have generated and published experimental and clinical evidence of improved brain health with pti-125 . importantly , pti-125 is not dependent on clearing amyloid from the brain . s ince pti-125 has a unique mechanism of action , we believe its potential therapeutic effects may be additive or synergistic with that of other therapeutic candidates aiming to treat neurodegeneration . pti-125 has demonstrated a multitude of beneficial effects in animal models of disease , including normalizing neurotransmission , decreasing neuroinflammation , suppressing neurodegeneration , and restoring memory and cognition . in 2019 , we completed a small , first-in-human , clinical-proof-of-concept , open-label phase 2a study of pti-125 in the u.s. , with substantial support from the national institute on aging ( nia ) , a division of the nih . treatment with pti-125 for 28 days significantly improved key biomarkers of alzheimer 's pathology , neurodegeneration and neuroinflammation ( p < 0.001 ) . biomarkers effects were seen in all patients in both csf and plasma . to our knowledge , no other drug candidate has improved an entire panel of biomarkers of in patients with alzheimer 's disease . a confirmatory , randomized , placebo-controlled , multi-center phase 2b study of pti-125 in alzheimer 's disease is on-going as of march 2020. we expect to announce phase 2b results in approximately mid- 2020 . our diagnostic effort , called savadx , is an early-stage program focused on detecting alzheimer 's disease from a small sample of blood , possibly years before the overt appearance of clinical symptoms . we are developing savadx as a fast , accurate and quantitative blood-based investigational biomarker/diagnostic to detect and monitor alzheimer 's disease . t he goal is to make the detection of alzheimer 's disease as simple as getting a blood test . alzheimer 's disease is a progressive neurodegenerative disorder that affects cognition , function and behavior . an estimated 5.8 million americans are living with alzheimer 's disease in 20 20 , according to the alzheimer 's association , a non-profit organization . t here are no disease -modifying drug therapies to treat the disease . 63 pti-125 and savadx were both discovered and designed in-house and were characterized by our academic collaborators during research activities that were conducted from approximately 2008 to date . we own exclusive , worldwide rights to these drug assets and related technologies , without royalty obligations to any third party . our patent protection in this area currently runs through 2034 . financial overview we have yet to generate any revenues from product sales . we have an accumulated deficit of $ 168.6 million at december 31 , 2019. these losses have resulted principally from costs incurred in connection with research and development activities , salaries and other personnel-related costs and general corporate expenses . research and development activities include costs of preclinical and clinical studies as well as clinical supplies associated with our product candidates . salaries and other personnel-related costs include non-cash stock-based compensation associated with options and other equity awards granted to employees and non-employees . our operating results may fluctuate substantially from period to period as a result of the timing of preclinical activities , enrollment rates of clinical studies for our product candidates and our need for clinical supplies . we believe that our cash and cash equivalents at december 31 , 2019 , will enable us to fund our operating expenses for at least the next 12 months . in addition , we may seek in the future to fund our operations through additional public or private equity or debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . if we are unable to obtain financing or reach profitability , the related lack of liquidity will have a material adverse effect on our operations and future prospects . story_separator_special_tag deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws , which will be in effect in the years in which the temporary differences are expected to reverse . the company has accumulated significant deferred tax assets that reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . realization of certain deferred tax assets is dependent upon future earnings . the company is uncertain about the timing and amount of any future earnings . accordingly , the company offsets these deferred tax assets with a valuation allowance . the company accounts for uncertain tax positions in accordance with asc 740 , “ income taxes ” , which clarifies the accounting for uncertainty in tax positions . these provisions require recognition of the impact of a tax position in the company 's financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities , based on the technical merits of the position . any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense . · research contract costs and accruals . the company has entered into various research and development contracts with research institutions and other third-party vendors . these agreements are generally cancelable , and related payments are recorded as research and development expenses as incurred . the company records accruals for estimated ongoing research costs . when evaluating the adequacy of the accrued liabilities , the company analyzes progress of the studies including the phase or completion of events , invoices received and contracted costs . significant judgments and estimates are made in determining the accrued balances at the end of any reporting period . actual results could differ from the company 's estimates . the company 's historical accrual estimates have not been materially different from the actual costs . recent accounting pronouncements in december 2019 , the fabs issued asu no . 2019-12 , income taxes ( topic 740 ) simplifying accounting for income taxes as part of its initiative to reduce complexity in the accounting standards . the guidance amended certain disclosure requirements that had become redundant , outdated or superseded . additionally , this guidance amends accounting for the interim period effects of changes in tax laws or rates , and simplifies aspects of the accounting for franchise taxes . the guidance is effective for annual periods beginning after december 15 , 2020 , and is applicable for the company in fiscal 2021. early adoption is permitted . the company does not anticipate that this guidance will have a material impact on its consolidated financial statements . 66 in november 2018 , the fasb issued asu no . 2018-18 , collaborative arrangements ( topic 808 ) : clarifying the interaction between topic 808 and topic 606. the amendments in this update provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard . the amendments in this update are effective for interim and annual periods for the company beginning on january 1 , 2020. the company does not anticipate that this guidance will have a material impact on its consolidated financial statements . in august 2018 , the fasb issued asu no . 2018-13 , fair value measurement ( topic 820 ) - disclosure framework - changes to the disclosure requirements for fair value measurement ( asu 2018-13 ) , which is designed to improve the effectiveness of disclosures by removing , modifying and adding disclosures related to fair value measurements . asu 2018-13 is effective for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . the company is currently evaluating the impact of asu 2018-13 on its consolidated financial statements . story_separator_special_tag inline ; '' > of up to $ 374,000. this new , non-dilutive research funding is intended to strengthen our clinical program of pti-125 in patients with alzheimer 's disease . use of cash 68 net cash used in operating activities was $ 2.5 million for 2019 , resulting primarily from a $ 4.6 million net loss incurred partially offset by $ 1.3 million of stock-based compensation expense and $ 0.8 million from changes in operating assets and liabilities . net cash used in operating activities was $ 4.8 million for 2018 , resulting primarily from a $ 6.6 million net loss incurred partially offset by $ 2.4 million of stock-based compensation expense . net cash used in operating activities also included $ 0.7 million of cash used from changes in operating assets and liabilities . cash used in investing activities was $ 18,000 for 2019 from purchases of computer equipment . there was no cash from investing activities in 2018 . net cash provided by financing activities was $ 5.8 million consisting of $ 5.9 million proceeds from exercise of common stock warrants partially offset by $ 0.1 million in offering expenses related the 2018 sale of common stock and warrants . net cash provided by financing activities was $ 14.1 million in 2018 consisting of net proceeds from the sale of common stock and warrants in august 2018 as well as the sale of common stock under our at-the-market facility , as described above . realization of our deferred tax assets is dependent on future earnings , if any . we are uncertain about the timing and amount of any future earnings . accordingly , we offset these net deferred tax assets with a valuation allowance
| results of operations research and development expense research and development expense consist primarily of costs of drug development work associated with our product candidates , including : · preclinical testing , · clinical studies , · clinical supplies and related formulation and design costs , and · compensation and other personnel-related expenses . research and development expenses decreased to $ 1.6 million in 2019 from $ 3.0 million in 2018 , representing a 47 % decrease . this decrease was attributable to reimbursements of $ 4.7 million received from research grants in 2019 from the nih and recorded as a reduction to research and development expense , as compared to $ 3.0 million in recorded reimbursements in 2018 , and decreased non-cash stock-related compensation expenses of $ 0.5 million in 2019 compared to $ 1.0 million in 2018 , offset by $ 0.8 million in increased research and development expenses compared to the prior year due to costs incurred for our phase 2 clinical programs . we expect research and development expense to fluctuate in future periods as we continue our development efforts . we expect our development efforts to result in our product candidates progressing through various stages of clinical studies . our research and development expenses may fluctuate from period to period due to the timing and scope of our development activities and the results of clinical studies and preclinical studies . general and administrative expense general and administrative expenses consist of personnel costs , allocated expenses and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs consist of salaries , bonus , benefits and stock-based compensation . allocated expenses consist primarily of facility costs .
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in accordance with fasb asc 932 and securities and exchange commission rules and regulations , the following information is presented with regard to the royalty properties and npis oil and natural gas reserves , all of which are proved , developed and located in the united states . these rules require inclusion as a supplement to the basic financial statements a standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves . the standardized measure , in management 's opinion , should be examined with caution . the basis for these disclosures are petroleum engineers ' reserve studies which contain imprecise estimates of quantities and rates of production of reserves . revision of prior year estimates can have a significant impact on the results . also , exploration and production improvement costs in one year may significantly change previous estimates of proved reserves and their valuation . values of unproved properties and anticipated future price and cost increases or decreases are not considered . therefore , the standardized measure is not necessarily a best estimate of the fair value of oil and natural gas properties or of future net cash flows . the following summaries of changes in reserves and standardized measure of discounted future net cash flows were prepared from estimates of proved reserves . the production volumes and reserve volumes included for properties formerly owned by dorchester hugoton are wellhead volumes , which differ from sales volumes shown in “ item 7 . — management 's discussion and analysis of financial condition and results of operations ” because of fuel , shrinkage and pipeline loss . the standardized measure of discounted future net cash flows reflects adjustments for such fuel , shrinkage and pipeline loss . replace_table_token_21_th ( 1 ) changes in oil reserves for the year ended december 31 , 2011 include an upward revision of 600 mbbls predominately due to the inclusion of the minerals npi reserves , ongoing development on our royalty properties and well performance exceeding previous projections in various areas . changes in oil reserves for the year ended december 31 , 2012 include an upward revision of 520 mbbls predominantly due to increased activity on our bakken shale properties , ongoing development on our royalty properties and well performance exceeding previous projections in various areas . changes in oil reserves for the year ended december 31 , 2013 include an upward revision of 1,959 mbbls predominately due to ongoing development on our bakken properties and well performance exceeding previous projections in various areas . changes in natural gas reserves for the year ended december 31 , 2011 include an upward revision of 15,767 mmcf predominately due to the inclusion of the minerals npi reserves and increased activity on our fayetteville shale and barnett shale properties . changes in natural gas reserves for the year ended december 31 , 2012 include an upward revision of 8,024 mmcf predominately due to ongoing development on our royalty properties and well performance exceeding previous projections in various areas , despite the negative impact of low natural gas prices . changes in natural gas reserves for the year ended december 31 , 2013 include an upward revision of 5,860 mmcf predominately due to well performance exceeding previous projections in various areas . effective for the january 1 , 2014 reserve reports , product volumes are included in oil quantities , not natural gas quantities . such volumes were 832 mboe or 4,993 mmcfe at january 1 , 2012 , 997 mboe or 5,981 mmcfe at january 1 , 2013 and 644 mboe or 3,864 mmcfe at january 1 , 2014. f-12 dorchester minerals , l.p. ( a delaware limited partnership ) supplemental oil and natural gas data ( unaudited ) december 31 , 2013 , 2012 , and 2011 standardized measure of discounted future net cash flows ( dollars in thousands except where noted ) replace_table_token_22_th _ ( 1 ) includes royalty and npi prices combined by volumetric proportions . ( 2 ) includes oil and natural gas liquids prices combined by volumetric proportions . f-13 dorchester minerals , l.p. ( a delaware limited partnership ) supplemental quarterly data ( unaudited ) december 31 , 2013 , 2012 , and 2011 quarterly financial data for the last two years ( in thousands except per unit data ) is summarized as follows : replace_table_token_23_th f-14 index to exhibits number description 3.1 certificate of limited partnership of dorchester minerals , l.p. ( incorporated by reference to exhibit 3.1 to story_separator_special_tag 2013 overview our results during 2013 were strong due to robust activity on our bakken and permian basin properties . significant results include the following : ● net income of $ 43.6 million ; ● distributions of $ 53.1 million to our limited partners ; ● identification of 503 new wells completed on our royalty properties in ten states , and 79 new wells completed on our npi properties in five states . included in these totals are wells in which we own both a royalty interest and a net profits interest . wells with such overlapping interests are counted in both categories . ● consummation of 33 leases and pooling elections of our mineral interest in undeveloped properties located in 21 counties and parishes in six states , and ● lease bonus income of $ 2.3 million dollars . critical accounting policies we utilize the full cost method of accounting for costs related to our oil and natural gas properties . under this method , all such costs are capitalized and amortized on an aggregate basis over the estimated lives of the properties using the units-of-production method . story_separator_special_tag epa has indicated that additional sources may be subject to greenhouse gas permitting requirements in the future , and that it will use data collected through the reporting rules to decide whether to promulgate future greenhouse gas emission limits . the current state of development of many state and federal climate change regulatory initiatives makes it difficult to predict with certainty the future impact on us , including accurately estimating the related compliance costs that the operating partnership and oil and natural gas operators that develop our properties may incur . see item 1a . risk factors – “ environmental costs and liabilities and changing environmental regulation could affect our cash flow ” and “ the adoption of climate change legislation by congress could result in increased operating costs and reduced demand for the oil and natural gas production from our properties. ” texas margin tax texas imposes a franchise tax ( commonly referred to as the texas margin tax ) at a rate of 1 % on gross revenues less certain deductions , as specifically set forth in the texas margin tax statute . the texas margin tax applies to corporations and limited liability companies , general and limited partnerships ( unless otherwise exempt ) , limited liability partnerships , trusts ( unless otherwise exempt ) , business trusts , business associations , professional associations , joint stock companies , holding companies , joint ventures and certain other business entities having limited liability protection . limited partnerships that receive at least 90 % of their gross income from designated passive sources , including royalties from mineral properties and other non-operated mineral interest income , and do not receive more than 10 % of their income from operating an active trade or business , are generally exempt from the texas margin tax as “ passive entities. ” we believe our partnership meets the requirements for being considered a “ passive entity ” for texas margin tax purposes and , therefore , it is exempt from the texas margin tax . if the partnership is exempt from texas margin tax as a passive entity , each unitholder that is considered a taxable entity under the texas margin tax would generally be required to include its portion of partnership revenues in its own texas margin tax computation . the texas administrative code provides such income is sourced according to the principal place of business of the partnership , which would be the state of texas . each unitholder is urged to consult an independent tax advisor regarding the requirements for filing state income , franchise and texas margin tax returns . 25 liquidity and capital resources capital resources our primary sources of capital are our cash flow from the royalty properties and the npis . we are not directly liable for the payment of any exploration , development or production costs . we do not have any transactions , arrangements or other relationships that could materially affect our liquidity or the sustainability of capital resources . pursuant to the terms of our partnership agreement , we can not incur indebtedness , other than trade payables , ( i ) in excess of $ 50,000 in the aggregate at any given time or ( ii ) which would constitute `` acquisition indebtedness '' ( as defined in section 514 of the internal revenue code of 1986 , as amended ) . our only cash requirements are the distributions of all our net cash flow to our unitholders , the payment of oil and natural gas production and property taxes not otherwise deducted from gross production revenues and general and administrative expenses incurred on our behalf and allocated in accordance with our partnership agreement . since the distributions to our unitholders are , by definition , determined after the payment of all expenses actually paid by us , the only cash requirements that may create liquidity concerns for us are the payments of expenses . since many of these expenses vary directly with oil and natural gas prices and sales volumes , such as production taxes , we anticipate that sufficient funds will be available at all times for payment of these expenses . of the expenses that do not vary with oil and natural gas prices and sales volumes , most are reimbursements to our general partner for allocable general and administrative costs including home office rent , salaries , and employee benefit plans . such reimbursements are generally limited to 5 % of an amount primarily based on annual distributions to our limited partners . historically , all such reimbursements have been substantially below the 5 % limit established by the partnership agreement . consequently , even during the 2008 economic downturn , our business risks were essentially limited to distribution amount decreases . see “ item 1. business – credit facilities and financing plans. ” see “ item 1a . risk factors – risks related to our business – cash distributions are affected by production and other costs , some of which are outside of our control. ” see “ item 1a . risk factors – risks inherent in an investment in our common units – cost reimbursement due our general partner may be substantial and reduce our cash available to distribute to our unitholders . '' see `` notes to consolidated financial statements – note 3 – related party transactions . '' off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to unitholders .
| results of operations normally , our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices , and to a lesser extent , by capital expenditures deducted under the npi calculation . our portion of oil and natural gas sales volumes and weighted average sales prices are shown in the following table . replace_table_token_12_th ( 1 ) provided to assist in determination of revenues ; applies only to net profits interests sales volumes prices . comparison of the twelve-month periods ended december 31 , 2013 , 2012 and 2011 royalty properties ' oil sales volumes increased 10.7 % from 327 mbbls during 2011 to 362 mbbls during 2012 , and then increased 4.7 % to 379 mbbls during 2013. these increases are primarily due to activity in the bakken trend which offset natural declines in other regions . royalty properties ' gas sales volumes decreased 3.3 % from 6,212 mmcf during 2011 to 6,007 mmcf during 2012 , and then decreased 15.9 % to 5,049 mmcf during 2013. the decreases in natural gas volumes between 2011 and 2012 were primarily due to reduced activity in fayetteville shale and barnett shale , while the decreases between 2012 and 2013 were primarily due to natural declines in the fayetteville shale and barnett shale . beginning in the third quarter of 2011 oil and gas sales volumes attributable to our npis included volumes attributable to the minerals npi . the minerals npi had cumulative revenues in excess of cumulative operating and development costs during the period ending september 30 , 2011. sales volumes and prices attributable to the minerals npi during periods prior to the third quarter of 2011 are excluded from the above table because the partnership did not receive any payments from such npi sales volumes during those prior periods .
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3. loans and finance receivables , credit quality information and allowances and liabilities for estimated losses on loans and finance receivables revenue generated from the company 's loans story_separator_special_tag recent regulatory developments consumer financial protection bureau on october 6 , 2017 , the cfpb issued its final rule on payday and certain high-cost installment loans ( “ final rule ” ) , which would cover some of the loans we offer . the rule requires that lenders who make short-term loans and longer-term loans with balloon payments reasonably determine consumers ' ability to repay the loans according to their terms before issuing the loans . the rule also introduces new limitations on repayment processes for those lenders as well as lenders of other longer-term loans with an annual percentage rate greater than 36 percent that include an ach authorization or similar payment provision . if a consumer has two consecutive failed payment attempts , the lender must obtain the consumer 's new and specific authorization to make further withdrawals from the consumer 's bank account . for loans covered by the rule , lenders must provide certain notices to consumers before attempting a first payment withdrawal or an unusual withdrawal and after two consecutive failed payment attempts . the rule will apply to loan contracts entered into beginning in mid-2019 . however , under the congressional review act , congress has 60 legislative days after publication of the rule in the federal register ( which occurred on november 17 , 2017 ) to overturn it by a majority vote in both houses of congress . on january 16 , 2018 , the cfpb issued a statement that it intends to engage in a rulemaking process to reconsider the final rule . on february 6 , 2019 , the cfpb issued two notices of proposed rulemaking : ( 1 ) to rescind the final rule 's mandatory underwriting provisions , including the ability to repay requirements and ( 2 ) to delay the august 19 , 2019 compliance date for those provisions until november 19 , 2020. the proposed rescission of the underwriting provisions is open to public comment for 90 days after the date of publication in the federal register . the delay is open to public comment for 30 days . it is also likely that there will be legal challenges to the final rule before it goes into effect . results of operations our financial results for the year ended december 31 , 2018 ( “ 2018 ” ) are summarized below . revenue increased $ 270.4 million , or 32.0 % , to $ 1,114.1 million in 2018 compared to $ 843.7 million in the year ended december 31 , 2017 ( “ 2017 ” ) . a $ 237.0 million , or 33.4 % , increase in domestic revenue to $ 946.5 million in 2018 from $ 709.5 million for 2017 and a $ 33.4 million , or 24.9 % , increase in international revenue to $ 167.6 million in 2018 from $ 134.2 million in 2017 both contributed to the total increase . gross profit increased $ 96.0 million , or 21.5 % , to $ 543.1 million in 2018 compared to $ 447.1 million in 2017. income from operations increased $ 48.7 million , or 36.2 % , to $ 183.1 million in 2018 , compared to $ 134.4 million in 2017. net income was $ 70.1 million in 2018 , compared to $ 29.2 million in 2017. diluted earnings per share were $ 1.99 in 2018 compared to $ 0.86 in 2017 . 46 the following tables reflect our results of operations for the periods indicated , both in dollars and as a percentage of total revenue ( dollars in thousands , except per share data ) : replace_table_token_4_th non-gaap finanacial measures in addition to the financial information prepared in conformity with generally accepted accounting principles ( “ gaap ” ) , we provide historical non-gaap financial information . we believe that presentation of non-gaap financial information is meaningful and useful in understanding the activities and business metrics of our operations . we believe that these non-gaap financial measures reflect an additional way of viewing aspects of our business that , when viewed with our gaap results , provide a more complete understanding of factors and trends affecting our business . we provide non-gaap financial information for informational purposes and to enhance understanding of our gaap consolidated financial statements . readers should consider the information in addition to , but not instead of or superior to , our consolidated 47 financial statements prepared in accordance with gaap . this non-gaap financial information may be determined or calculated differently by other companies , limiting the usefulness of those measures for comparative purposes . adjusted earnings measures in addition to reporting financial results in accordance with gaap , we have provided adjusted earnings and adjusted earnings per share , or , collectively , the adjusted earnings measures , which are non-gaap measures . we believe that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures , compensation strategies , derivative instruments and amortization methods , which provides a more complete understanding of our financial performance , competitive position and prospects for the future . we also believe that investors regularly rely on non-gaap financial measures , such as the adjusted earnings measures , to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with gaap . in addition , we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items . story_separator_special_tag additionally , revenue from international operations increased $ 33.4 million ( or an increase of $ 32.7 million on a constant currency basis ) , due primarily to a 39.7 % increase in international installment loan revenue and a 10.6 % increase in international short-term loan revenue in 2018 compared to 2017. our gross profit increased by $ 96.0 million or 21.5 % to $ 543.1 million for 2018 from $ 447.1 million for 2017. on a constant currency basis , gross profit increased by $ 94.5 million for 2018 compared to 2017. our gross profit as a percentage of revenue ( “ gross profit margin ” ) decreased to 48.7 % in 2018 from 53.0 % in 2017. the decrease in gross profit margin was primarily driven by the strong new customer growth of our domestic and international installment portfolios resulting in a higher mix of new customers overall , which require higher loss provisions as new customers default at a higher rate than returning customers with a successful history of loan performance . growth in our domestic near-prime installment portfolio also contributed to the lower gross profit margin , as these products typically have a lower margin than our short-term products . however , as the portfolio continues to scale and the underlying longer-term loans continue to season , we expect to achieve increased marginal profitability . the following tables set forth the components of revenue and gross profit , separated between domestic and international for 2018 and 2017 ( dollars in thousands ) : replace_table_token_8_th 50 replace_table_token_9_th loan and finance receivable balances the outstanding combined portfolio balance of loans and finance receivables , net of allowance and liability for estimated losses , increased $ 150.9 million , or 20.5 % , to $ 887.5 million as of december 31 , 2018 from $ 736.6 million as of december 31 , 2017 , due primarily to increased demand for our domestic near-prime installment product and an increase in international loan balances ( up 17.3 % on a constant currency basis ) . the outstanding loan balance for our domestic near-prime product increased 26.7 % as of december 31 , 2018 compared to december 31 , 2017 , resulting in a domestic near-prime portfolio balance that comprises approximately 45 % of our total loan and finance receivables portfolio balance while short-term loans comprise approximately 9 % . we expect this trend to continue as we expand our near-prime installment product offering in 2019. we expect the loan balances for our domestic near-prime installment loan product will continue to comprise a larger percentage of the total loan and finance receivable portfolio , due to consumer demand for the product and its longer loan term . see “ —non-gaap financial measures—combined loans and finance receivables ” above for additional information related to combined loans and finance receivables . the combined loan and finance receivable balance includes $ 1,023.3 million and $ 827.7 million as of december 31 , 2018 and 2017 , respectively , of our company-owned receivables balances before the allowance for losses of $ 163.3 million and $ 123.0 million provided in the consolidated financial statements for december 31 , 2018 and 2017 , respectively . the combined loan and finance receivable balance also includes $ 29.7 million and $ 34.1 million as of december 31 , 2018 and 2017 , respectively , of loan and finance receivable balances that are guaranteed by us , which are not included in our consolidated balance sheets , with the exception of the liability for estimated losses of $ 2.2 million and $ 2.3 million , which is included in “ accounts payable and accrued expenses ” as of december 31 , 2018 and 2017 , respectively . the following tables summarize loan and finance receivable balances outstanding as of december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_10_th 51 replace_table_token_11_th ( a ) gaap measure . the loan and finance receivable balances guaranteed by us relate to loans originated by third-party lenders through the cso programs and are not included in our consolidated balance sheets . ( b ) except for allowance and liability for estimated losses , amounts represent non-gaap measures . average amount outstanding per loan the average amount outstanding per loan is calculated as the total combined loans , gross balance at the end of the period divided by the total number of combined loans outstanding at the end of the period . the following table shows the average amount outstanding per loan by product at december 31 , 2018 and 2017 : replace_table_token_12_th ( a ) the disclosure regarding the average amount per loan is statistical data that is not included in our consolidated financial statements . ( b ) includes loans guaranteed by us , which represent loans originated by third-party lenders through the cso programs and are not included in our consolidated balance sheets . ( c ) excludes rpas . the average amount outstanding per loan increased to $ 1,553 from $ 1,431 during 2018 compared to 2017 , mainly due to a greater mix of installment loans and line of credit accounts , which have higher average amounts outstanding per loan relative to short-term loans , in 2018 compared to 2017. average loan origination the average loan origination amount is calculated as the total amount of combined loans originated , renewed and purchased for the period divided by the total number of combined loans originated , renewed and purchased for the period . the following table shows the average loan origination amount by product for 2018 compared to 2017 : replace_table_token_13_th ( a ) the disclosure regarding the average loan origination amount is statistical data that is not included in our consolidated financial statements . ( b ) includes loans guaranteed by us , which represent loans originated by third-party lenders through the cso programs and are not included in our consolidated balance sheets . ( c ) represents the average amount of each incremental draw on line of credit accounts . ( d ) excludes rpas .
| resulting from our strong financial performance . depreciation and amortization expense increased to $ 15.2 million in 2018 compared to $ 14.4 million in 2017 primarily related to software development projects and amortization thereof . 58 interest expense , net interest expense , net increased $ 5.4 million , or 7.2 % , to $ 79.4 million in 2018 compared to $ 74.0 million in 2017. the increase was due to an increase in the average amount of debt outstanding of $ 116.2 million to $ 810.7 million during 2018 from $ 694.5 million during 2017 , partially offset by a decrease in the weighted average interest rate on our outstanding debt to 9.78 % in 2018 from 10.63 % in 2017.the increase in average debt outstanding was due primarily to additional principal amounts outstanding under our securitization facilities and the issuance of $ 375.0 million in senior notes in september 2018 , partially offset by the early paydown of our 9.75 % senior notes due 2021. see “ —liquidity and capital resources—consumer loan securitizations ” below for further information . provision for income taxes provision for income taxes decreased $ 2.4 million , or 27.1 % , to $ 6.3 million in 2018 compared to $ 8.7 million in 2017. the decrease was attributable to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items , coupled with the overall decrease in the federal tax rate from 35 % to 21 % resulting from the tax cuts and jobs act , which was enacted into law on december 22 , 2017 . refer to note 9 in the notes to consolidated financial statements for additional discussion .
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if the fair value of the reporting unit is less than the carrying value , the second step is required , which involves an analysis reflecting the allocation of the fair value determined in the first step ( as if it was the purchase price in a business combination ) . this process story_separator_special_tag the following discussion should be read in conjunction with part i , including matters set forth in the “ risk factors ” section of this form 10-k , and our consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. except to the extent that differences among operating segments are material to an understanding of our business taken as a whole , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview autonation , inc. , through its subsidiaries , is the largest automotive retailer in the united states . as of december 31 , 2012 , we owned and operated 265 new vehicle franchises from 221 stores located in the united states , predominantly in major metropolitan markets in the sunbelt region . our stores , which we believe include some of the most recognizable and well known in our key markets , sell 32 different new vehicle brands . the core brands of new vehicles that we sell , representing approximately 95 % of the new vehicles that we sold in 2012 , are manufactured by toyota , ford , honda , nissan , general motors , mercedes-benz , bmw , chrysler , and volkswagen . we offer a diversified range of automotive products and services , including new vehicles , used vehicles , “ parts and service , ” which includes automotive repair and maintenance services as well as wholesale parts and collision businesses , and automotive “ finance and insurance ” products , which includes the arranging of financing for vehicle purchases through third-party finance sources . as of december 31 , 2012 , we had three operating segments : domestic , import , and premium luxury . as of march 31 , 2012 , we revised the basis of segmentation of our import and premium luxury segments to reclassify audi franchises from the import segment to the premium luxury segment . in connection with this change , we reclassified historical amounts to conform to our current segment presentation . we reclassified revenue of $ 187.7 million and segment income of $ 13.2 million for 2011 , and revenue of $ 126.2 million and segment income of $ 11.3 million for 2010 related to the five audi franchises we held during these periods . our domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by general motors , ford , and chrysler . our import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by toyota , honda , and nissan . our premium luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by mercedes-benz , bmw , and lexus . the franchises in each segment also sell used vehicles , parts and automotive repair and maintenance services , and automotive finance and insurance products . for the year ended december 31 , 2012 , new vehicle sales accounted for approximately 57 % of our total revenue , but approximately 23 % of our total gross profit . used vehicle sales accounted for approximately 24 % of our total revenue , and approximately 12 % of our total gross profit . our parts and service and finance and insurance operations , while comprising approximately 19 % of total revenue , contributed approximately 64 % of our gross profit . story_separator_special_tag generally liquidated at wholesale auctions . we record estimated losses on used vehicle inventory . our used vehicle inventory balance was net of cumulative write-downs of $ 1.2 million at december 31 , 2012 , and $ 0.9 million at december 31 , 2011 . parts , accessories , and other inventory are carried at the lower of acquisition cost ( first-in , first-out method ) or market . we estimate the amount of potential obsolete inventory based upon past experience and market trends . our parts , accessories , and other inventory balance was net of cumulative write-downs of $ 3.2 million at december 31 , 2012 , and $ 2.8 million at december 31 , 2011 . critical accounting policies and estimates we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states , which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we believe to be reasonable . actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements . set forth below are the policies and estimates that we have identified as critical to our business operations and an understanding of our results of operations , based on the high degree of judgment or complexity in their application . 22 goodwill goodwill for our domestic , import , and premium luxury reporting units is tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred . under accounting standards , we chose to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting units under the two-step goodwill impairment test . story_separator_special_tag such valuations include estimations of fair values and incremental direct costs to transact a sale . the fair value measurements for our long-lived assets held for sale were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources , or , in certain cases , pending agreements to sell the related assets . we had assets held for sale in continuing operations of $ 70.4 million at december 31 , 2012 , and $ 70.1 million at december 31 , 2011 . we recorded no impairment charges during 2012 and impairment charges of $ 1.1 million during 2011 associated with assets held for sale in continuing operations to reduce the carrying value of these assets to fair value less cost to sell . during 2011 , we also recorded $ 1.1 million of non-cash impairment charges related to a valuation adjustment for the cumulative depreciation not recorded during the held for sale period for continuing operations assets that were reclassified from held for sale to held and used during 2011. the 2011 charges are recorded as a component of other expenses ( income ) , net in the consolidated statements of income and are reported in the “ corporate and other ” category of our segment information . we had assets held for sale in discontinued operations of $ 43.2 million at december 31 , 2012 , and $ 49.5 million at december 31 , 2011 . we recorded $ 0.1 million during 2012 and $ 0.5 million during 2011 of non-cash impairment charges associated with assets held for sale in discontinued operations to reduce the carrying value of these assets to fair value less cost to sell . these charges are recorded as a component of loss from discontinued operations in the consolidated statements of income . our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future undiscounted cash flows and asset fair values , including forecasting useful lives of the assets . although we believe our property and equipment and assets held for sale are appropriately valued , the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets . chargeback reserve revenue on finance and insurance products represents commissions earned by us for : ( i ) loans and leases placed with financial institutions in connection with customer vehicle purchases financed , ( ii ) vehicle service contracts sold , and ( iii ) insurance and other products sold . we primarily sell these products on a straight commission basis ; however we also participate in future underwriting profit on certain extended service contracts pursuant to retrospective commission arrangements , which are recognized as earned . we may be charged back for commissions related to financing , insurance , or vehicle protection products in the event of early termination , default , or prepayment of the contracts by customers ( “ chargebacks ” ) . however , our exposure to loss in connection with financing arrangements generally is limited to the commissions that we receive . these commissions are recorded at the time of the sale of the vehicles , net of an estimated liability for chargebacks . we estimate our liability for chargebacks on an individual product basis using our historical chargeback experience , based primarily on cancellation data we receive from third parties that sell and administer these products . our estimated liability for chargebacks totaled $ 56.0 million at december 31 , 2012 , and $ 46.2 million at december 31 , 2011 . chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting from cancellation of vehicle protection products , defaults , refinancings , payoffs before maturity , 24 and other factors . while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in a change in our estimated liability for chargebacks . the increase in our liability for chargebacks is largely attributable to higher volume of vehicle sales in recent years , as well as an increase in customer cancellations of finance and insurance products . a 10 % change in our estimated cancellation rates would have changed our estimated liability for chargebacks at december 31 , 2012 , by approximately $ 5.6 million . see note 19 of the notes to consolidated financial statements for further information regarding chargeback liabilities . self insurance reserves under our self insurance programs , we retain various levels of aggregate loss limits , per claim deductibles , and claims-handling expenses as part of our various insurance programs , including property and casualty , employee medical benefits , automobile , and workers ' compensation . costs in excess of this retained risk per claim may be insured under various contracts with third-party insurance carriers . we review our claim and loss history on a periodic basis to assist in assessing our future liability . the ultimate costs of these retained insurance risks are estimated by management and by third-party actuarial evaluation of historical claims experience , adjusted for current trends and changes in claims-handling procedures . our results could be materially impacted by claims and other expenses related to our self insurance programs if future occurrences and claims differ from these assumptions and historical trends . self insurance reserves totaled $ 61.5 million at december 31 , 2012 , and $ 58.2 million at december 31 , 2011 . we believe our actual loss experience has not been materially different from our recorded estimates . revenue recognition revenue consists of the sales of new and used vehicles , sales of parts and services , commissions from finance and insurance products , and sales of other products . we recognize revenue in the period in which products are sold or services are provided .
| results of operations we had net income from continuing operations of $ 317.3 million and diluted earnings per share of $ 2.52 in 2012 , as compared to net income from continuing operations of $ 284.2 million and diluted earnings per common share of $ 1.93 in 2011 , and net income from continuing operations of $ 235.3 million and diluted earnings per common share of $ 1.48 in 2010 . the 2012 results were impacted by a non-cash franchise rights impairment charge of $ 4.2 million ( $ 2.6 million after-tax ) . the 2011 results were impacted by a loss on debt extinguishment , including debt refinancing costs and the write-off of previously deferred debt issuance costs , of $ 2.2 million ( $ 1.4 million after-tax ) . the 2010 results were impacted by a loss on debt extinguishment , including debt refinancing costs and the write-off of previously deferred debt issuance costs , of $ 19.6 million ( $ 12.1 million after-tax ) . 21 acquisitions on december 21 , 2012 , we acquired boardwalk audi , boardwalk porsche , boardwalk volkswagen , park cities volkswagen , and mckinney volkswagen in the dallas , texas market and spring chrysler jeep dodge ram in the houston , texas market . the aggregate purchase price for these acquisitions was $ 203.7 million , including $ 141.6 million paid at closing and $ 62.1 million in liabilities related to capital leases and deferred purchase price commitments . market conditions full-year u.s. industry new vehicle unit sales were 14.5 million in 2012 , as compared to 12.7 million in 2011 and 11.5 million in 2010 . in 2012 , new vehicle industry sales were driven in part by replacement demand .
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the company engaged gian domenico trombetta , former ceo of wand dental inc. as a consultant to leonard osser , interim – chief executive officer of milestone scientific for a period of twelve months ( beginning october 1 , 2020 and ending september 30 , 2021 ) . gian domenico trombetta will provide historical international business , dental segment information and business contacts to mr. osser and provide consulting services for new international business and dental segment concepts during this twelve-month consulting period . under this agreement , mr. trombetta is to receive $ 60,000 payable in milestone scientific shares . item 14. principal accounting fees and services audit fees and audit related milestone scientific incurred audit and financial statement review fees of approximately $ 330,000 and $ 302,000 , respectively from friedman llp , its principal accountant for 2020 and 2019. these fees include fees for professional services rendered for the audit of our annual financial statements and the review of financial statements included in our report on form 10-q 's or services that are normally provided in connection with statutory and regulatory filings and fees related to registration statements . tax fees milestone scientific incurred tax fees of approximately $ 34,000 and $ 36,000 respectively from friedman llp , its principal accountant for 2020 and 2019. all other fees milestone scientific did not incur other accounting fees from friedman llp , its principal accountant in either 2020 or 2019. audit committee administration of the engagement the engagement with friedman llp , the principal accountants , was approved in advance by the board of directors and the audit committee . no non-audit or non-audit related services were approved by the audit committee in 2020. audit committee pre-approval policies and procedures the audit committee charter provides that the audit committee will pre-approve audit services and non-audit services to be provided by the independent auditors before the accountant is engaged to render these services . the audit committee may consult with management in the decision-making process but may not delegate this authority to management . the audit committee may delegate its authority to preapprove services to one or more committee members , provided that the designees present the pre-approvals to the full committee at the next committee meeting . all audit and non-audit services performed by the independent accountants have been pre-approved by the audit committee to assure that such services do not impair the auditors ' independence from us . 46 part iv item 15. exhibits and financial statement schedules the following documents are filed as part of this report : 1 financial statements . see index to financial statements on page f-1 . 2 financial statement schedule schedules are omitted because the information required is not applicable or the required information is shown in the consolidated financial statements or notes thereto . 3 exhibits certain of the following exhibits were filed as exhibits to previous filings filed by milestone scientific under the securities act of 1933 , as amended , or reports filed under the securities and exchange act of 1934 , as amended , and are hereby incorporated by reference . exhibit no description 3.1 restated certificate of incorporation of milestone filed on september 6 , 2013 ( 11 ) 3.2 form of certificate of designation filed on april 18 , 2014 ( 12 ) 3.3 certificate of correction to the certificate of designation filed on may 12 , 2014 ( 13 ) 3.4 amended and restated by-laws of milestone filed april 1 , 2019 ( 23 ) 3.5 certificate of amendment to restated certificate of incorporation ( 24 ) 4.1 specimen stock certificate ( 2 ) 4.3 form of common stock purchase warrant issued in the 2016 public offering ( 16 ) 4.4 form of common stock purchase warrant issued in the feb. 2019 public offering ( 21 ) 4.5 form of common stock purchase warrant issued in the feb. 2019 private placement ( 22 ) 4.6 description of registrant 's securities * 4.7 form of common stock purchase warrant issued in the apr . 2020 public offering ( 25 ) 4.8 form of common stock purchase warrant issued in the jun . 2020 public offering ( 26 ) 10.1 lease dated november 25 , 1996 between livingston corporate park associates , l.l.c . and milestone ( 3 ) 10.2 lease amendment dated april 28 , 2004 between livingston corporate park associates , l.l.c . and milestone ( 4 ) 10.3 2011 equity compensation plan ( 7 ) 10.4 master supply and distribution agreement , dated july 3 , 2013 , between milestone scientific inc and tri-anim health services , inc ( 9 ) 10.5 agreement with mark hochman , dated july 2015 ( 13 ) 10.6 investment agreement , dated april 15 , 2014 , between milestone scientific inc. and bp4 s.p.a. ( 12 ) 10.7 exclusive distribution and supply agreement , dated as of june 20 , 2016 , among milestone scientific inc. , wand dental , inc. and henry schein , inc. ( 14 ) 10.8 amended and restated employment agreement , dated december 1 , 2016 , between wand dental inc. and gian domenico trombetta ( 15 ) 10.9 final form of asset purchase agreement , dated june 2 , 2017 , among apad octrooi b.v. , apad b.v. , and milestone scientific inc. ( story_separator_special_tag the following discussions of the financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report . certain statements in this discussion and elsewhere in this report constitute forward-looking statements , within the meaning of section 21e of the exchange act , that involve risks and uncertainties . story_separator_special_tag all significant , intra-entity transactions and balances are eliminated in the consolidation . variable interest entities a variable interest entity ( `` vie '' ) is an entity that either ( i ) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or ( ii ) has equity investors who lack the characteristics of a controlling financial interest . a vie is consolidated by its primary beneficiary . the primary beneficiary has both the power to direct the activities that most significantly impact the entity 's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the vie . because milestone scientific has a variable interest in milestone china it considered the guidance in asc 810 , “ consolidation ” as it relates to determining whether milestone china is a vie and , if so , identifying the primary beneficiary . milestone scientific would be considered the primary beneficiary of the vie if it has both of the following characteristics : ● power criterion : the power to direct the activities that most significantly impact the entity 's economic performance ; and ● losses/benefits criterion : the obligation to absorb losses that could potentially be significant or the right to receive benefits that could potentially be significant to the vie . in first quarter 2020 , milestone china and certain marketing affiliates entered into a plan to merge ( the transaction ) into an affiliated manufacturing company , anhui maishida medical technology , co. ltd. ( anhui ) . anhui will be the surviving entity after the merger and will have complete responsibility for sales , marketing , and distribution for the company 's dental products in china . however , as of the filing date of this quarterly report , due to the covid-19 pandemic , the regulatory documentation for the planned merger has been placed in suspense since applicable government offices are still closed in china and hong kong . after completion of the transaction , milestone scientific is expected to have an approximate 28.4 % direct ownership in anhui . milestone china and certain marketing affiliates are expected to be dissolved upon completion of the merger and upon the required regulatory filings in china and hong kong . 30 milestone scientific does not have the ability to control the activities that most significantly impact milestone china 's economics and , therefore , the power criterion has not been met . management placed the most weight on the relationship and significance of activities of milestone china to the ceo and a group of significant shareholders , including the milestone china ceo , who has the power to direct the activities that most significantly impact the economic performance of milestone china . management has concluded that milestone scientific is not the primary beneficiary under asc 810. accordingly , milestone china has not been consolidated into the financial statements of milestone scientific and continues to be accounted for under the equity method . see note f. assessment of our ability to continue as a going concern in accordance with accounting standard codification ( “ asc ” ) 205-40 , “ presentation of financial statements – going concern ” , the company continually evaluates whether there are conditions or events , considered in the aggregate , that raise substantial doubt about the company 's ability to continue as a going concern within one year after the date that the consolidated financial statements are issued . milestone scientific has incurred operating losses and negative cash flows from operating activities in virtually each year since its inception . in the second quarter of 2020 , the company was successful in raising approximately $ 19.7 million in public offerings . based on the expected cash needed for operating activities , the company 's current cash and liquidity is sufficient to finance the operating requirements for at least the next 12 months from the filing date of this annual report . other uncertainties the coronavirus ( covid-19 ) that was reported to have surfaced in wuhan , china in december 2019 and that has now spread to other countries throughout the world has adversely impact our operations and those of our third-party partners . as a result of the reduced hours and closings of dental offices throughout the country and the rest of the world due to the continuing spread of covid-19 , revenues for the year ended december 31 , 2020 was adversely affected . there has been a slow pick up in dental instrument and disposable sell through to dentists beginning in the third quarter . in addition , it is uncertain as to what the effect will be on the anticipated commercialization of our compuflo epidural and cathcheck system as a medical device . the extent to which the coronavirus impacts our operations , our third-party partners , the dental offices and hospital operations and demand depends on future developments which are still highly uncertain . such future developments could have a material adverse effect on our financial results and our ability to conduct business as expected . accounts receivable milestone scientific sells a significant amount of its products on credit terms to its major distributors . milestone scientific estimates losses from the ability or inability of its customers to make payments on amounts billed . most of credit sales are due within ninety days from invoicing . inventories inventories principally consist of finished goods and component parts stated at the lower of cost ( first-in , first-out method ) or net realizable value .
| results of operations . the following table sets forth the consolidated results of operations for the year ended december 31 , 2020 compared to 2019 . the trends suggested by this table may not be indicative of future operating results : replace_table_token_7_th replace_table_token_8_th 32 year ended december 31 , 2020 compared to year ended december 31 , 2019. net sales for 2020 and 2019 were as follows : replace_table_token_9_th consolidated revenue for the twelve months ended december 31 , 2020 and 2019 were approximately $ 5.4 million and $ 8.3 million , respectively . dental revenue for the twelve months ended december 31 , 2020 and 2019 were approximately $ 5.4 million and $ 8.4 million , respectively . dental revenues decreased by approximately $ 2.9 million , which is related to covid-19 pandemic affecting the company 's customers and other business partners . as a result of the reduced hours and closings of dental offices throughout the country and the rest of the world due to the continuing spread of covid-19 , our revenue for the year ending december 31,2020 was materially and adversely affected . in december 2020 , the exclusive distribution arrangement with henry schein was replaced with a non-exclusive distribution arrangement . under the non-exclusive arrangement , henry schein will purchase dental instruments and handpieces in the united states and canada . beginning in january 2021 , the company began a process of signing non-exclusive dental distribution arrangements with dental distributors in specific geographical locations in the united states and canada . to date there are eight ( 8 ) new non-exclusive dental distributors engaged in the usa and canada . the goal is to add additional non-exclusive distributors in three main cities in the usa .
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because our products are used in numerous markets and for a variety of procedures , we are not dependent upon any one end-market or procedure . we are focused on achieving consistent , sustainable and profitable growth by increasing our market share and improving our operating efficiencies . we evaluate our portfolio of products and businesses on an ongoing basis to ensure alignment with our overall objectives . based on our evaluation , we may identify opportunities to expand our margins through strategic divestitures of existing businesses and product lines that do not meet our objectives . in addition , we may seek to optimize utilization of our facilities through restructuring initiatives designed to further reduce our cost base and enhance our competitive position . finally , we may continue to explore opportunities to expand the size of our business and improve our margins through a combination of acquisitions and distributor to direct sales conversions , which generally involve our elimination of a distributor from the sales channel , either by acquiring the distributor or terminating the distributor relationship ( in some instances , particularly in asia , the conversions involve our acquisition or termination of a master distributor and the continued sale of our products through sub-distributors ) . our distributor to direct sales conversions are designed to facilitate improved product pricing and more direct access to the end users of our products within the sales channel . in may 2018 and february 2019 , we initiated restructuring plans primarily involving the relocation of certain manufacturing operations to existing lower-cost locations and related workforce reductions ( the `` 2018 footprint realignment plan '' and the “ 2019 footprint realignment plan , '' respectively ) . the 2018 footprint realignment plan , which also involves the outsourcing of certain european distribution operations , and the 2019 footprint realignment plan are expected to be substantially completed during 2024 and 2022 , respectively . for additional information on both of these plans and a discussion of our other ongoing restructuring programs , see `` restructuring and impairment charges `` under “ results of operations ” below . we have continued to expand our presence within the medical device industry through strategic acquisitions . during 2018 , we completed several acquisitions of businesses that complement our interventional and surgical product portfolios . the total fair value of the consideration transferred in connection with these acquisitions was $ 172.3 million , which included initial payments of $ 117.6 million and contingent consideration having an estimated fair value of $ 54.7 million . the contingent consideration liability represents the estimated fair value of the company 's obligations to make additional payments if certain sales and regulatory goals are met . during the year ended december 31 , 2018 , we also completed several distributor to direct sales conversions . the aggregate consideration we transferred in connection with these transactions was $ 4.9 million . in october 2017 , we completed the acquisition of neotract , inc. ( `` neotract '' ) , a medical device company that developed and commercialized the urolift system , a minimally invasive medical device for treating lower urinary tract symptoms due to benign prostatic hyperplasia , or bph . we made initial payments of $ 725.6 million in cash less a favorable working capital adjustment of $ 1.4 million and agreed to pay up to an additional $ 300 million in the aggregate contingent if we achieve specified net sales goals through the end of 2020. we made an additional payment of $ 75 million during 2018 as a result of the achievement of a sales goal for the period from january 1 , 2018 to april 30 , 2018. in february 2017 , we completed the acquisition of vascular solutions , inc. ( “ vascular solutions ” ) , a medical device company that developed and marketed clinical products for use in minimally invasive coronary and peripheral vascular procedures , for an aggregate purchase price of $ 975.5 million . in addition , during the year ended december 31 , 2017 , we completed acquisitions related to our anesthesia and respiratory product portfolios and distributor to direct sales conversions . the total fair value of the consideration related to these acquisitions was $ 80.1 million . u.s. tax legislation u.s. tax legislation commonly referred to as the tax cuts and jobs act ( the “ tcja ” ) was enacted on december 22 , 2017. the legislation significantly changes united states ( or `` u.s. '' ) tax law by , among other things , reducing the u.s. corporate income tax rate from a maximum of 35 % to 21 % ; implementing a territorial tax system , generally 34 providing for , among other things , a dividends received deduction on the foreign source portion of dividends received from a foreign corporation if specified conditions are met ; and imposing a one-time repatriation tax on undistributed post-1986 earnings and profits of foreign subsidiaries , which will be deemed repatriated for purposes of the tax . on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 ( “ sab 118 ” ) to address the application of u.s. gaap in situations where a company does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tcja . sab 118 states that in these circumstances , if the company can determine a reasonable estimate for the income tax effects , the sec staff would not object if the company includes in its financial statements the reasonable estimate it has determined ( and the sec staff also expressed its belief that it would not be appropriate for a company to exclude a reasonable estimate from its financial statements to the extent a reasonable estimate has been determined ) . story_separator_special_tag despite some indications of a more positive economic outlook in europe , the prospects for continued growth are uncertain , and the healthcare sector remains weak . in particular , budgetary restraints among european countries have led to cost control measures , such as delays in approvals for elective surgeries.the public healthcare systems in certain countries in western europe , most notably greece , spain , portugal and italy , have experienced significantly reduced liquidity due to recessionary conditions , which continues to result in delays in payments to us by customers in these countries . moreover , the impact of ongoing uncertainty regarding the impact of the departure of the united kingdom from the european union and political developments in european nations could have a profound economic effect in europe and elsewhere . in asia , we believe the economic outlook for the healthcare sector generally is positive . however , a deceleration of growth in the chinese economy and recent us-china trade tensions have increased uncertainties within asia . in addition , we continue to confront government-implemented price management and reimbursement controls , particularly in china and india . there also has been an increase in government initiatives to help local manufacturers access a bigger share of the local market . moreover , many countries in the region have become more proactive with respect to regulatory requirements , and as a result , we expect longer , costlier and more complicated regulatory approval processes in these countries . in latin america , some highly regulated economies such as argentina , brazil , and venezuela have experienced unusually high inflation rates and weakening currencies . this has impacted the budgets of the public healthcare systems resulting in delays in the importation of medical devices . although latin america does not represent a significant portion of our business , our operations in this region may be adversely affected by these factors . results of operations as used in this discussion , `` new products '' are products for which commercial sales have commenced within the past 36 months , and “ existing products ” are products for which commercial sales commenced more than 36 months ago . discussion of results of operations items that reference the effect of one or more acquired businesses ( except as noted below with respect to acquired distributors ) generally reflects the impact of the acquisitions within the first 12 months following the date of the acquisition . in addition to increases and decreases in the per unit selling prices of our products to our customers , our discussion of the impact of product price increases and decreases also reflects the impact on the pricing of our products resulting from any elimination of distributors , either through acquisition or termination of the distributor , from the sales channel . certain financial information is presented on a rounded basis , which may cause minor differences . revenues replace_table_token_4_th 36 comparison of 2018 and 2017 net revenues for the year ended december 31 , 2018 increased 14.1 % , or $ 302.1 million , compared to the prior year . the increase is primarily attributable to net revenues of $ 165.1 million generated by acquired businesses , primarily neotract , a $ 60.4 million increase in sales volumes of existing products and , to a lesser extent , an increase in new product sales and favorable fluctuations in foreign currency exchange rates . comparison of 2017 and 2016 net revenues for the year ended december 31 , 2017 increased 14.9 % , or $ 278.3 million , compared to the prior year . the increase is primarily attributable to net revenues of $ 205.8 million generated by acquired businesses , primarily vascular solutions and neotract and , to a lesser extent , an increase in new product sales . gross profit replace_table_token_5_th comparison of 2018 and 2017 for the year ended december 31 , 2018 , gross margin increased 190 basis points , or 3.5 % , compared to the prior year . the increase in gross margin reflects the favorable impact of gross profit generated by acquired businesses , primarily neotract , and the impact of favorable fluctuations in foreign currency exchange rates . moreover , gross margin for the year ended december 31 , 2017 reflected the adverse impact of the step-up in carrying value of inventory recognized in connection with the vascular solutions acquisition . comparison of 2017 and 2016 for the year ended december 31 , 2017 , gross margin increased 130 basis points , or 2.4 % , compared to the prior year . the increase in gross margin is primarily attributable to gross margin generated by acquired businesses , a more favorable mix of products sold , cost improvement initiatives , including the 2016 and 2014 footprint realignment plans described below and the impact of price increases . these increases were partially offset by the unfavorable $ 10.4 million impact of the step-up in carrying value of inventory recognized in connection with the vascular solutions acquisition that adversely affected cost of goods sold upon sale of such inventory during 2017 , as well as higher logistics and distributions costs . selling , general and administrative replace_table_token_6_th comparison of 2018 and 2017 selling , general and administrative expenses increased $ 178.7 million during the year ended december 31 , 2018 compared to the prior year . the increase is primarily attributable to expenses incurred by our acquired businesses ( primarily neotract , which we acquired in october 2017 ) , which consisted of a $ 49.4 million increase in contingent consideration expense resulting from a change in the estimated fair value of our contingent consideration liabilities , a $ 48.2 million increase in amortization expense and a $ 56.7 million increase in other operating expenses . the increases were partially offset by a decrease in transaction and other non recurring expenses . comparison of 2017 and 2016 selling , general and administrative expenses increased $ 136.7 million during the year ended december 31 , 2017 compared to the prior year .
| segment results segment net revenues replace_table_token_14_th segment operating profit replace_table_token_15_th ( 1 ) see note 17 to the consolidated financial statements included in this annual report on form 10-k for a reconciliation of segment operating profit to our consolidated income from continuing operations before interest , loss on extinguishment of debt and taxes . comparison of 2018 and 2017 vascular north america vascular north america net revenues for the year ended december 31 , 2018 increased $ 15.9 million , or 5.1 % , compared to the prior year . the increase is primarily attributable to an $ 8.0 million increase in sales volumes of existing products , a $ 5.6 million increase in new product sales and , to a lesser extent , price increases . vascular north america operating profit for the year ended december 31 , 2018 increased $ 21.5 million , or 27.9 % , compared to the prior year . the increase is primarily attributable to an increase in gross profit resulting from higher sales and lower manufacturing costs as well as lower operating expenses . interventional north america interventional north america net revenues for the year ended december 31 , 2018 increased $ 41.0 million , or 18.6 % , compared to the prior year . the increase is primarily attributable to net revenues of $ 20.6 million generated by acquired businesses ( primarily vascular solutions ) as well as increases in new product sales and in sales volumes of existing products . 42 interventional north america operating profit for the year ended december 31 , 2018 increased $ 36.3 million , or 139.7 % , compared to the prior year . the increase is primarily attributable to gross profit generated by acquired businesses ( primarily vascular solutions ) .
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cable communications segment comcast cable is the nation 's largest provider of video , high-speed internet and voice services ( cable services ) to residential customers under the xfinity brand , and we also provide similar and other services to small and medium-sized businesses . as of december 31 , 2014 , our cable systems served 22.4 million video customers , 22.0 million high-speed internet customers and 11.2 million voice customers , with 27.0 million total customer relationships , and passed more than 54 million homes and businesses . our cable communications segment generates revenue primarily from subscriptions to our cable services , which we market individually and in bundled service packages , and from the sale of advertising . in 2014 , our cable communications segment generated 64 % of our consolidated revenue and 79 % of our operating income before depreciation and amortization . our cable communications segment offers a broad variety of video services with access to hundreds of channels , including premium networks , such as hbo , showtime , starz and cinemax , pay-per-view channels , on demand , our video on demand service that allows customers to watch certain programs when they choose and provides the option to purchase or rent select movies and television shows electronically , and an interactive , on-screen program guide . our video customers may also subscribe to a higher level of video service , including our high-definition video ( hd ) and digital video recorder ( dvr ) advanced services . our video customers have the ability to use our xfinity online portal or our mobile apps to view certain live television programming and on demand content , browse program listings , and schedule , manage and watch dvr recordings . comcast 2014 annual report on form 10-k 46 we offer a variety of high-speed internet services with downstream speeds of up to 105 mbps , and we also have introduced downstream speeds of up to 505 mbps in limited markets . these services also include our xfinity online portal and mobile apps , which provide access to email , contacts and calendars , as well as online security features . in addition , we are actively deploying wireless gateways , which combine a customer 's wireless router , cable modem and voice adapter , to improve the performance of multiple internet-enabled devices used at the same time within the home , provide faster internet speeds and create an in-home wi-fi network . we are continuing to expand our network of outdoor , business and in-home wi-fi hotspots for most of our high-speed internet customers to access our high-speed internet services inside and outside the home , and there are currently 8.3 million hotspots accessible to most of our customers . our voice services provide local and long-distance calling and other related features . we offer our cable services to small ( up to 20 employees ) and medium-sized ( up to 500 employees ) businesses ( business services ) . in addition to the features we provide to our residential customers , our services for business customers include an interactive tool that allows customers to share , coordinate and store documents online , hosted voice services that use cloud network servers , a business directory listing , and the added capacity for multiple phone lines . we also offer to our medium-sized business customers advanced voice services and ethernet network services that connect multiple locations and provide higher downstream speed options , and we provide cellular backhaul services to mobile network operators to help those customers manage network bandwidth . customers are typically billed in advance on a monthly basis based on the services and features they receive and the type of equipment they use . residential cable services customers may generally discontinue service at any time , while business customers may only discontinue service in accordance with the terms of their contracts , which typically have 2 to 5 year terms . our cable communications segment also sells advertising through our spotlight business . as part of our distribution agreements with cable networks , we generally receive an allocation of scheduled advertising time on cable networks that we sell to local , regional and national advertisers . the most significant operating cost for our cable communications segment is the programming expenses we incur to provide content to our video customers . we anticipate that our programming expenses will continue to increase . we have and will continue to attempt to maintain a consistent operating margin in our cable communications segment through rate adjustments , the sale of additional cable services , including advanced services , and the continued growth of business services , as well as by achieving operating efficiencies . nbcuniversal segments nbcuniversal is one of the world 's leading media and entertainment companies that develops , produces and distributes entertainment , news and information , sports , and other content for global audiences . the cable networks , broadcast television , filmed entertainment and theme parks segments comprise the nbcuniversal businesses ( collectively , the nbcuniversal segments ) . cable networks our cable networks segment consists primarily of a diversified portfolio of cable television networks . our cable networks are comprised of our national cable entertainment networks ( usa network , syfy , e ! , bravo , oxygen , esquire network , sprout , chiller , universal hd and cloo ) , our national cable news and information networks ( msnbc , cnbc and cnbc world ) , our national cable sports networks ( golf channel and nbc sports network ) , our regional sports and news networks , various international cable networks , our cable television production operations , and related digital media properties . story_separator_special_tag as a result of the time warner cable merger , time warner cable stockholders will receive , in exchange for each share of time warner cable common stock owned immediately prior to the time warner cable merger , 2.875 shares of our class a common stock . we estimate that at the time of closing , time warner cable stockholders will own approximately 24 % of the outstanding shares of our common stock . because the exchange ratio was fixed at the time of the merger agreement and the market value of our class a common stock will continue to fluctuate , the number of shares of class a common stock to be issued and the total value of the consideration exchanged will not be determinable until 49 comcast 2014 annual report on form 10-k the closing date . the time warner cable merger was approved by both comcast shareholders and time warner cable stockholders in october 2014. the time warner cable merger remains subject to regulatory approval and other customary conditions and is expected to close in early 2015. divestiture transactions the terms of the merger agreement contemplated that we would divest systems serving up to approximately 3 million of our video customers following the time warner cable merger in order to obtain applicable regulatory approvals . as a result of this commitment , on april 25 , 2014 , we entered into an agreement with charter that , if consummated , would satisfy the divestiture undertaking . under this agreement , following the close of the time warner cable merger and subject to various conditions , we agreed to divest cable systems which would result in a net disposition of approximately 3.7 million video customers through three transactions : ( 1 ) a spin-off of certain of our existing cable systems serving approximately 2.5 million of our video customers ( the spin-off transaction ) into a newly formed public entity ( spinco ) , ( 2 ) an exchange of certain former time warner cable cable systems serving approximately 1.5 million video customers for charter cable systems serving approximately 1.6 million video customers , and ( 3 ) a sale to charter of certain former time warner cable cable systems serving approximately 1.4 million video customers for cash ( collectively , the divestiture transactions ) . in connection with and prior to the spin-off transaction , it is expected that spinco would incur new debt . the debt would consist of credit facilities to fund cash distributions to us and notes which spinco would issue to us . these notes would enable us to complete a debt-for-debt exchange where financial institutions would exchange a portion of our debt securities for the new spinco notes , which would effectively retire a portion of our debt . in the spin-off transaction , we would distribute the common stock of spinco pro rata to the holders of all of our outstanding common stock as of the record date , which would occur following the close of the time warner cable merger . after the spin-off transaction , a newly formed , wholly owned indirect subsidiary of charter would merge with and into charter , with the effect that all shares of charter would be converted into shares of a new holding company , which would survive as the publicly traded parent company of charter ( new charter ) . new charter would then acquire an interest in spinco by issuing new charter stock in exchange for a portion of the outstanding spinco stock , following which it is expected that comcast shareholders would own approximately 67 % of spinco and new charter would own approximately 33 % of spinco . in addition , comcast shareholders would own new charter stock as a result of the exchange of outstanding spinco stock with new charter , although the actual number of shares would depend on a number of factors , some of which would not be determinable until the completion of the divestiture transactions . following the close of the divestiture transactions , we would no longer have any ownership interest in spinco . the close of the divestiture transactions is subject to the completion of the time warner cable merger , the spinco financing transactions , approval by charter 's stockholders , regulatory approvals and other customary conditions . the time warner cable merger and the divestiture transactions are subject to separate conditions , and the time warner cable merger can be completed regardless of whether the divestiture transactions are ultimately completed . the closing of the divestiture transactions is expected to occur 30 to 60 days following the close of the time warner cable merger . competition the results of operations of our reportable business segments are affected by competition , as all of our businesses operate in intensely competitive , consumer-driven and rapidly changing environments and compete with a growing number of companies that provide a broad range of communications products and services and entertainment , news and information content to consumers . competition for our bundled cable services that include video , high-speed internet and or voices services consists primarily of direct broadcast satellite ( dbs ) providers , which have a national footprint and compete comcast 2014 annual report on form 10-k 50 in all of our service areas , and phone companies with fiber-based networks , which overlap approximately 55 % of our service areas and are continuing to expand their fiber-based networks . our high-speed internet services primarily compete with phone companies with fiber-based networks , which overlap approximately 60 % of our service areas and also are continuing to expand their fiber-based networks . many of these competitors offer features , pricing and packaging for these services , individually and in bundles , comparable to what we offer . in may 2014 , at & t , our largest phone company competitor , announced its intention to acquire directv , the nation 's largest dbs provider .
| cable communications segment results of operations comcast 2014 annual report on form 10-k 56 replace_table_token_11_th beginning in 2014 , our cable communications segment revised the methodology it uses for counting and reporting customers who reside in multiple dwelling units ( mdus ) and are billed under bulk contracts ( the billable customers method ) . for mdus whose residents have the ability to receive additional cable services , such as additional programming choices or our hd or dvr advanced services , we now count and report customers based on the number of potential billable relationships within each mdu . for mdus whose residents are not able to receive additional cable services , the mdu is now counted as a single customer . previously , we had counted and reported these customers on an equivalent billing unit basis by dividing monthly revenue received under an mdu 's bulk contract by the standard monthly residential rate where the mdu was located ( the ebu method ) . we believe the billable customers method is consistent with the methodology used by other companies in our industry to count and report customers . customer metrics replace_table_token_12_th customer metrics include residential and business customers and are presented based on actual amounts . minor differences may exist due to rounding . 57 comcast 2014 annual report on form 10-k ( a ) net additional video customers for 2012 are not available using the billable customers method and therefore net additional video customers in 2013 and 2012 are presented using the ebu method to show an appropriate comparison . ( b ) customer relationships represent the number of residential and business customers that subscribe to at least one of our cable services . single product , double product and triple product customers represent customers that subscribe to one , two or three of our cable services , respectively .
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sales and other redemptions of available-for-sale investments were as follows : replace_table_token_54_th 97 first financial northwest , inc. and subsidiaries notes to consolidated financial statements the following tables summarize the aggregate fair value and gross unrealized loss by length of time those investments have been continuously in an unrealized loss position at december 31 , 2020 and 2019. replace_table_token_55_th replace_table_token_56_th at december 31 , 2020 , and 2019 , the company had 20 and 37 securities , respectively , with a gross unrealized loss position . management reviewed the financial condition of the entities underlying the securities at both december 31 , 2020 , and december 31 , 2019 , and determined that no otti was required . management believes that , while actual fluctuation in unrealized losses will occur over the life of an investment security , story_separator_special_tag this discussion and analysis reviews our consolidated financial statements and other relevant statistical data for the years ending december 31 , 2020 and 2019 , and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the consolidated financial statements and footnotes thereto that appear in item 8 of this form 10-k. the information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this form 10-k. unless otherwise indicated , the financial information presented in this section reflects the consolidated financial condition and results of operations of first financial northwest and its subsidiaries . for a discussion and review of our consolidated financial statements and other relevant statistical data for the years ending december 31 , 2019 and 2018 see “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's form 10-k for the fiscal year ended december 31 , 2019. story_separator_special_tag 59 payment deferral under the cares act combined with increases in probable loan losses for all loan categories in response to the economic disruption caused by the covid-19 pandemic , with higher potential impact allocated to commercial real estate and construction/land portfolios . the recapture of provision for loan losses in 2019 was primarily the result of a construction/land loan with a balance of $ 12.5 million at december 31 , 2019 , that was technically in default and classified as impaired , however , the bank 's impairment analysis concluded there were no anticipated losses from the loan at that time , and therefore , funds previously allocated in the alll to this loan were recaptured . the construction portion of this loan was fully funded and completed in 2020 , and was rolled into a permanent commercial real estate loan . at december 31 , 2020 , this loan was current on its payments and was performing according to the terms of the loan . we will continue to monitor our loan portfolio and make adjustments to our alll as we deem necessary . noninterest income is generated from various loan or deposit fees , increases in the cash surrender value of bank owned life insurance ( “ boli ” ) , and revenue earned on our wealth management brokerage services . this income is increased or partially offset by any net gain or loss on sales of investment securities . our noninterest income increased $ 301,000 during the year ended december 31 , 2020 as compared to 2019. the increase was primarily attributable to a $ 603,000 increase in loan related fees , partially offset by a $ 216,000 decrease in the wealth management revenue and a $ 65,000 decrease in net gain on sales of investments . our noninterest expenses consist primarily of salaries and employee benefits , professional fees , regulatory assessments , occupancy and equipment , and other general and administrative expenses . salaries and employee benefits consist primarily of the salaries and wages paid to our employees , payroll taxes , expenses for retirement , and other employee benefits . oreo-related expenses consist primarily of maintenance and costs of utilities for the oreo inventory , market valuation adjustments , build-out expenses , gains and losses from oreo sales , legal fees , real estate taxes , and insurance related to the properties included in the oreo inventory . professional fees include legal services , auditing and accounting services , computer support services , and other professional services in support of strategic plans . occupancy and equipment expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of lease expenses , real estate taxes , depreciation expenses , maintenance , and costs of utilities . also included in noninterest expense are changes to the company 's unfunded commitment reserve which are reflected in general and administrative expenses . this unfunded commitment reserve expense can vary significantly each quarter , based on the amount believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities , and reflects changes in the amounts that the company has committed to fund but has not yet disbursed . our noninterest expenses increased $ 2.1 million during the year ended december 31 , 2020 as compared to 2019. the increase was primarily attributable to a $ 791,000 increase in data processing expenses , a $ 525,000 increase in occupancy and equipment expenses , and a $ 444,000 increase in salaries and employee benefits . covid-19 related information in response to the covid-19 pandemic , the bank is committed to providing assistance to its customers . under the cares act , the bank is providing certain short-term loan modifications . in addition , the bank is participating in the paycheck protection program ( “ ppp ” ) as a lender . some of the ppp loans we originated were for our existing customers , however we also provided ppp loans to those in our community who have not had a banking relationship with us in the past . story_separator_special_tag the bank has created an sba department , with the goal of achieving sba preferred lender status in 2021 , which would provide the bank with delegated loan approval as well as closing and most servicing and liquidation authority , enabling the bank to make loan decisions more rapidly . in addition , the bank plans to increase originations of the business loan portfolio , which may include business lines of credit , business term loans , equipment financing , and a focus on industry specific loans , such as green energy financing . in conjunction with the growth of business loans , the bank seeks to service these customers with their business deposits as well . critical accounting policies critical accounting policies are those that involve significant judgments and assumptions by management and that have , or could have , a material impact on our income or the carrying value of our assets . the following are our critical accounting policies . allowance for loan losses . management recognizes that loan losses may occur over the life of a loan and that the alll must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio . our methodology for analyzing the alll consists of two components : general and specific allowances . the general allowance is determined by applying factors to our various groups of loans . management considers factors such as charge-off history , the current and expected economic conditions , borrower 's ability to repay , the regulatory environment , competition , geographic and loan type concentrations , policy and underwriting standards , nature and volume of the loan portfolio , management 's experience level , our loan review and grading systems , the value of underlying collateral , and the level of problem loans in assessing the alll . specific allowances result when management performs an impairment analysis on a loan when it determines it is probable that all contractual amounts of principal and interest will not be paid as scheduled . the analysis usually occurs when a loan has been classified as substandard or placed on nonaccrual status or is a tdr because the borrower has been granted a rate concession . if the market value less costs to sell ( “ market value ” ) of the impaired loan is less than the recorded investment in the loan , impairment is recognized by establishing a specific reserve in the alll for the loan or by adjusting an existing reserve amount . the amount of the specific reserve is computed using current appraisals , listed sales prices , and other available information less costs to complete , if any , and costs to sell the property . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events differ from predictions . in addition , specific reserves may be created upon a loan 's restructuring , based on a discounted cash flow analysis , comparing the present value of the anticipated repayments under the restructured terms to the outstanding principal balance of the loan . our board of directors ' internal asset review committee reviews and recommends for approval the allowance for loan losses on a quarterly basis , and any related provision or recapture of provision for loan losses , and the full board of directors approves the provision or recapture after considering the committee 's recommendations . the allowance is increased by the provision for loan losses which is charged against current period earnings . when analysis of the loan portfolio warrants , the allowance is decreased and a recapture of provision of loan losses is included in current period earnings . we believe that the alll is a critical accounting estimate because it is highly susceptible to change from period‑to‑period requiring management to make assumptions about probable losses inherent in the loan portfolio . the impact of an unexpected large loss could deplete the allowance and potentially require increased provisions to replenish the allowance , thereby reducing earnings . for additional information see item 1a . “ risk factors – risks related to our lending - our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio , ” in this form 10-k. 63 valuation of oreo . real estate properties acquired through foreclosure or by deed-in-lieu of foreclosure are recorded at fair value less estimated costs to sell . fair value is generally determined by management based on a number of factors , including third-party appraisals of fair value in an orderly sale . accordingly , the valuation of oreo is subject to significant external and internal judgment . if the carrying value of the loan at the date a property is transferred into oreo exceeds the fair value less estimated costs to sell , the excess is charged to the alll . management periodically reviews oreo values to determine whether the property continues to be carried at the lower of its recorded book value or fair value , net of estimated costs to sell . any further decreases in the value of oreo are considered valuation adjustments and are charged to noninterest expense in the consolidated income statements . expenses and income from the maintenance and operations and any gains or losses from the sales of oreo are included in noninterest expense . deferred taxes . deferred tax assets arise from a variety of sources , the most significant being expenses recognized in our financial statements but disallowed in the tax return until the associated cash flow occurs , and write-downs in the value of assets for financial statement purposes that are not deductible for tax purposes until the asset is sold or deemed worthless . when warranted , we record a valuation allowance to reduce our deferred tax assets to the amount that can be recognized in line with the relevant accounting standards .
| overview first financial northwest bank is a wholly-owned subsidiary of first financial northwest and , as such , comprises substantially all of the activity for first financial northwest . first financial northwest bank was a community-based savings bank until february 4 , 2016 , when the bank converted to a washington state chartered commercial bank reflecting the commercial banking services it now provides to its customers . the bank primarily serves king , snohomish , pierce and kitsap counties , washington through its full-service banking office and headquarters in renton , washington , as well as six retail branches in king county , washington , five retail branches in snohomish county , washington , and two retail branches in pierce county , washington at december 31 , 2020. the bank purchased four of these branches in 2017 and acquired $ 74.7 million in deposits ( the “ branch acquisition ” ) . the branch acquisition expanded our retail footprint and provided an 58 opportunity to extend our unique brand of community banking into those communities . in addition , the bank opened a new branch office in issaquah , washington in march 2021. the bank 's business consists predominantly of attracting deposits from the general public , combined with borrowing from the federal home loan bank of des moines ( “ fhlb ” ) and raising funds in the wholesale market , then utilizing these funds to originate one-to-four family residential , multifamily , commercial real estate , construction/land , business , and consumer loans . our current business strategy emphasizes commercial real estate , construction , one-to-four family residential , and multifamily lending . with the current low interest rate environment , we are not aggressively pursuing longer term assets , but rather are focused on financing shorter term loans and loans with adjustable interest rates .
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the estimated useful lives , by asset classification , are as follows story_separator_special_tag this annual report on form 10-k contains forward-looking statements concerning future events and performance of the company . when used in this report , the words may , would , should , could , expects , aims , plans , anticipates , believes , estimates , predicts , projects , potential , or continue or the negative of these terms or other comparable terminology are included to identify forward-looking statements . these statements include but are not limited to statements regarding our ability to successfully launch vascepa in the united states for use in the marine indication , the progress and timing of our clinical programs , the potential for , and timing of , regulatory approval of additional indications for vascepa and the next steps we may take thereto ; the safety and efficacy of our product candidates ; the goals of our development activities ; the scope of our intellectual property protection ; estimates of the potential markets for our product candidates ; estimates of the capacity of manufacturing and other facilities to support our products , our operating and growth strategies , our sales and marketing strategies , our industry , our projected cash needs , liquidity and capital resources and our expected future revenues , operations and expenditures . these forward-looking statements are based on our current expectations and assumptions and many factors could cause our actual results to differ materially from those indicated in these forward-looking statements . you should review carefully the factors identified in this report in item 1a , risk factors . we disclaim any intent to update or announce revisions to any forward-looking statements to reflect actual events or developments , except as required by law . except as otherwise indicated herein , all dates referred to in this report represent periods or dates fixed with reference to our fiscal year ended december 31. overview we are a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health . on july 26 , 2012 , we received approval from the u.s. food and drug administration , or fda , to market and sell our lead product vascepa ® ( icosapent ethyl ) capsules ( formerly known as amr101 ) as an adjunct to diet to reduce triglyceride , or tg , levels in adult patients with severe ( tg ³ 500mg/dl ) hypertriglyceridemia , which we sometimes refer to as the marine indication . triglycerides are fats in the blood . on january 28 , 2013 , we commenced our commercial launch of vascepa in the united states for the marine indication . we are also developing vascepa for the treatment of patients with high ( tg ³ 200 mg/dl and < 500 mg/dl ) triglyceride levels who are also on statin therapy for elevated low-density lipoprotein cholesterol , or ldl-c , levels which we refer to as mixed dyslipidemia . we refer to this second proposed indication for vascepa as the anchor indication . in late february 2013 , we submitted an snda for the anchor indication with the fda . if our snda is accepted by the fda , assuming a ten-month fda review period , we expect the fda to assign a pdufa action date which is not later than the end of 2013. in december 2011 , we announced commencement of patient dosing in our cardiovascular outcomes study of vascepa , titled reduce-it ( reduction of cardiovascular events with epa intervention trial ) , which is designed to evaluate the efficacy of vascepa in reducing major cardiovascular events in a high risk patient population on statin therapy . based on communications with the fda , we believe that we are required to be substantially underway with a cardiovascular outcomes study at the time of the submission of our snda seeking approval of the anchor indication . we believe that we achieved this requirement prior to submitting the snda . however , there can be no assurance that the fda will agree with our assessment or that they will accept our snda for the anchor indication . we do not believe the final results of the reduce-it study will be required for fda approval of vascepa for the anchor indication . hypertriglyceridemia refers to a condition in which patients have high levels of triglycerides in the bloodstream . it is estimated that over 40 million adults in the united states have elevated triglyceride levels > 200mg/dl and approximately 4.0 million people in the united states have severely high ( tg ³ 500mg/dl ) triglyceride levels , commonly known as very high triglyceride levels . according to the american heart association scientific statement on triglycerides and cardiovascular disease ( 2011 ) , 54 triglycerides also provide important information as a marker associated with the risk for heart disease and stroke , especially when an individual also has low high-density lipoprotein , or hdl-c ( often referred to as good cholesterol ) , and elevated levels of ldl-c ( often referred to as bad cholesterol ) . guidelines for the management of very high triglyceride levels suggest that reducing triglyceride levels is the primary goal in patients to reduce the risk of acute pancreatitis . the effect of vascepa on cardiovascular mortality and morbidity , or the risk for pancreatitis , in patients with hypertriglyceridemia has not been determined . the potential efficacy and safety of vascepa was studied in two phase 3 clinical trials , the marine trial and the anchor trial . at a daily dose of 4 grams of vascepa , the dose at which vascepa is fda-approved , these trials showed favorable clinical results in their respective patient populations in reducing triglyceride levels without increasing ldl-c levels in the marine trial and with a statistically significant decrease in ldl-c levels in the anchor trial . story_separator_special_tag we base our estimates on historical experience and on various other assumptions that we believe 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 . a summary of our significant accounting policies is contained in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k. we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . derivative financial liabilities derivative financial liabilities on initial recognition are recorded at fair value . they are subsequently held at fair value , with gains and losses arising for changes in fair value recognized in the statement of operations . the fair value of derivative financial liabilities is determined using valuation techniques , typically we use the black-scholes option pricing model . we use our judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date . fluctuations in the assumptions used in the valuation model would result in adjustments to the fair value of the warrant derivative laibility reflected on our balance sheet and , therefore , our statement of operations . if we issue shares to discharge the liability , the derivative financial liability is derecognized and common stock and additional paid-in capital are recognized on the issuance of those shares . for options and warrants treated as derivative financial liabilities , at settlement date the carrying value of the options and warrants are transferred to equity . the cash proceeds received from shareholders for additional shares are recorded in common stock and additional paid-in capital . we recorded a financial derivative related the change in control provision associated with our december 2012 debt financing . the fair value of this derivative could fluctuate based on changes the assumptions used in the valuation model . 56 inventory capitalization prior to july 26 , 2012 , when we received approval from the fda to market and sell vascepa in the u.s. for the marine indication , vascepa was considered a product candidate under development . all supply of vascepa purchased prior to july 26 , 2012 was not capitalized and instead charged as a component of research and development expense in the current period . after vascepa was approved , we began to capitalize inventory purchased from the supplier approved in the nda . we have three additional supply agreements with basf , chemport and slanmhor , and are working to pursue fda approval for these suppliers to manufacture vascepa api . until an additional api supplier is approved , all vascepa api purchased from such supplier is included as a component of research and development expense . upon snda approval of these additional suppliers , we plan to capitalize subsequent vascepa purchases from these suppliers as inventory . purchases of vascepa received and expensed before such regulatory approvals will not be subsequently capitalized , and all such purchases will be quarantined and not used for commercial supply until such time as the snda for the supplier that produced the api is approved . recent accounting pronouncements from time to time , new accounting pronouncements are issued by fasb and are adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued accounting pronouncements will not have a material impact on consolidated financial position , results of operations , and cash flows , or do not apply to our operations . effects of inflation we believe the impact of inflation on operations has been minimal during the past three years . story_separator_special_tag expect marketing , general and administrative costs in 2013 to increase . in late 2012 and early 2013 , we hired approximately 275 sales representatives plus district managers to support our january 2013 full launch of vascepa for the marine indication . the cost of this sales team will increase our costs in 2013. in addition , we intend to support the commercialization of vascepa with expanded medical education programs , various forms of promotion , continued market research and further infrastructure and systems . loss on change in fair value of derivative liabilities . loss on change in fair value of derivative liability for the year ended december 31 , 2012 was $ 35.4 million versus $ 22.7 million in the prior year period . loss on change in fair value of derivative liability is primarily related to the change in fair value of warrants issued in conjunction with the october 2009 private placement . in october 2009 we issued 36.1 million warrants at an exercise price of $ 1.50 and recorded a $ 48.3 million warrant derivative liability , representing the fair value of the warrants issued . as these warrants have been classified as a derivative liability , they are revalued at each reporting period , with changes in fair value recognized in the statement of operations . the fair value of the warrant derivative liability at december 31 , 2011 was $ 123.1 million and we recognized a $ 22.7 million loss on change in fair value of derivative liability for the period ended december 31 , 2011 for these warrants . the fair value of the warrant derivative liability at december 31 , 2012 was $ 54.9 million and we recognized a $ 35.4 million loss on change in fair value of derivative liability for the period ended december 31 , 2012. the decrease in the warrant derivative liability value was due primarily to the exercises of warrants . upon exercise , the fair value of warrants exercised is remeasured and reclassified from warrant liability to additional paid-in-capital . the fair value of the long term debt redemption feature at december 31 , 2012 was 14.6 million .
| results of operations comparison of fiscal years ended december 31 , 2012 versus december 31 , 2011 revenue . we recorded no revenue in 2012 or 2011. research and development expense . research and development expense for the year ended december 31 , 2012 was $ 59.0 million , versus $ 21.6 million in the prior year period , an increase of $ 37.4 million , or 173 % . research and development expenses for the years ended december 31 , 2012 and 2011 are summarized in the table below : replace_table_token_6_th ( 1 ) research and development expense , excluding non-cash charges for stock compensation , for the year ended december 31 , 2012 was $ 55.3 million , versus $ 20.1 million in the prior year period , an increase of $ 35.2 million , or 175 % . the increase in research and development expense was due to increased costs in 2012 for our vascepa cardiovascular program , primarily increased clinical costs for the reduce-it cardiovascular outcomes study , costs of supply purchases prior to nda approval and costs associated with study of amr102 . prior to fda approval of vascepa on july 26 , 2012 , all supply purchases of vascepa were expensed to research and development . after fda approval , supply purchases of vascepa were capitalized , with the exception of clinical trial material which continues to be expensed to research and development . during the year ended december 31 , 2012 , non-capitalized supply purchases and vendor qualification costs were approximately $ 16.1 million . during the year ended december 31 , 2012 , expenses incurred through our cro for the reduce-it study were approximately $ 23.3 million . ( 2 ) non-cash stock based compensation expense included within research and development was $ 3.7 million and $ 1.5 million for the years ended december 31 , 2012 and 2011 , respectively .
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( included as exhibit 10.20 to the annual report on form 10-k for the fiscal year ended december 31 , 2010 filed march 28 , 2011 ) 10.20 promissory note dated november 29 , 2010 issued by the company to thomas girschweiler ( included as exhibit 10.21 to the annual report on form 10-k for the fiscal year ended december 31 , 2010 filed march 28 , 2011 ) 10.21 promissory note dated november 29 , 2010 issued by the company to walter villiger ( included as exhibit 10.22 to the annual report on form 10-k for the fiscal year ended december 31 , 2010 filed march 28 , 2011 ) 48 10.22 warrant to purchase common stock issued to thomas girschweiler ( included as exhibit 10.23 to the annual report on form 10-k for the fiscal year ended december 31 , 2010 filed march 28 , 2011 ) 10.23 warrant to purchase common stock issued to walter villiger ( included as exhibit 10.24 to the annual report on form 10-k for the fiscal year ended december 31 , 2010 filed march 28 , 2011 ) 10.24 fourth amendment to the secured multi-draw term loan facility agreement dated august 10 , 2011 , between the company , thomas girschweiler and walter villiger ( included as exhibit 10.24 to the annual report on form 10-k for the fiscal year ended december 31 , 2011 filed march 29 , 2012 ) 10.25 promissory note dated august 10 , 2011 issued by the company to thomas girschweiler ( included as exhibit 10.25 to the annual report on form 10-k for the fiscal year ended december 31 , 2011 filed march 29 , 2012 ) 10.26 promissory note dated august 10 , 2011 issued by the company to walter villiger ( included as exhibit 10.26 to the annual report on form 10-k for the fiscal year ended december 31 , 2011 filed march 29 , 2012 ) 10.27 warrant to purchase common stock issued to thomas girschweiler ( included as exhibit 10.27 to the annual report on form 10-k for the fiscal year ended december 31 , 2011 filed march 29 , 2012 ) 10.28 warrant to purchase common stock issued to walter villiger ( included as exhibit 10.28 to the annual report on form 10-k for the fiscal year ended december 31 , 2011 filed march 29 , 2012 ) 10.29 employment agreement dated august 17 , 2011 between the company and daphne taylor ( included as exhibit 10.29 to the annual report on form 10-k for the fiscal year ended december 31 , 2011 filed march 29 , 2012 ) 10.30 second amendment to the lease , dated the march 2 , 2012 , between the company and monte villa farms , llc ( included as exhibit 10.30 to the quarterly report on form 10-q for the quarterly period ended march 31 , 2012 filed may 14 , 2012 ) 10.31 fifth amendment to the secured multi-draw term loan facility agreement dated may 30 , 2012 , between the company , thomas girschweiler and walter villiger ( included as exhibit 10.32 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.32 promissory note dated may 30 , 2012 issued by the company to thomas girschweiler ( included as exhibit 10.33 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.33 promissory note dated may 30 , 2012 issued by the company to walter villiger ( included as exhibit 10.34 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.34 warrant to purchase common stock issued to thomas girschweiler ( included as exhibit 10.35 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.35 warrant to purchase common stock issued to walter villiger ( included as exhibit 10.36 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.36 third amendment to the lease , dated the june 15 , 2012 , between the company and monte villa farms , llc ( included as exhibit 10.37 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.37 employment agreement dated september 1 , 2012 between the company and aby j. mathew ( included as exhibit 10.38 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.38 employment agreement dated september 1 , 2012 between the company and mark sandifer ( included as exhibit 10.39 to the annual report on form 10-k for the fiscal year ended december 31 , 2012 filed march 29 , 2013 ) 10.39 story_separator_special_tag forward-looking statements this annual report on form 10-k contains “ forward-looking statements ” . these forward-looking statements involve a number of risks and uncertainties . we caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement . these statements are based on current expectations of future events . such statements include , but are not limited to , statements about future financial and operating results , plans , objectives , expectations and intentions , costs and expenses , interest rates , outcome of contingencies , financial condition , results of operations , liquidity , business strategies , cost savings , objectives of management and other statements that arenot historical facts . story_separator_special_tag all of our products are serum-free and protein-free , fully defined , and are manufactured under cgmp using usp/multicompendial or the highest available grade components . our patented biopreservation media products are formulated to reduce preservation-induced , delayed-onset cell damage and death . our platform enabling technology provides our customers significant shelf life extension of biologic source material and final cell products , and also greatly improved post-preservation cell , tissue , and organ viability and function . we believe that our products have been incorporated into the manufacturing , storage , shipping , freezing , and clinical delivery processes of over 100 hospital-approved or clinical trial stage regenerative medicine applications . the discoveries made by our scientists and consultants relate to how cells , tissues , and organs respond to the stress of hypothermic storage , cryopreservation , and the thawing process . these discoveries enabled the formulation of truly innovative biopreservation media products that protect biologic material from preservation-related cellular injury , much of which is not apparent immediately after return to normothermic body temperature . our product formulations have demonstrated remarkable reduction in apoptotic ( programmed ) and necrotic ( pathologic ) cell death mechanisms and are enabling the clinical and commercial development of dozens of innovative regenerative medicine products . 21 our mission we strive to be the leading provider of biopreservation tools for cells , tissues , and organs ; to facilitate basic and applied research and commercialization of new therapies by maintaining the health and function of biologic source material and finished products during the preservation process . our strategies to achieve this objective include : utilize existing sales , distribution and manufacturing infrastructure . extensive network . we have developed a broad direct sales and distribution network for our products which we utilize to expand sales to existing customers and to gain additional customers . highly technical sales team . our sales team is highly trained and are considered thought leaders in the area of biopreservation . we are able to provide highly relevant data and assist our customers with a consultative selling approach . high degree of customer satisfaction . our sales , marketing , customer service and technical support and service teams aspire to provide our customers exceptional service and have been highly rated in customer satisfaction surveys . highly accessible product . we have the ability to ship product on a same-day or next-day basis . we use this ability to provide convenient service to our customers and to generate additional product revenues . contract manufacturing . we utilize excess capacity in our manufacturing operations to perform contract manufacturing in both small and large lot sizes . with our extensive knowledge in cgmp media manufacturing , we are able to assist our customers and optimize their formulation processes to improve the manufactured yield and margin . develop innovative new products . we are continuously seeking to utilize the unique nature of our technologies to create customer application-based solutions . invest in regenerative medicine . we are the leading supplier of pre-formulated , clinical grade biopreservation media products for advancing the field of regenerative medicine . fragile , live cells from source materials such as blood , tissue , and organs are enabling the development of biologic-based therapies and treatments for the leading causes of death and disability . these cells must be transported from the processing lab to the bedside in a refrigerated or frozen state to preserve viability , quality , and potency . we will continue to invest in adding to our suite of biopreservation product offerings to the commercial cell therapy and tissue engineering companies , hospital based stem cell transplant centers , university-based research labs engaged in this field . results of operations story_separator_special_tag members . other income ( expenses ) interest expense . the increase in interest expense in 2013 compared to 2012 was due to a higher average debt balance . amortization of deferred financing costs . amortization of deferred financing costs represents the cost of warrants issued which are being amortized over the life of the debt . 25 liquidity and capital resources we have been unable to generate sufficient income from operations in order to meet our operating needs and have an accumulated deficit of approximately $ 57 million at december 31 , 2013. of this amount , approximately $ 19 million has accumulated since the merger of the company in 2002. we believe our current cash and cash provided by operations will satisfy our working capital requirements , debt obligations and capital expenditures for the foreseeable future ; however , we have filed a registration statement with the sec to permit us to conduct a public offering of our common stock and warrants to purchase our common stock . if the public offering is completed , we intend to use the net proceeds thereof for general corporate purposes , including working capital . there can be no assurance that the public offering will be completed . our future capital requirements and the adequacy of our available funds will depend on many factors , including future profitable operations , debt repayment , and competing technological and market developments . our working capital factors , such as inventory turnover and days sales outstanding , fluctuate on a quarterly basis and , on an interim basis during the year , may require an influx of short-term working capital . the company will continuously assess the most appropriate method of financing the company 's short and long term operations .
| summary of 2013 achievements ● revenue from our core products , cryostor® , hypothermosol® , and bloodstor® grew 30 % over 2012 as we expanded our market share in the regenerative medicine , biobanking , and drug discovery segments and ended 2013 with over $ 3.9 million in revenue from core customers . our products are incorporated in over 100 hospital-approved or clinical trial stage applications in the regenerative medicine market . ● we entered into a strategic partnership with savsu , wherein biolife will exclusively market and distribute savsu 's proprietary precision thermal packaging products to the stem cells and regenerative medicine markets . ● we executed an intellectual property license agreement with janssen research & development , llc , resulting in $ 609,167 in revenue . 22 ● we announced a strategic relationship with hemacare corporation , ( otcpk : hema ) , wherein hemacare will market biolife 's hypothermosol® frs and cryostor® biopreservation media products and hemacare 's blood derived cells to the research and clinical communities . ● we expanded our relationship with stemcell technologies , who recently selected biolife 's cryostor cgmp freeze media for use in the launch of over 50 new primary cell products ( isolated from bone marrow , peripheral blood , umbilical cord blood , and umbilical cord tissue ) , to be marketed to the research community . ● we were named by seattle business magazine as one of the best places to work in washington state . ● we were named to the deloitte 2013 fast technology 500 list of north american innovative , high growth technology companies . ● we added robert preti , ph.d. , president and chief scientific officer of progenitor cell therapy , a wholly owned subsidiary of neostem , inc. , to our scientific advisory board . comparison of annual results of operations percentage comparisons have been omitted within the following table where they are not considered meaningful .
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pursuant to a note purchase agreement dated december 22 , 1997 , sunbelt sold $ 97.5 million of guaranteed senior secured notes due 2017 , series o , and $ 97.5 million of guaranteed senior secured notes due 2017 story_separator_special_tag business background our manufacturing operations are concentrated in two business segments : chlor alkali products and winchester . both are capital intensive manufacturing businesses with operating rates closely tied to the general economy . each segment has a commodity element to it , and therefore , our ability to influence pricing is quite limited on the portion of the segment 's business that is strictly commodity . our chlor alkali products business is a commodity business where all supplier products are similar and price is the major supplier selection criterion . we have little or no ability to influence prices in this large , global commodity market . cyclical price swings , driven by changes in supply/demand , can be abrupt and significant and , given capacity in our chlor alkali products business , can lead to very significant changes in our overall profitability . winchester also has a commodity element to its business , but a majority of winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance . while competitive pricing versus other branded ammunition products is important , it is not the only factor in product selection . recent developments and highlights 2010 year in 2010 , chlor alkali products ' segment income was $ 117.2 million , a decrease of 7 % compared with the prior year . chlor alkali products ' began to experience improved chlorine and caustic soda demand during 2010 and experienced a record level of bleach sales . volumes for chlorine and caustic soda improved 15 % compared to 2009 , while volumes for bleach improved 18 % . operating rates in chlor alkali products for 2010 and 2009 were 82 % and 70 % , respectively . our 2010 ecu netbacks of $ 475 were 9 % lower than the 2009 netbacks of $ 520 ; however , the pricing trend has been positive throughout 2010 as ecu netbacks increased sequentially from the low level of $ 375 in the third quarter of 2009. the fourth quarter of 2010 ecu netback was $ 515. as business conditions improved throughout 2010 , our quarterly chlor alkali operating rates improved year-over-year by at least 10 % peaking in the third quarter of 2010 with a 91 % operating rate during the summer demand season . a significant portion of the north american chlor alkali demand improvement came from exports of products made from chlorine , driven by the energy advantage north america enjoys by using natural gas as compared to crude oil . with demand for both chlorine and caustic soda improving , price increases were announced throughout the year . during february 2010 , an $ 80 per ton caustic soda price increase was announced . we began realizing a portion of this price increase in caustic soda in the second quarter of 2010. caustic soda demand continued to improve , and as a result , during the third quarter of 2010 , three additional caustic soda price increases were announced totaling $ 135 per ton . we believe that a portion of the $ 135 per ton caustic soda price increases announced during the third quarter of 2010 will be realized . we anticipate some additional benefits from these price increases and from contracts that re-set on an annual basis to be realized in the first half of 2011. additionally , we announced a $ 40 per ton caustic soda price increase in january 2011. while the success of this $ 40 per ton caustic soda price increase is not yet known , some portion of the benefits of this price increase , if realized , would impact our system beginning in the second quarter of 2011 . 22 winchester segment income of $ 63.0 million in 2010 , which represented the second highest level of segment income in at least the last two decades , declined 8 % compared to the prior year segment income of $ 68.6 million . the higher than normal levels of commercial demand that began in the fourth quarter of 2008 continued through the second quarter of 2010. beginning with the third quarter of 2010 , winchester began to experience a decline in commercial demand from the 2009 levels . however , the second half of 2010 commercial demand remained stronger than 2007 levels . commercial volumes , excluding rimfire , for 2010 decreased approximately 12 % from prior year levels . on december 9 , 2010 , our board of directors approved a plan to convert the 260,000 tons of mercury cell capacity at our charleston , tn facility to 200,000 tons of membrane capacity capable of producing both potassium hydroxide and caustic soda . the project has an estimated capital cost of approximately $ 160 million . the board of directors also approved a plan to reconfigure our augusta , ga facility to manufacture bleach and distribute caustic soda , while discontinuing chlor alkali manufacturing at this site . this action will reduce our chlor alkali manufacturing capacity by 100,000 tons . we based our decision on several factors . first , over the past eighteen months we have experienced a steady increase in the number of customers unwilling to accept our products manufactured using mercury cell technology . second , there is federal legislation that was passed in 2008 governing the treatment of mercury that significantly limits our recycling options after december 31 , 2012. we concluded that exiting mercury cell technology production after 2012 represented an unacceptable future cost risk . further , the conversion of the charleston , tn plant to membrane technology will reduce the electricity usage per ecu produced by approximately 25 % and the configuration of the new plant will result in an increase in our capacity to produce potassium hydroxide . story_separator_special_tag our 2009 ecu netbacks of $ 520 were 18 % lower than the 2008 netbacks of $ 635 , reflecting the changes in the pricing dynamics in north america . during 2008 , north american demand for caustic soda was strong , while supply continued to be constrained by the weakness in chlorine demand . this resulted in a significant supply and demand imbalance for caustic soda in north america , which resulted in record caustic soda pricing . the result was a record ecu netback , in our system , in the first quarter of 2009 of approximately $ 765. beginning late in the fourth quarter of 2008 and continuing through 2009 , demand for caustic soda weakened significantly , and fell below the demand for chlorine . this created excess supply in north america , which caused caustic soda prices to fall . the over supply of caustic soda caused industry operating rates to be constrained , which resulted in chlorine price increase announcements of $ 300 per ton during the second quarter of 2009. caustic soda prices declined precipitously in the second quarter of 2009 and these declines continued into the third quarter of 2009. during the third quarter of 2009 , chlorine and caustic soda demand became more balanced eliminating the oversupply of caustic soda . we began realizing increases in chlorine prices in the third quarter of 2009 with most of the improvement in the fourth quarter of 2009. ecu netbacks , in our system , bottomed out in the third quarter of 2009. during the fourth quarter of 2009 , as caustic soda demand improved , chlorine production declined due to seasonally weaker demand . this resulted in a supply and demand imbalance for caustic soda in north america . as a result of this imbalance , in december 2009 , a $ 75 per ton caustic soda price increase was announced . we began realizing the benefits of this price increase in caustic soda in the first half of 2010 . 24 winchester segment income of $ 68.6 million in 2009 , which represented the highest level of segment income in at least the last two decades , improved 110 % compared to 2008 segment income of $ 32.6 million . winchester continued to experience the above normal levels of demand during 2009 that began around the november 2008 presidential election . the increase in demand was across the majority of winchester 's product offerings , including rifle , pistol and rimfire ammunition . on a volume basis , winchester 's unit shipments increased 14 % in 2009 compared to 2008 , which was driven by the higher level of commercial sales . winchester 's results reflected the impact of increased volumes and higher selling prices , and lower commodity and other material costs . income from continuing operations before taxes for 2009 included $ 82.1 million of recoveries from third parties for environmental costs incurred and expensed in prior periods . on august 19 , 2009 , we sold $ 150.0 million of 8.875 % senior notes ( 2019 notes ) with a maturity date of august 15 , 2019. the 2019 notes were issued at 99.19 % of par value , providing a yield to maturity to investors of 9.0 % . interest is paid semi-annually in arrears on each february 15 and august 15. proceeds of $ 145.5 million , after expenses of $ 3.3 million , from the 2019 notes were used to further strengthen our long-term liquidity . during the fourth quarter of 2009 , we completed a conversion and expansion project at our st. gabriel , la facility and initiated production . this project increased capacity at this location from 197,000 ecus to 246,000 ecus and significantly reduced the site 's manufacturing costs . our capital spending included $ 69.6 million and $ 87.2 million for the st. gabriel , la facility conversion and expansion project in 2009 and 2008 , respectively . during the second and third quarters of 2009 , bills were introduced in the united states house of representatives and the senate , respectively , which , if enacted , would ban the production of chlor alkali products using mercury cell technology two years from the date it is enacted into law . on october 21 , 2009 , the house of representatives committee on energy and commerce passed a bill that would require chlor alkali producers using mercury cell technology to make a decision by june 30 , 2012 as to whether to shutdown or convert these facilities . if the decision was to convert , the mercury cell plants would have been required to be converted by june 30 , 2015. if the decision was not to convert , the plants would have been required to be shutdown by june 30 , 2013. for this bill to become law it would have had to be passed by the full house of representatives and the full senate . the proposed legislation expired without enactment at the end of 2010 and we are uncertain as to whether or not similar legislation may be proposed in the future . we currently operate two facilities which utilize mercury cell technology totaling approximately 360,000 ecus of capacity ( approximately 18 % of our capacity ) . we operate our mercury cell facilities in full compliance with all environmental rules and regulations . on december 9 , 2010 , our board of directors approved a plan to convert the 260,000 tons of mercury cell capacity at our charleston , tn facility to 200,000 tons of membrane capacity capable of producing both potassium hydroxide and caustic soda . the board of directors also approved a plan to reconfigure our augusta , ga facility to manufacture bleach and distribute caustic soda , while discontinuing chlor alkali manufacturing at this site . we currently expect to complete these conversions by the end of 2012 .
| segment results we define segment results as income ( loss ) before interest expense , interest income , other operating income , other income ( expense ) , and income taxes and include the results of non-consolidated affiliates . consistent with the guidance in asc 280 “ segment reporting ” ( asc 280 ) , formerly sfas no . 131 , “ disclosures about segments of an enterprise and related information , ” ( sfas no . 131 ) , we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results . our management considers sunbelt to be an integral component of the chlor alkali products segment . they are engaged in the same business activity as the segment , including joint or overlapping marketing , management , and manufacturing functions . replace_table_token_6_th ( 1 ) earnings of non-consolidated affiliates are included in the chlor alkali products segment results consistent with management 's monitoring of the operating segment . the earnings from non-consolidated affiliates were $ 29.9 million , $ 37.7 million , and $ 39.4 million for the years ended 2010 , 2009 and 2008 , respectively . ( 2 ) the service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data . all other components of pension costs are included in corporate/other and include items such as the expected return on plan assets , interest cost and recognized actuarial gains and losses . pension income for the year ended december 31 , 2010 included a charge of $ 1.3 million associated with an agreement to withdraw our henderson , nv chlor alkali hourly workforce from a multi-employer defined benefit pension plan .
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in applying the two-class method , we determined that undistributed earnings ( loss ) should be allocated equally on a per share basis between story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the notes to those statements included in item 8 “ financial statements and supplemental data. ” this discussion contains forward-looking statements that involve risks and uncertainties . for a description of these forward-looking statements , refer to part i “ cautionary statement concerning forward-looking statements. ” a description of factors that could cause actual results to differ materially from the results we anticipate include , but are not limited to , those discussed in item 1a “ risk factors , ” as well as those discussed elsewhere in this annual report . overview mantech provides innovative technologies and solutions for mission-critical national security programs for the intelligence community ; the departments of defense , state , homeland security , health and human services , veteran affairs and justice , including the fbi ; the space communities ; and other u.s. government customers . we derive revenues primarily from contracts with u.s. government agencies that are focused on national security and consequently our operational results are affected by u.s. government spending levels in the areas of defense , federal health information technology ( it ) , intelligence and homeland security . over the last few years , financial performance in our industry has been adversely impacted by public and political pressure regarding government funding levels , uncertainty about the appropriations process and delays in contract awards and spending . the delays in contract awards in 2014 and the first half of 2015 have had continued impacts on our performance . in addition , as u.s. forces have withdrawn from afghanistan , revenues 22 from our contracts in support of overseas contingency operations ( oco ) have substantially declined over the past few years . oco work has leveled off in 2015 and we expect it to remain stable through 2016 . currently , industry conditions are beginning to improve and we believe we are well positioned to meet our customers ' needs and grow our business as we move beyond 2015 . despite improving conditions around funding , appropriations and contract award activities , our industry remains price sensitive . many of our customers continue to make contract awards based on lower cost as well as overall technical solutions . to ensure our cost structure remains competitive , we continually evaluate and adjust our levels of indirect spending to stay in line with the expected business opportunities . as such , we expect to maintain , as a percentage of revenue , a consistent level of general and administrative expenses . our strategy includes a focus on business development and bid and proposal spending on larger contract award opportunities , many in excess of $ 100 million . we believe our strong position as a prime contractor and our broad array of service offerings are a competitive advantage . during 2015 , we submitted approximately $ 5.1 billion in proposals , of which $ 3.8 billion were bid as a prime on the contract . in 2016 , we plan to expand our service offerings internationally , supporting allied governments with services similar to our federal government support . additionally , leveraging our strong balance sheet , we will continue to pursue acquisitions that broaden our domain expertise and service offerings and or establish relationships with new customers . since going public in 2002 , we have acquired and integrated 24 businesses into our operations . during 2015 , we acquired and integrated welkin associates , ltd. ( welkin ) and knowledge consulting group , inc. ( kcg ) . revenues substantially all of our revenues are derived from services and solutions provided to the u.s. government or to prime contractors supporting the u.s. government , including services provided by our employees and our subcontractors , and solutions that include third-party hardware and software that we purchase and integrate as a part of our overall solutions . customer requirements may vary from period-to-period depending on specific contract and customer requirements . the following table shows revenues from each type of customer as a percentage of total revenues for the periods presented . replace_table_token_2_th our prime contractor revenues as a percentage of our total revenues were 88 % , 89 % and 91 % for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we provide our services and solutions under three types of contracts : cost-reimbursable ; time-and-materials ; and fixed-price . cost-reimbursable contracts -under cost-reimbursable contracts , we are reimbursed for costs that are determined to be reasonable , allowable and allocable to the contract and paid a fee representing the profit margin negotiated between us and the contracting agency , which may be fixed or performance based . under cost-reimbursable contracts we recognize revenues and an estimate of applicable fees earned as costs are incurred . we consider fixed fees under cost-reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . for performance based fees under cost-reimbursable contracts , we recognize the relevant portion of the expected fee to be awarded by the customer at the time such fee can be reasonably estimated , based on factors such as our prior award experience and communications with the customer regarding performance , or upon customer approval . fixed-price contracts -under fixed-price contracts , we perform specific tasks for a fixed price . fixed-price contracts may include either a product delivery or specific service performance over a defined period . revenues on fixed-price contracts that provide for the company to render services throughout a period are recognized as earned according to contract terms as the service is provided on a proportionate performance basis . story_separator_special_tag goodwill impairment during the fourth quarter of 2013 , multiple events and circumstances indicated a significant reduction in the operating performance outlook of one of our reporting units . these events included being awarded fewer contracts than anticipated on several competitive opportunities , changing mission priorities of the u.s. government in relation to certain of our c4isr contracts and oco-related work ( primarily on maintenance and sustainment of mrap vehicles ) , continued delays in our customers ' procurement cycle due , in part , to the u.s. government shutdown , and continued margin pressure on some of our contracts . the culmination of these events led us to conduct an interim impairment analysis on the impacted reporting unit . as a result of this analysis , we recorded a non-cash impairment charge of $ 118.4 million for the period ending december 31 , 2013. loss on extinguishment of debt on april 15 , 2014 , we paid the redemption price plus accrued and unpaid interest on our 7.25 % senior unsecured notes . the 7.25 % senior unsecured notes were redeemed at a redemption price of 103.625 % of the principal amount of the outstanding 7.25 % senior unsecured notes , or $ 207.3 million . as a result of the redemption of our 7.25 % senior unsecured notes , we recorded a loss on the extinguishment of debt for $ 10.1 million for the year ended december 31 , 2014. interest expense the decrease in interest expense was primarily due to the redemption of the 7.25 % senior unsecured notes on april 15 , 2014 . provision for income taxes our effective tax rate is affected by recurring items , such as tax rates and the relative amount of income we earn in various taxing jurisdictions . it is also affected by discrete items that may occur in any given year , but are not consistent from year-to-year . our effective income tax rates were 40.0 % and 208.0 % for the years ended december 31 , 2014 and 2013 , respectively . the decrease in the effective tax rate is due to the non-deductible portion of the non-cash goodwill impairment charge in 2013. absent the effects of the goodwill impairment change in 2013 , our effective tax rate increased . this increase is largely driven by a reduction of work performed outside the u.s. , which increased the proportion of our income apportioned to state jurisdictions . in addition , 2013 contained a one time tax basis deduction on an investment . equity in losses of unconsolidated subsidiaries equity in losses of unconsolidated subsidiaries represents earnings or losses from joint ventures that we account for under the equity method . the losses are primarily due to bid and proposal expenditures of our fluor-mantech logistics solutions , llc joint venture . backlog for the years ended december 31 , 2015 , 2014 and 2013 our backlog was $ 4.1 billion , $ 3.3 billion and $ 3.9 billion , respectively , of which $ 1.0 billion , $ 0.8 billion and $ 1.1 billion , respectively , was funded backlog . the increase in our backlog is due to our receipt of new awards in 2015 . backlog represents estimates that we calculate on a consistent basis . for additional information on how we compute backlog , see “ backlog ” in item 1 “ business. ” liquidity and capital resources historically , our primary liquidity needs have been the financing of acquisitions , working capital , payment under our cash dividend program and capital expenditures . our primary sources of liquidity are cash provided by operations and our revolving credit facility . on december 31 , 2015 , our cash and cash equivalents balance was $ 41.3 million . there were no outstanding borrowings under our revolving credit facility at december 31 , 2015 . at december 31 , 2015 , we were contingently liable under letters of credit totaling $ 19.2 million , which reduced our ability to borrow under our revolving credit facility by that amount . the maximum available borrowings under our revolving credit facility at december 31 , 2015 were $ 480.8 million . on april 15 , 2014 , we paid the redemption price plus accrued and unpaid interest on our 7.25 % senior unsecured notes . the 7.25 % senior unsecured notes were redeemed at a redemption price of 103.625 % of the principal amount of the outstanding 7.25 % senior unsecured notes , or 28 $ 207.3 million . generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to fluctuations in our cash flows and level of operations , it may become necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . cash flows from operating activities our operating cash flow is primarily affected by our ability to invoice and collect from our clients in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . our accounts receivable days sales outstanding ( dso ) were 68 and 83 for the years ended december 31 , 2015 and 2014 , respectively . this improvement is due to efficiencies made in our billing processes and a greater focus on collections . in 2016 , we expect dso levels to remain consistent with 2015 levels . for the years ended december 31 , 2015 , 2014 and 2013 , our net cash flows from operating activities were $ 153.9 million , $ 126.9 million and $ 188.3 million , respectively . the increase in net cash flows from operating activities during the year ended december 31 , 2015 when compared to the same period in 2014 was primarily due to significant improvements in our dso , our ability to manage vendor payments and higher net income .
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 consolidated statements of income the following table sets forth certain items from our consolidated statements of income and the relative percentages that certain items of expense and earnings bear to revenues as well as the year-over-year change from december 31 , 2014 to december 31 , 2015 . replace_table_token_4_th revenues the primary driver of our decrease in revenues relates to reduced requirements supporting c4isr systems and mine-resistance ambush-protected ( mrap ) vehicles to the u.s. army , including , reductions in oco as a result of the withdrawal of u.s. forces and reduction in military operations in afghanistan . additionally , revenues were impacted by reductions in scope or contracts that ended . these reductions were partially offset by revenues from our acquisitions and new contract awards . cost of services the decrease in cost of services was primarily due to reductions in revenues . as a percentage of revenues , direct labor costs increased to 48.7 % for the year ended december 31 , 2015 , as compared to 43.4 % for the same period in 2014 , due to the higher 25 labor content on our core non-oco contracts and a focus on performing more services with our own personnel versus subcontractors . as a percentage of revenues , other direct costs , which include subcontractors and third party equipment and materials used in the performance of our contracts , decreased to 36.5 % for the year ended december 31 , 2015 , compared to 42.5 % for the same period in 2014 , primarily due to reduced levels of subcontracting . we expect cost of services as a percentage of revenues to remain relatively stable or increase slightly in 2016 . general and administrative expenses the decrease in general and administrative expenses was due to cost reduction measures .
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the following table sets forth a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share for the periods presented ( in thousands , except per share data ) : replace_table_token_19_th ( 2 ) business combinations acquisition accounted for between entities under common control in october 2012 , we completed the acquisition of linc whereby each outstanding share of linc common stock was converted into the right to receive consideration consisting of 0.700 of a share of common stock of the company and cash in lieu of fractional shares . this resulted in the issuance of 14,527,332 shares of the company 's common stock . our majority shareholders story_separator_special_tag overview we are a leading asset-light provider of customized transportation and logistics solutions throughout the united states , mexico and canada . in october 2012 , we acquired linc logistics company ( linc ) . universal and linc were under common control , and as such , the financial statements of universal have been retrospectively revised to reflect the accounts of linc as if they had been consolidated for all previous periods . the acquisition significantly enhanced our position as a leading provider of third party transportation , value-added and intermodal services . we provide a comprehensive suite of transportation and logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently . we market our services through a direct sales and marketing network focused on selling our portfolio of transportation logistic services to large customers in specific industry sectors , through a contract network of agents who solicit freight business directly from shippers , and through company-managed terminals and full service freight forwarding and customs house brokerage offices . our network of agents and owner-operators is located throughout the united states and in the canadian provinces of ontario and quebec , and we operate , manage or provide transportation services at 76 logistics locations in the united states , mexico and canada . 19 facilities are located inside customer plants or distribution operations ; the other facilities are generally located close to our customers ' plants to optimize the efficiency of their component supply chains and production processes . our facilities and services are often directly integrated into the production processes of our customers and represent a critical piece of their supply chains . to support our asset-light business model , we generally try to coordinate the length of real estate leases associated with our value-added services with the end date of the related customer contract associated with such facility , or use month-to-month leases , in order to mitigate exposure to unrecovered lease costs . we offer our customers a wide range of transportation services by utilizing a diverse fleet of tractors and trailing equipment provided by us , our owner-operators and third-party transportation companies . our owner-operators provided us with approximately 3,370 tractors and 3,100 trailers . we own approximately 730 tractors , 3,200 trailers , 840 chassis and 800 containers . our agents and owner-operators are independent contractors who earn a fixed commission calculated as a percentage of the revenue or gross profit they generate for us and who bring an entrepreneurial spirit to our business . our transportation services are provided through a network of both union and non-union employee drivers , owner-operators , contract drivers , and third-party transportation companies . we employ 2,519 people in the united states , mexico and canada , including 714 employees subject to collective bargaining agreements . we also engaged staffing contract vendors to supply an average of 2,182 additional personnel on a full-time-equivalent basis . our use of agents , owner-operators , third-party providers and contract staffing vendors allows us to maintain both a highly flexible cost structure and a scalable business operation , while reducing investment requirements . these benefits are passed on to our customers in the form of cost savings and increased operating efficiency , while enhancing our cash generation and the returns on our invested capital and assets . we believe that our flexible business model also offers us substantial opportunities to grow through a mixture of organic growth and acquisitions . we intend to continue our organic growth by recruiting new agents and owner-operators , expanding into new industry verticals and targeting further penetration of our key customers . we believe our integrated suite of transportation and logistics services , our network of facilities in the united states , mexico and canada , our long-term customer relationships and our reputation for operational excellence will allow us to capitalize on these growth opportunities . we also expect to continue to make strategic acquisitions of companies that complement our asset light business model , as well as companies that derive a portion of their revenues from asset based operations . 37 in january 2010 , we acquired cavalry transportation , llc and cavalry logistics , llc , or cavalry , based in nashville , tennessee , for approximately $ 2.7 million . cavalry offers fully integrated transportation resources designed to maximize value for its customers through logistic solutions in intermodal , truckload , and less-than-truckload transportation options . cavalry operates as a wholly-owned subsidiary of universal truckload services , inc. in january 2010 , we acquired certain assets of tsd transportation l.p. , or tsd , based in texarkana , texas , for approximately $ 0.7 million . included in the purchase price was approximately $ 0.4 million of additional consideration estimated to be paid to the former owners of tsd based on a percentage of revenues generated through december 31 , 2011. tsd operates as part of louisiana transportation , inc. in march 2011 , we acquired certain assets of hart transportation , inc. , or hart , based in jacksonville , florida for approximately $ 1.4 million . hart is primarily a regional provider of van and flatbed services throughout the southeastern united states . story_separator_special_tag our transportation services provided by company owned equipment depend on the availability and pricing of diesel fuel . although we often include fuel surcharges in our billing to customers to offset increases in fuel costs , other operating costs have been , and may continue to be , impacted by fluctuating fuel prices . we recognize these expenses as they are incurred and the rental income as it is earned . occupancy expense . occupancy expense includes all costs related to the lease and tenancy of terminals and operating facilities , except utilities , unless such costs are otherwise covered by our customers . although occupancy expense is generally related to fluctuations in overall customer demand , our contracting and pricing strategies help mitigate the cost impact of changing production volumes . to minimize potential exposure to inactive or underutilized facilities that are dedicated to a single customer , we strive where possible to enter into lease agreements that are coterminous with individual customer contracts , and we seek contract pricing terms that recover fixed occupancy costs , regardless of production volume . occupancy expense may also includes certain lease termination and related occupancy costs that are accelerated for accounting purposes into the fiscal year in which such a decision was implemented . selling , general and administrative expense . selling , general and administrative expense includes the salaries , wages and benefits of sales and administrative personnel , related support costs , taxes ( other than income and property taxes ) , adjustments due to foreign currency transactions , bad debt expense , and other general expenses , including gains or losses on the sale or disposal of assets . these expenses are generally not directly related to 39 levels of operating activity and may contain non-recurring or one-time expenses related to general business operations . we recognize selling , general and administrative expense when it is incurred . insurance and claims . insurance and claims expense represents our insurance premiums and the accruals we make for claims within our self-insured retention amounts . our insurance premiums are generally calculated based on a mixture of a percentage of line-haul revenue and the size of our fleet . our accruals have primarily related to cargo and property damage claims . we may also make accruals for personal injuries and property damage to third parties , physical damage to our equipment , general liability and workers ' compensation claims if we experience a claim in excess of our insurance coverage . to reduce our exposure to non-trucking use liability claims ( claims incurred while the vehicle is being operated without a trailer attached or is being operated with an attached trailer which does not contain or carry any cargo ) , we require our owner-operators to maintain non-trucking use liability coverage , which we refer to as deadhead bobtail coverage , of $ 2.0 million per occurrence . our exposure to liability associated with accidents incurred by other third party providers who haul freight on our behalf is reduced by various factors including the extent to which they maintain their own insurance coverage . our insurance expense varies primarily based upon the frequency and severity of our accident experience , insurance rates , our coverage limits and our self-insured retention amounts . depreciation and amortization . depreciation and amortization expense relates primarily to the depreciation of owned tractors , trailers , computer and operating equipment , and buildings as well as the amortization of the intangible assets recorded for our acquired customer and agent relationships . we estimate the salvage value and useful lives of depreciable assets based on current market conditions and experience with past dispositions . story_separator_special_tag revenues , the decrease in commission expense is due to an increase in fuel surcharges , which are generally passed through to our owner-operators and increase in revenues generated by our company managed-locations and value-added services , and as such , no commissions are paid . operating expenses ( exclusive of items shown separately ) . operating expenses ( exclusive of items shown separately ) increased by $ 4.8 million , or 7.2 % , to $ 71.1 million for 2012 , compared to $ 66.3 million for 2011. as a percentage of operating revenues , other operating expenses ( exclusive of items shown separately ) increased to 6.9 % for 2012 from 6.7 % for 2011. these expenses include items such as fuel , maintenance , insurance , communications , utilities and other general expenses , and generally relate to fluctuations in customer demand . the increase is primarily due to an increase in repairs and maintenance costs of $ 1.7 million based on higher demand for transportation services and increased travel and entertainment of $ 0.6 million due increased business and full year operations of several of our value-added locations , as well as road show and ipo efforts of linc . additional elements of the increase in operating expenses ( exclusive of items shown separately ) include increases in utilities , permit costs and dock supplies . occupancy expense . occupancy expense increased by $ 0.9 million to $ 19.3 million for 2012 , compared to $ 18.4 million for 2011. the 4.9 % increase reflects the aggregate net impact of various changes in the number of operating locations , lease-based facility rents , adjustments in charges related to our reserve for plant closing costs , and in related charges , including property taxes . additionally , our operations included in the financial results for the full year of 2012 at leased facilities located in indiana and tennessee , as well as a new leased facility in texas . these increases were partially offset by lease rental rate reductions at facilities in indiana , kansas , mississippi and michigan , as well as the closing of our german operations in 2011. selling , general and administrative .
| results of operations in prior periods , we presented our individual operating segments as one reportable segment . in the fourth quarter of 2012 , we acquired linc and , on december 20 , 2012 , our board appointed a new chief executive officer , who has the responsibility to allocate resources and to assess the performance of our operating segments . certain integration activities in connection with our organizational design and our financial reporting system were not concluded as of december 31 , 2012. we concluded that linc should be reported separately from the operating segments that pre-dated the linc acquisition . linc 's operating revenues increased $ 18.7 million , or 6.4 % , to $ 309.6 million for 2012 from $ 290.9 million for 2011. the increase in operating revenues was primarily driven by increasing demand for value-added services at both new and existing customers , which was partially offset by decreases in our transportation volumes . income from operations in 2012 increased to $ 45.5 million , or 14.7 % expressed as a percentage of operating revenues , compared to $ 41.7 million , or 14.3 % in the same period last year . the increase in income from operations is the result of increased volumes . as a percentage of operating revenue , income from operations increased 36 basis points , which reflects linc 's highly variable cost structure .
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schlumberger revenue of $ 27.8 billion in 2016 represented a decrease of 22 % from 2015 , despite three quarters of activity from the acquired cameron group , which contributed $ 4.2 billion in revenue . excluding the cameron group , revenue declined 34 % . this revenue drop was due to continued weakness in exploration and production spending as a result of the deepest and longest industry crisis in more than 30 years . the year began with brent crude prices experiencing the sharpest fall in 30 years to $ 26 per barrel in january 2016 , thus continuing the downturn that the oil and gas industry endured during the previous year . given two successive years of investment cuts , oil supply growth slowed significantly despite record opec production . non-opec production fell sharply , largely due to a significant drop in us light tight oil production . however , robust global demand enabled the oil markets to tighten and draw down on the vast accumulation of crude and product stocks by mid-year . the year 's end was marked by opec and certain non-opec countries , including russia , agreeing to cut production by a combined 1.7 million barrels per day . these agreements are expected to accelerate the drawdown of stocks in 2017 and have subsequently spurred a recovery in oil prices , which reached $ 55 per barrel at the end of 2016. in the natural gas markets , us production declined during 2016 as a result of the drop in gas drilling activity , while demand growth was robust throughout the year . low gas prices during most of 2016 encouraged the power sector to continue to favor gas over coal . the year was also marked by the start-up of the sabine pass liquefied natural gas ( lng ) plant in texas , which exported its first shipment in early 2016 , thus starting a trend that should make the us the third largest exporter of lng by the end of 2020. europe continued to see modest demand growth due in part to coal plant retirements . gas prices , however , fell to a seven-year low as supplies from russia , norway and north africa reached record highs . the asian markets continued to be in slow growth mode , albeit with slight improvements in china . nonetheless , oversupply persisted as australian lng exports ramped up , driving lng prices down even further from the already low-levels of 2015. the global outlook for lng is largely unchanged , with continued oversupply and low prices . schlumberger 's financial performance in 2016 was severely impacted by the significant decrease in land-based activity , particularly in north america where the average land rig count dropped 46 % as compared to the previous year . supply overcapacity in the land market remained high for most of 2016 , resulting in pricing pressure across a broad range of oilfield services . as a result , north america revenue , excluding the impact of the cameron group , declined 48 % due to a decrease in us land revenue of 52 % . including the cameron group , north america revenue decreased 32 % . internationally , revenue declined 28 % , excluding the impact of cameron ( 17 % including the cameron group ) due to customer budget cuts , activity disruptions and a shift in revenue mix that impacted schlumberger 's results in most basins and market segments around the world . revenue in the europe , cis & africa area decreased due to lower demand for exploration and development-related products and services as e & p budgets were reduced , particularly in sub-saharan africa . in latin america , revenue declined due to customer budget constraints across the area and , more specifically , in venezuela where operations were scaled back to align with collections . middle east & asia revenue decreased primarily due to reduced activity in asia-pacific countries , while robust activity in the middle east was more than offset by pricing concessions . since the start of this downturn , and as it deepened during 2016 , schlumberger has navigated the commercial landscape by balancing pricing concessions and market share and also by proactively removing significant costs through workforce reductions , internal efficiency improvements and strong supply chain management . as a result , schlumberger has delivered superior financial results by maintaining pretax operating margins well above 10 % and delivering sufficient free cash flow to cover a range of strategic capital investments , as well as our ongoing dividend commitments . 14 after nine quarters of unprecedented activity decline , the business environment stabilized in the third quarter of 2016 and revenue increased slightly in the fourth quarter , suggesting that the bottom of this cycle has been reached . schlumberger expects the growth in e & p investments in 2017 to be led initially by land operators in north america . e & p spending surveys currently indicate that 2017 e & p investments in north america will increase by approximately 30 % , which should lead to both higher activity and a recovery in service industry pricing . schlumberger expects the 2017 recovery in the international markets to proceed more slowly than in north america . this will likely lead to a third successive year of underinvestment , with a continued low rate of new project approvals and an accelerating production decline in the aging production base . these factors taken together are increasing the likelihood of a significant supply deficit in the medium term , which can only be avoided by a broad-based global increase in e & p spending , which is expected to start unfolding in the later parts of 2017 and leading into 2018. fourth quarter 2016 results replace_table_token_4_th ( 1 ) comprised principally of certain corporate expenses not allocated to the segments , stock-based compensation costs , amortization expense associated with certain intangible assets , certain centrally managed initiatives and other nonoperating items . story_separator_special_tag production group full-year 2016 revenue of $ 8.7 billion decreased 29 % year-on-year with most of the decrease attributable to a decline in north america , particularly on well services pressure pumping technologies driven by activity declines and pricing pressure as the land rig count declined dramatically . year-on-year , pretax operating margin decreased 669 bps to 6 % as a result of lower activity and increasing pricing pressure , which continued to impact north america land . cameron group cameron group contributed nine-month revenue of $ 4.2 billion and pretax operating margin of 16 % . revenue was impacted by a declining project backlog as well as a further slowdown in north america land activity , which also affected the short-cycle businesses of the valves & measurement and surface product lines . pretax operating margin of 16 % was driven by strong project execution and manufacturing efficiency in onesubsea and overall cost control across the group . 17 full-year 2015 story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > % in 201 6 , 20.2 % in 201 5 and 21.9 % in 201 4 . the decrease in the effective tax rate , excluding the impact of charges and credits , was primarily attributable to a change in the geographic mix of earnings and the favorable resolution of tax examinations in certain jurisdictions . it is expected that the effective tax rate will gradually increase over the course of 2017 as a result of the expected improvement in activity in north america . charges and credits schlumberger recorded significant charges and credits in continuing operations during 2016 , 2015 and 2014. these charges and credits , which are summarized below , are more fully described in note 3 to the consolidated financial statements . the following is a summary of the 2016 charges and credits , of which $ 3.172 billion were classified as impairments & other and $ 648 million were classified as merger & integration in the consolidated statement of income : replace_table_token_9_th the following is a summary of the 2015 charges and credits , all of which were classified as impairments & other in the consolidated statement of income : replace_table_token_10_th 20 the following is a summary of the 2014 charges and credits , all of which were classified as impairments & other in the consolidated statement of income : replace_table_token_11_th liquidity and capital resources schlumberger had total cash , short-term investments and fixed income investments , held to maturity of $ 9.5 billion , $ 13.5 billion and $ 7.9 billion at december 31 , 2016 , 2015 and 2014 , respectively . total debt was $ 19.6 billion , $ 19.0 billion and $ 13.3 billion at december 31 , 2016 , 2015 and 2014 , respectively . details of the components of liquidity as well as changes in liquidity follows : replace_table_token_12_th 21 ( 1 ) “ net debt ” represents gross debt less cash , short-term investments and fixed income investments , held to maturity . management believes that net debt provides useful information regarding the level of schlumberger 's indebtedness by reflecting cash and investments that could be used to repay d ebt . net debt is a non-gaap financial measure that should be considered in addition to , not as a substitute for , or superior to , total debt . ( 2 ) includes depreciation of property , plant and equipment and amortization of intangible assets , multiclient seismic data costs and spm investments . ( 3 ) includes severance payments of approximately $ 850 million during 2016 and $ 810 million during 2015 . ( 4 ) “ free cash flow ” represents cash flow from operations less capital expenditures , spm investments and multiclient seismic data costs capitalized . management believes that free cash flow is an important liquidity measure for the company and that it is useful to investors and management as a measure of the ability of our business to generate cash . once business needs and obligations are met , this cash can be used to reinvest in the company for future growth or to return to shareholders through dividend payments or share repurchases . free cash flow does not represent the residual cash flow available for discretionary expenditures . free cash flow is a non-gaap financial measure that should be considered in addition to , not as substitute for , or superior to , cash flow from operations . ( 5 ) refer to note 20 to the consolidated financial statements for details . key liquidity events during 2016 , 2015 and 2014 included : cash flow from operations was $ 6.3 billion in 2016 , $ 8.8 billion in 2015 and $ 11.2 billion in 2014. the decrease in operating cash flows in each of the last two years is largely attributable to lower earnings before non-cash charges and credits and depreciation and amortization expense . schlumberger paid $ 2.8 billion of cash in connection with the april 1 , 2016 acquisition of cameron . additionally , as a result of the acquisition of cameron , schlumberger assumed $ 3.0 billion of debt ( including a $ 244 million adjustment to increase cameron 's long-term fixed rate debt to its estimated fair value ) and $ 2.2 billion of cash and short-term investments . during the second quarter of 2016 , schlumberger repurchased approximately $ 1.4 billion of cameron 's long-term fixed-rate debt . in connection with schlumberger 's acquisition of cameron , cameron merged with schlumberger holdings corporation ( shc ) , an indirect wholly-owned united states subsidiary of schlumberger . under the terms of the agreement , cameron shareholders received 0.716 shares of schlumberger limited common stock and a cash payment of $ 14.44 in exchange for each cameron share of common stock outstanding . in connection with this transaction , shc acquired approximately 138 million shares of common stock from schlumberger limited and transferred those shares to cameron 's shareholders .
| results replace_table_token_6_th ( 1 ) comprised principally of certain corporate expenses not allocated to the segments , stock-based compensation costs , amortization expense associated with certain intangible assets , certain centrally managed initiatives and other nonoperating items . ( 2 ) excludes interest income included in the segments ' income ( 2015 : $ 22 million ; 2014 : $ 20 million ) . ( 3 ) excludes interest expense included in the segments ' income ( 2015 : $ 30 million ; 2014 : $ 22 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . full-year 2015 revenue of $ 35.5 billion decreased 27 % year-on-year . this decrease was primarily due to customer budget cuts and pricing concessions as customers responded to lower commodity prices . revenue was also impacted by the fall of certain currencies against the us dollar , which accounted for approximately 20 % of the revenue decline . full-year 2015 revenue from the reservoir characterization and drilling groups declined by 27 % and 25 % , respectively , as a result of lower demand as e & p budgets were reduced due to lower commodity prices . production group revenue fell by 29 % due to activity reductions and pricing pressure as the land rig count dropped drastically in north america . full-year 2015 pretax operating income margin decreased 342 bps to 18 % as a result of the overall decline in activity combined with the pricing pressure which most notably impacted the businesses in north america . reservoir characterization group full-year 2015 revenue of $ 9.7 billion was 27 % lower than the same period last year primarily due to sustained customer cuts in exploration and discretionary spending that impacted all technologies .
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to restore a nonaccrual loan that has been formally restructured in a tdr to accrual status , we perform a current , well documented credit analysis supporting a return to accrual status based on the borrower 's financial condition and prospects for repayment under the revised terms . otherwise , the tdr must remain in nonaccrual status . the analysis considers the borrower 's sustained historical repayment performance for a reasonable period to story_separator_special_tag the following discussion is intended to assist readers in understanding and evaluating the financial condition , changes in financial condition and the results of operations of the company , consisting of the parent company and its wholly-owned subsidiary , the bank . this discussion should be read in conjunction with the consolidated financial statements and other financial information contained elsewhere in this report . caution about forward-looking statements in addition to historical information , this report may contain forward-looking statements . for this purpose , any statement , that is not a statement of historical fact may be deemed to be a forward-looking statement . these forward-looking statements may include statements regarding profitability , liquidity , allowance for loan losses , interest rate sensitivity , market risk , growth strategy and financial and other goals . forward-looking statements often use words such as “ believes , ” “ expects , ” “ plans , ” “ may , ” “ will , ” “ should , ” “ projects , ” “ contemplates , ” “ anticipates , ” “ forecasts , ” “ intends ” or other words of similar meaning . you can also identify them by the fact that they do not relate strictly to historical or current facts . forward-looking statements are subject to numerous assumptions , risks and uncertainties , and actual results could differ materially from historical results or those anticipated by such statements . there are many factors that could have a material adverse effect on the operations and future prospects of the company including , but not limited to : · changes in assumptions underlying the establishment of allowances for loan losses , and other estimates ; · the risks of changes in interest rates on levels , composition and costs of deposits , loan demand , and the values and liquidity of loan collateral , securities , and interest sensitive assets and liabilities ; · the effects of future economic , business and market conditions ; · legislative and regulatory changes , including the dodd-frank wall street reform and consumer protection act and other changes in banking , securities , and tax laws and regulations and their application by our regulators , and changes in scope and cost of fdic insurance and other coverages ; · our inability to maintain our regulatory capital position ; · the company 's computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error , malfeasance , or other disruptions despite security measures implemented by the company ; · changes in market conditions , specifically declines in the residential and commercial real estate market , volatility and disruption of the capital and credit markets , soundness of other financial institutions we do business with ; · risks inherent in making loans such as repayment risks and fluctuating collateral values ; · changes in operations of village bank mortgage corporation as a result of the activity in the residential real estate market ; · exposure to repurchase loans sold to investors for which borrowers failed to provide full and accurate information on or related to their loan application or for which appraisals have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor ; · governmental monetary and fiscal policies ; · changes in accounting policies , rules and practices ; · reliance on our management team , including our ability to attract and retain key personnel ; · competition with other banks and financial institutions , and companies outside of the banking industry , including those companies that have substantially greater access to capital and other resources ; · demand , development and acceptance of new products and services ; · problems with technology utilized by us ; 20 · changing trends in customer profiles and behavior ; and · other factors described from time to time in our reports filed with the sec . these risks and uncertainties should be considered in evaluating the forward-looking statements contained herein , and readers are cautioned not to place undue reliance on such statements . any forward-looking statement speaks only as of the date on which it is made , and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made . in addition , past results of operations are not necessarily indicative of future results . general the company 's primary source of earnings is net interest income , and its principal market risk exposure is interest rate risk . the company is not able to predict market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the company 's results of operations and financial condition . because the company intentionally decreased assets for the three years prior to 2016 as it was resolving problem assets and attempting to improve capital ratios , as well as declines in yields on earning assets , net interest income declined from $ 13,018,000 in 2014 to $ 12,637,000 in 2015. with improved capital ratios and asset quality in 2016 , the company 's asset strategy changed to one of growth , with interest earning assets increasing by $ 7,765,000. this increase in interest earning assets as well as an increase of 0.05 % ( 5 basis points ) on their yield , combined with a decline in interest bearing liabilities of $ 11,365,000 and a 0.05 % ( 5 basis points ) decline in their cost , increased net interest income to $ 13,380,000 story_separator_special_tag the general component allocated to this portfolio declined primarily as a result of the historical net recovery of 0.27 % at december 31 , 2014. also contributing to the declines in the general component were declines of approximately $ 1,643,000 and $ 12,945,000 in the outstanding loan balance of this portfolio at december 31 , 2014 and 2013 , respectively . · the recovery of loan losses totaling $ 730,000 and $ 866,000 for the commercial real estate portfolio at december 31 , 2016 and 2015 , respectively , was also attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio . the general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 0.96 % in 2014 to 0.57 % in 2015 and to 0.20 % in 2016. in addition , net charge-offs on this portfolio decreased from $ 1,220,000 in 2014 to $ 90,000 in 2015 and to a net recovery of $ 111,000 in 2016 . · the recovery of loan losses totaling $ 1,143,000 for the consumer real estate portfolio in 2015 was also attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio . the general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 1.36 % in 2014 to 0.24 % in 2015 and to .0022 % in 2016. in addition , net charge-offs on this portfolio decreased from $ 562,000 in 2014 to a recovery of $ 215,000 in 2015. noninterest income noninterest income includes service charges and fees on deposit accounts , fee income related to loan origination , gains and losses on sale of mortgage loans and securities held for sale , and rental income primarily on our previous headquarters building . over the last three years the most significant noninterest income item has been gain on loan sales generated by the mortgage company , representing 59 % in 2016 , 60 % in 2015 , and 56 % in 2014 of total noninterest income . noninterest income amounted to $ 10,850,000 in 2016 , $ 10,058,000 in 2015 , and $ 7,889,000 in 2014. replace_table_token_10_th · the increase in gain on sale of loans is due to increased activity by our mortgage banking segment as the mortgage market was more favorable in the latter half of 2016. the gain on sale is recognized at the date of sale to the investor and mortgage loan sales increased from $ 208,479,000 in 2015 to $ 218,627,000 in 2016 . · the gain on sale of assets in 2016 relates to the sale of our previous headquarters building and was a onetime event . · the gain on investment securities resulted from management 's efforts to reduce interest rate risk in our investment portfolio by selling longer duration securities . · the decline in rental income is a result of the sale of our previous headquarters building in june 2016 that generated rental income from nonrelated entities . 28 · the increase in other income is primarily due to a gain of $ 266,000 from a bank owned life insurance claim . replace_table_token_11_th · the increase in service charges and fees is due to increases from : o commercial banking segment ( $ 177,000 ) – more product offerings to our customers . o mortgage banking segment ( $ 98,000 ) – increased lending activity resulting from an improvement in the mortgage lending market . · the gain on sale of loans is also due to improvement in the mortgage lending market . the gain on sale is recognized at the date of sale to the investor and mortgage loan sales increased from $ 162,983,000 in 2014 to $ 208,479,000 in 2015 . · the gain on sale of investment securities resulted from management 's efforts to reduce interest rate risk in 2014 by selling longer duration securities . · the increase in rental income was a result of moving the company 's headquarters and leasing the vacated space to unrelated entities . noninterest expense noninterest expense includes all expenses of the company with the exception of interest expense on deposits and borrowings , provision for loan losses and income taxes . some of the primary components of noninterest expense are salaries and benefits , occupancy and equipment costs and expenses related to foreclosed real estate . over the last three years , the most significant noninterest expense item has been salaries and benefits including commissions , representing 59 % , 52 % , and 54 % of noninterest expense in 2016 , 2015 and 2014 , respectively . noninterest expense increased from $ 21,844,000 in 2014 to $ 24,049,000 in 2015 , and decreased to $ 21,889,000 in 2016 . 29 replace_table_token_12_th · the increase in salaries and benefits was due to staffing changes in key management positions . · occupancy declined due to the sale of our previous headquarters building in june 2016 . · write down of assets held for sale decreased due to write downs in 2015 associated with the headquarters building . the building was sold in june 2016 for a gain of $ 504,000 . · cease use lease obligation is due to recording a loss related to consolidating two branches . · costs associated with foreclosed assets increased due to gains on sale in 2015 as we disposed of these assets . we did not have similar gains in 2016 . · the decrease in the fdic insurance premium was due to the improvement in the bank 's risk rating with the fdic based on the removal of the consent order in december 2015. replace_table_token_13_th · the increase in salaries and benefits was due primarily to an increase in stock based compensation . 30 · commissions increased due to an increase in the activity of our mortgage banking segment .
| summary we recorded net income of $ 13,513,000 and net income available to common shareholders of $ 12,776,000 or $ 8.99 in 2016 compared to income of $ 646,000 and net income available to common shareholders of $ 6,591,000 or $ 5.49 per fully diluted share in 2015 and a net loss of $ 1,037,000 and a net loss available to common shareholders of $ 2,473,000 , or $ ( 7.39 ) per fully diluted share , in 2014. net income and net income available to common shareholders for the year ended december 31 , 2016 were positively impacted by the reversal in the third quarter of 2016 of an $ 11,997,000 valuation allowance previously recorded against the net deferred tax asset . netting this reversal against income tax expense for 2016 of $ 825,000 resulted in an income tax benefit of $ 11,172,000 for the year ended december 31 , 2016. net income available to common shareholders for the year ended december 31 , 2015 was positively impacted by the forgiveness of principal and dividends on preferred stock amounting to $ 6,619,000 associated with the rights offering to shareholders and concurrent standby offering completed in march 2015 . 22 there were significant changes in income and expense items when comparing the 2016 and 2015 results and 2015 to 2014. these changes are listed in the following table ( in thousands ) : replace_table_token_3_th net interest income net interest income , which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities , is the company 's primary source of earnings . net interest income can be affected by changes in market interest rates as well as the level and composition of assets , liabilities and shareholders ' equity . net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities .
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because most of our businesses sell or distribute energy products used in large part for heating purposes , our results are significantly influenced by temperatures in our service territories , particularly during the heating-season months of october through march . as a result , our earnings , after adjusting for the effects of gains and losses on derivative instruments not associated with current period transactions as further discussed below , are significantly higher in our first and second fiscal quarters . ugi management uses “ adjusted net income attributable to ugi corporation ” and “ adjusted diluted earnings per share , ” both of which are non-gaap financial measures , when evaluating ugi 's overall performance . management believes that these non-gaap measures provide meaningful information to investors . adjusted net income attributable to ugi corporation excludes ( 1 ) net after-tax gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions and ( 2 ) other significant discrete items that management believes affect the comparison of period-over-period results ( as such items are further described below ) . ugi does not designate its commodity and certain foreign currency derivative instruments as hedges under u.s. generally accepted accounting principles ( “ gaap ” ) . volatility in net income attributable to ugi corporation as determined in accordance with gaap can occur as a result of gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions . these gains and losses result principally from recording changes in unrealized gains and losses on these derivative instruments . gaap net income includes after-tax gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions . however , because these derivative instruments economically hedge anticipated future purchases or sales of energy commodities or , in the case of certain foreign currency derivatives , reduce volatility in anticipated future earnings associated with our foreign operations , we expect that such gains and losses will be largely offset by gains or losses on anticipated future energy commodity transactions or mitigate the volatility in anticipated future earnings . for further information , see note 21 to consolidated financial statements , and “ non-gaap financial measures - adjusted net income attributable to ugi and adjusted earnings per diluted share ” below . executive overview net income attributable to ugi corporation by business unit ( gaap ) replace_table_token_7_th ( 1 ) corporate & other includes net after-tax gains ( losses ) on commodity derivative instruments not associated with current-period transactions of $ 51.2 million , $ 29.9 million and $ ( 53.3 ) million in fiscal 2017 , fiscal 2016 and fiscal 2015 , respectively . fiscal 2017 also includes $ 13.9 million of after-tax unrealized losses on certain foreign currency derivative instruments . fiscal 2017 financial review for the second year in a row , our domestic business units were faced with challenging operating environments caused by significantly warmer than normal weather . our geographic diversity typically reduces the risk of extreme weather variations across the united states and our european lpg operations . however in our domestic businesses , fiscal 2017 , much like fiscal 2016 , was unusual in that a substantial portion of the u.s. experienced temperatures based upon heating degree days that were significantly warmer than normal . although fiscal 2017 temperatures based upon heating degree days were slightly colder than in fiscal 2016 , temperatures in the critical heating season months of january and february were much warmer than the prior year . average temperatures at our ugi international operations in europe were slightly warmer than normal but colder than the very warm temperatures experienced in fiscal 2016. notwithstanding the strong headwinds created by this warm weather , ugi achieved record gaap and adjusted net income attributable to ugi ( for further information on adjusted net income and adjusted diluted 31 earnings per share , see “ non-gaap financial measures - adjusted net income attributable to ugi and adjusted earnings per diluted share ” below ) . this positive outcome was achieved in part due to contributions from recent investments , growth initiatives and the ugi gas base rate case increase that became effective in october 2016. as previously mentioned , our ugi international business experienced weather in fiscal 2017 that was slightly warmer than normal but colder than in fiscal 2016. expenses associated with the integration of french lpg retail distributor finagaz , which we acquired in may 2015 , were higher in fiscal 2017 reflecting substantial progress with our integration activities in our bulk and cylinder businesses . the higher fiscal 2017 costs associated with these integration activities were offset in large part by the ramping up of expense synergies from these integration activities . a significant portion of the finagaz integration activities and related integration expenses are now behind us , and we expect to see the continuing synergistic benefits from these integration activities in our future operating results . although ugi international retail volumes were higher as a result of the colder weather , fiscal 2017 results at ugi international were negatively affected by the absence of a significant margin parachute experienced in the prior year resulting from rapidly declining lpg commodity prices in fiscal 2016. ugi international fiscal 2017 results also reflect a decrease in net deferred income tax liabilities of $ 29.0 million resulting from a change in the french corporate income tax rate enacted in december 2016 that will become effective in fiscal 2021. our ugi utilities segment experienced a significant increase in earnings as a result of higher base rates at ugi gas , organic customer growth and incremental revenues from distribution system improvements through distribution system improvement charges ( “ dsic ” ) . as a result , ugi utilities net income increased nearly 20 % in fiscal 2017. midstream & marketing results were about equal to last year . story_separator_special_tag non-gaap financial measures - adjusted net income attributable to ugi and adjusted earnings per diluted share adjusted net income ( loss ) attributable to ugi corporation by business unit ( non-gaap ) replace_table_token_8_th as previously mentioned , ugi management uses “ adjusted net income attributable to ugi corporation ” and “ adjusted diluted earnings per share , ” both of which are non-gaap financial measures , when evaluating ugi 's overall performance . adjusted net income attributable to ugi corporation is net income attributable to ugi after excluding net after-tax gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions ( principally comprising changes in unrealized gains and losses ) , losses on extinguishments of debt , finagaz integration and acquisition expenses , and the impact on net deferred income taxes from a change in the french tax rate . for further information on the company 's accounting for commodity and certain foreign currency derivative instruments , see note 2 and note 17 to consolidated financial statements . non-gaap financial measures are not in accordance with , or an alternative to , gaap and should be considered in addition to , and not as a substitute for , the comparable gaap measures . management believes that these non-gaap measures provide meaningful information to investors about ugi 's performance because they eliminate the impact of gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions and other significant discrete items that can affect the comparison of period-over-period results . the following tables reconcile net income attributable to ugi corporation , the most directly comparable gaap measure , to adjusted net income attributable to ugi corporation and reconcile diluted earnings per share , the most comparable gaap measure , 33 to adjusted diluted earnings per share , to reflect the adjustments referred to above for fiscal 2017 , fiscal 2016 and fiscal 2015 ( amounts in millions , except per share amounts ) . replace_table_token_9_th 34 replace_table_token_10_th 35 replace_table_token_11_th ( a ) income taxes associated with pre-tax adjustments determined using statutory business unit tax rates . ( b ) includes the effects of rounding . ( c ) costs associated with an extinguishment of debt at antargaz are included in “ interest expense ” on the consolidated statements of income . 36 results of operations the following analyses compare the company 's results of operations for ( 1 ) fiscal 2017 with fiscal 2016 and ( 2 ) fiscal 2016 with fiscal 2015 . fiscal 2017 compared with fiscal 2016 consolidated results net income attributable to ugi corporation by business unit : replace_table_token_12_th ( a ) includes net after-tax losses of $ 9.6 million and $ 7.9 million from extinguishments of debt in fiscal 2017 and fiscal 2016 , respectively ( see note 5 to consolidated financial statements ) . ( b ) fiscal 2017 includes beneficial impact of a $ 29.0 million adjustment to net deferred income tax liabilities associated with a change in french income tax rate , the release of a $ 7.6 million valuation allowance against future uses of foreign tax credit carryforwards and an income tax settlement refund of $ 6.7 million , plus interest , in france ( see note 6 to consolidated financial statements ) . ( c ) includes after-tax integration expenses associated with finagaz of $ 26.2 million and $ 17.3 million in fiscal 2017 and fiscal 2016 , respectively . ( d ) includes net after-tax gains on commodity derivative instruments not associated with current-period transactions of $ 51.2 million and $ 29.9 million in fiscal 2017 and fiscal 2016 , respectively . fiscal 2017 also includes $ 13.9 million of after-tax unrealized losses on certain foreign currency derivative instruments . ( e ) fiscal 2017 includes a $ 7.1 million after-tax loss from the impairment of a cost basis investment ( see note 2 to consolidated financial statements ) . n.m. — variance is not meaningful . story_separator_special_tag style= '' padding-top:4px ; font-family : times new roman ; font-size:10pt ; '' > ( c ) fiscal 2017 excludes net pre-tax unrealized losses on certain foreign currency derivative contracts of $ 23.8 million . ( d ) retail gallons sold in fiscal 2017 reflect a 30.7 million decline in autogas volumes principally as a result of exiting the low-margin autogas business in poland during fiscal 2016. retail gallons sold in fiscal 2016 exclude retail gallons from operations in china , which were sold in march 2016 . ( e ) deviation from average heating degree days for the 30-year period 1981-2010 at locations in our ugi international service territories . average temperatures during fiscal 2017 at ugi international were approximately 4.5 % warmer than normal but 9.7 % colder than fiscal 2016. total retail gallons sold during fiscal 2017 were slightly higher as the beneficial volume effects of the colder weather were substantially offset by a 30.7 million gallon decline in autogas volumes , principally as a result of exiting the low-margin , high-volume autogas business in poland during fiscal 2016 , and lower crop-drying volumes as a result of a dry fiscal 2017 crop season in france . during fiscal 2017 , average wholesale commodity prices for propane and butane in northwest europe were approximately 34 % and 29 % , respectively , higher than in fiscal 2016. ugi international base-currency results are translated into u.s. dollars based upon exchange rates experienced during the reporting periods . the functional currency of a significant portion of our ugi international results is the euro and , to a much lesser extent , the british pound sterling . although the british pound sterling and the euro during much of fiscal 2017 were slightly weaker than during fiscal 2016 , the translation effects of these currencies did not negatively impact ugi international net income due to gains on foreign currency exchange contracts used to hedge a portion of u.s. dollar purchases of lpg .
| fiscal 2017 highlights fiscal 2017 includes net after-tax gains on commodity derivative instruments not associated with current-period transactions of $ 51.2 million ( equal to $ 0.29 per diluted share ) and net after-tax unrealized losses on certain foreign currency instruments of $ 13.9 million ( equal to $ 0.08 per diluted share ) . fiscal 2016 includes net after-tax gains on commodity derivative instruments not associated with current-period transactions of $ 29.9 million ( equal to $ 0.17 per diluted share ) . fiscal 2017 and fiscal 2016 reflect net after-tax integration expenses associated with finagaz , which decreased net income attributable to ugi by $ 26.2 million ( equal to $ 0.15 per diluted share ) and $ 17.3 million ( equal to $ 0.10 per diluted share ) , respectively . fiscal 2017 and fiscal 2016 include after-tax losses on extinguishments of debt at amerigas propane of $ 9.6 million ( equal to $ 0.05 per diluted share ) and $ 7.9 million ( equal to $ 0.04 per diluted share ) , respectively . fiscal 2017 includes a $ 29.0 million decrease in net deferred income tax liabilities ( equal to $ 0.16 per diluted share ) resulting from a change in the french corporate income tax rate enacted in december 2016 that will become effective in fiscal 2021. average temperatures during fiscal 2017 were significantly warmer than normal at each of our domestic business units , but colder than in fiscal 2016. ugi utilities ' fiscal 2017 net income reflects the after-tax impact of an increase in ugi gas base rates of $ 11.8 million ( equal to $ 0.07 per diluted share ) . ugi international 's fiscal 2017 retail unit margins were lower reflecting the effects of rising lpg commodity costs compared to the beneficial effects of declining lpg commodity costs in the prior year .
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that are highly competitive ; our ability to integrate acquisitions and effectively manage and implement our growth strategies ; our inability to obtain required capital at acceptable terms to fund our working capital and growth strategies ; our ability to manage disruptions or loss of certain assets from terrorist or military operations ; our ability to anticipate adverse changes in tax laws , accounting rules , and other laws and regulations ; our inability to manage volatility in earnings resulting from u.s. gaap requirements to revalue our earnout obligation to the sellers of cdc ; our inability to eliminate potential volatility in our net sales and operating results on a quarterly basis as a result of changes in demand for our products ; our dependence on third-party freight carriers ; our inability to resolve or settle potentially adverse litigation matters ; and our ability to hedge or mitigate the effects of fluctuations in foreign exchange rates . additional discussion of these and other factors affecting our business and prospects is contained in our periodic filings with the sec , copies of which can be obtained under the investors relations tab on website at www.scansourceinc.com . please refer to the cautionary statements and important factors discussed in item 1a . risk factors in this annual report on form 10-k for further information . this discussion and analysis should be read in conjunction with item 6 . selected financial data and the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. overview scan source , inc. is a leading wholesale distributor of specialty technology products , providing value-added distribution sales to resellers in the specialty technology markets . the company distributes more than 68,500 products worldwide . the company has two geographic distribution segments : one serving north america from the southaven , mississippi distribution center , and an international segment currently serving latin america and europe from distribution centers located in florida , mexico , brazil , belgium and germany . subsequent to june 30 , 2011 , we have consolidated the european warehouse operations in belgium and transferred our inventory in germany to belgium . each segment is managed around their geographic customer and vendor bases and is supported by its centralized infrastructure , such as warehousing and back office operations as appropriate . the north american distribution segment markets automatic identification and data capture ( aidc ) and point-of-sale ( pos ) products through its scan source pos and barcoding sales unit ; voice , data and converged communications equipment through its catalyst telecom sales unit ; video conferencing , telephony and communications products through its scan source communications sales unit ; and electronic security products and wireless infrastructure products through its scan source security sales unit . the international distribution segment markets aidc , pos and barcode , communications , and security products through its scan source latin america sales unit ; pos and aidc products through its scan source europe sales unit , and communication products through its scan source communications sales unit in europe . the company was incorporated in south carolina in december 1992 and is headquartered in greenville , south carolina . the company serves north america from a single , centrally located distribution center located in southaven , mississippi , near the fedex hub . the single warehouse and strong management information system form the cornerstone of the company 's cost-driven operational strategy . this strategy has been expanded to latin america and europe . the company 's objective is to increase profitability in the technologies we distribute . in doing so , our management team faces numerous challenges that require attention and resources . first , certain business units and geographies are experiencing increased competition for the products we distribute . this could affect both our market share and pricing of our products as management may change strategy in order to effectively compete . the company continues making investments in latin america and certain businesses within europe by temporarily accepting lower than normal returns in the business in an effort to gain market share and customers . changing economic conditions in countries in which we market our products may also require attention from our management team . furthermore , the company is implementing a standardized enterprise resource planning ( erp ) system that is intended to be used throughout the world and provide operational efficiencies . the company is expecting to begin transition of the new erp system in certain business units in fiscal year 2012 and continue to transition other business units into 2013. finally , the company continues to evaluate strategic acquisitions to enhance our technological or geographic portfolio . management is currently working to integrate our most recent acquisition , cdc . 18 index to financial statements on november 30 , 2009 , the company acquired substantially all of the assets and certain liabilities of algol europe , gmbh ( algol ) , a value added distributor specializing in convergence communication solutions . algol , headquartered in cologne , germany , was renamed scan source communications gmbh and joined scan source communications uk as part of scan source communications europe . on april 15 , 2011 , the company purchased all of the shares of cdc brasil , s.a. , formerly called cdc brasil distribuidora ltda . cdc is the leading pos and barcoding distributor in brazil . the share purchase transaction was completed on april 15 , 2011. cdc , headquartered in curitiba , brazil , is now a part of the scan source latin america operating unit . the business valuation for the company is incomplete as of the date of this filing . as such , the value assigned to identifiable intangible assets , the liability for the contingent consideration transferred to the sellers and goodwill are subject to change within the measurement period set forth in asc 805. the company distributes products for many of our key vendors in all of our geographic markets ; however certain vendors only allow distribution to specific geographies . story_separator_special_tag the decrease in the effective tax rate from the prior fiscal year is largely attributable to a favorable mix of income derived from lower tax rate jurisdictions , and reflects the benefit of a full year of changes to the international capital structure executed during fiscal 2010 . 23 index to financial statements net income the following table summarizes the company 's net income for the fiscal year ended june 30th : replace_table_token_14_th net income for the fiscal year ended june 30 , 2011 was $ 73.5 million , a $ 24.7 million or 50.6 % increase over the prior fiscal year . the increase in net income is attributable to the changes in operating profit previously discussed . comparison of fiscal years ended june 30 , 2010 and 2009 net sales the company has two reporting segments , which are based on geographic location . the following table summarizes the company 's net sales results ( net of inter-segment sales ) for each of these reporting segments for the comparable fiscal years ended june 30th : product category replace_table_token_15_th geographic segments replace_table_token_16_th consolidated net sales for the fiscal year ended june 30 , 2010 increased 14.4 % to $ 2.1 billion in comparison to prior fiscal year net sales of $ 1.85 billion . north american distribution the north american distribution segment includes sales to technology resellers in the united states and canada that originate from our centralized distribution facility located in southaven , mississippi . sales to technology resellers in canada accounted for less than 4 % of total net sales for both fiscal years presented . for the fiscal year ended june 30 , 2010 , net sales for this segment increased by approximately $ 165.9 million , or 11.1 % , as compared to the prior fiscal year . the company 's north american pos , barcoding , and security product categories saw revenues increase by 9.9 % in comparison to the prior fiscal year . during the fiscal year ended june 30 , 2010 , these units experienced stronger demand as economic conditions improved from the prior fiscal year . sales of substantially all of our major vendors and product lines increased in comparison to the prior fiscal year , as larger deals and projects returned during the fiscal year . in addition , the company saw strong growth in its security product lines on a comparative basis , driven by its video surveillance and wireless networking lines . the company has two north american sales units that sell communications products to our customers the catalyst telecom and scan source communications sales units . the combined sales of these units were 12.5 % higher for the fiscal year ended june 30 , 2010 versus the prior fiscal year . both of these sales units also experienced sales growth due to improved economic conditions as discussed above , and a majority of the vendors in these units saw sales growth compared to the prior year . 24 index to financial statements international distribution the international distribution segment includes sales to latin america and europe from the scan source pos and barcoding sales unit and in europe through the scan source communications sales unit . sales for the overall international segment increased by $ 101 million or 29.1 % compared to the prior fiscal year . however , on a constant exchange rate basis , the sales increase was approximately 29 % . changes in foreign exchange had an immaterial impact for the year ended june 30 , 2010. the constant currency increase in sales for both geographies was driven by stronger end-user demand which was largely attributable to stronger economic conditions in europe and latin america , and the acquisition of algol europe in november 2009 , now part of scan source communications europe . the fiscal year ended june 30 , 2010 included incremental revenues associated with the company 's acquisition of substantially all of the assets and certain liabilities of algol europe , now scan source communications , gmbh , on november 30 , 2009. algol europe was a value added distributor of specialty technologies , including voice , data , and video communications products located in cologne , germany . this acquisition significantly expanded the footprint of the scan source communications sales unit outside of the united kingdom and is part of the company 's strategy to become a pan-european distributor of communications . gross profit the following table summarizes the company 's gross profit for the fiscal years ended june 30th : replace_table_token_17_th north american distribution gross profit for the north american distribution segment increased $ 11.7 million , or 7.5 % , for the fiscal year ended june 30 , 2010 , as compared to the prior fiscal year . the increase in gross profit was primarily the result of higher sales volume in all of our sales units , as previously discussed . while total gross profit for the north american distribution segment increased , gross profit , expressed as a percentage of net sales , actually decreased to 10.1 % for the fiscal year ended june 30 , 2010 as compared to 10.4 % for the prior fiscal year . this was largely the result of a less favorable product mix and higher margin dilution due to an increase of larger deals and projects that traditionally carry lower margins . international distribution despite the increase in sales for the international distribution segment , gross profit actually decreased by $ 1.6 million , or 3.1 % for the fiscal year ended june 30 , 2010 , as compared to the prior fiscal year . the decline in gross profit for the fiscal year ended june 30 , 2010 was primarily due to the absence of strategic inventory purchases in anticipation of subsequent vendor price increases in our european operating segment that occurred in the prior year . these opportunistic purchases resulted in the achievement of significantly higher gross margins during the second half of the 2009 fiscal year .
| results of operations the following table sets forth for the periods indicated certain income and expense items as a percentage of net sales : replace_table_token_7_th comparison of fiscal years ended june 30 , 2011 and 2010 net sales the company has two reporting segments , which are based on geographic location . the following table summarizes the company 's net sales results ( net of inter-segment sales ) for each of these product categories and reporting segments for the comparable fiscal years ending june 30th : product category replace_table_token_8_th 20 index to financial statements geographic segments replace_table_token_9_th consolidated net sales for the fiscal year ended june 30 , 2011 increased 26.1 % to $ 2.7 billion in comparison to prior fiscal year net sales of $ 2.1 billion . north american distribution the north american distribution segment includes sales to technology resellers in the united states and canada that originate from our centralized distribution facility located in southaven , mississippi . sales to technology resellers in canada accounted for less than 4 % of total net sales for both fiscal years presented . as north american macro-economic conditions improved considerably in fiscal 2011 , net sales for this segment increased by approximately $ 356.7 million , or 21.4 % , as compared to the prior fiscal year . the company 's north american pos , barcoding , and security product categories saw revenues increase by 17.6 % in comparison to the prior fiscal year . during the fiscal year ended june 30 , 2011 , these product lines have experienced stronger demand as economic conditions have improved from the 2010 fiscal year . the company has seen its strongest percentage growth in its security product lines from the prior year , driven by increased demand and market penetration in its video surveillance and wireless networking lines .
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certain statements contained in this “ management 's discussion and analysis of financial condition and results of operations ” may be deemed to be forward‑looking statements . see “ special note regarding forward‑looking statements. ” overview of restatement in this annual report on form 10-k , the company : ( a ) restates its consolidated balance sheets as of december 31 , 2018 and the related consolidated statements of operations , consolidated statements of comprehensive loss , consolidated statements of stockholders ' deficit , and consolidated statements of cash flows for the fiscal years ended december 31 , 2018 and 2017 ; ( b ) restates its “ selected financial data ” in item 6 for fiscal years 2018 and 2017 ; and ( c ) restates its unaudited quarterly financial data for the first three fiscal quarters in the fiscal year ended december 31 , 2019 and each fiscal quarter in the fiscal year ended december 31 , 2018. the adjustments made as a result of the restatement are more fully discussed in note 3 , restatement of previously issued financial statements , of the notes to consolidated financial statements included in this annual report . to further review the effects of the accounting errors identified and the restatement adjustments , see part ii—item 6—selected financial data in this annual report . for a description of the control deficiencies identified by management as a result of the investigation and our internal reviews , and management 's plan to remediate those deficiencies , see part ii—item 9a—controls and procedures . previously filed annual reports on form 10-k and quarterly reports on form 10-q for the periods affected by the restatement have not been amended . accordingly , investors should no longer rely upon the company 's previously released financial statements for these periods and any earnings releases or other communications relating to these periods , and , for these periods , investors should rely solely on the financial statements and other financial data for the relevant periods included in this annual report . see note 20 , unaudited quarterly financial data , of the notes to the consolidated financial statements in this annual report for the impact of these adjustments on each of the quarterly periods in fiscal 2018 and for the first three quarters of fiscal 2019. quarterly reports for fiscal 2020 will include restated results for the corresponding interim periods of fiscal 2019. background on the restatement as previously disclosed in the company 's current report on form 8-k filed with the sec on march 17 , 2020 , the board of directors of the company , based on the recommendation of the audit committee and in consultation with management , concluded that , because of errors identified in the company 's previously issued financial statements for the fiscal years ended december 31 , 2018 and 2017 and the first three quarters of fiscal 2019 , the company would restate its previously issued financial statements , including the quarterly data for fiscal years 2019 and 2018 and its selected financial data for the relevant periods . these errors were discovered during the course of preparing this annual report and the audit of the financial results for fiscal 2019. we have determined that these errors were the result of material weaknesses in internal control over financial reporting that are reported in management 's report on internal control over financial reporting as of december 31 , 2019 in part ii—item 9a – controls and procedures of this annual report . the restated financial statements correct the following errors : 51 appraisal action liability adjustments : · $ 43.1 million , $ 40.6 million and $ 37.8 million understatement of accrued liabilities and total stockholders ' deficit , as at september 30 , 2019 , december 31 , 2018 and 2017 , respectively , due to applying an incorrect accounting treatment for the obligation to pay the fair market value of the former stockholders ' shares under the appraisal action . · $ 2.4 million , $ 2.9 million and $ 1.2 million understatement of loss for the nine months ended september 30 , 2019 and for the years ended december 31 , 2018 and 2017 , respectively , due to the unrecorded interest expense accrual associated with the company 's obligations related to the appraisal action . interest should have been accrued in the relevant periods at the rate set by the delaware court of chancery . outsourced contract cost adjustments : · a $ 5.3 million understatement of loss for the nine months ended september 30 , 2019 and a $ 3.2 million overstatement of loss for the year ended december 31 , 2018 , due to the incorrect capitalization of employee training related costs during the set-up phase as costs of fulfilling contracts which should have been expensed under asc 340-40. additionally , an adjustment of $ 15.4 million was recorded to increase accumulated deficit as of january 1 , 2018 to correct the previously-recorded transition adjustment for costs of fulfilling contracts upon the adoption of asc 606 and asc 340-40. these errors resulted in $ 17.3 million and $ 12.0 million overstatement of intangible assets , net as of september 30 , 2019 and december 31 , 2018 , respectively . expense reimbursement adjustments : · a $ 2.1 million understatement of loss and related party payables for the nine months ended september 30 , 2019 , due to non-accrual of the obligation to reimburse ex-sigma 2 for the discount to the market price on shares sold by ex-sigma 2 in a secondary offering in june 2019 and required to be reimbursed pursuant to the terms of the consent , waiver and amendment . story_separator_special_tag the strategic combination of sourcehov and novitex formed exela , which is one of the largest global providers of information processing solutions based on revenues . 53 basis of presentation this analysis is presented on a consolidated basis . in addition , a description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed . due to our specific situation , the presented financial information for the years ended december 31 , 2019 and 2018 is only partially comparable to the financial information for the year ended december 31 , 2017. since sourcehov was deemed the accounting acquirer in the novitex business combination consummated on july 12 , 2017 , the presented financial information for the year ended december 31 , 2017 includes the financial information and activities for sourcehov for the period january 1 , 2017 to december 31 , 2017 ( 365 days ) as well as the financial information and activities of novitex for the period july 13 , 2017 to december 31 , 2017 ( 172 days ) . this lack of comparability needs to be taken into account when reading the discussion and analysis of our results of operations and cash flows . furthermore , the presented financial information for the year ended december 31 , 2017 also contains other costs that are directly associated with the novitex business combination , such as professional fees , to support the our new and complex legal , tax , statutory and reporting requirements following the novitex business combination . our segments our three reportable segments are information & transaction processing solutions ( “ itps ” ) , healthcare solutions ( “ hs ” ) , and legal & loss prevention services ( “ llps ” ) . these segments are comprised of significant strategic business units that align our tps and eim products and services with how we manage our business , approach our key markets and interact with our customers based on their respective industries . itps : our largest segment , itps , provides a wide range of solutions and services designed to aid businesses in information capture , processing , decisioning and distribution to customers primarily in the financial services , commercial , public sector and legal industries . our major customers include many leading banks , insurance companies , and utilities , as well as hundreds of federal , state and government entities . our itps offerings enable companies to increase availability of working capital , reduce turnaround times for application processes , increase regulatory compliance and enhance consumer engagement . hs : hs operates and maintains a consulting and outsourcing business specializing in both the healthcare provider and payer markets . we serve the top healthcare insurance payers and hundreds of healthcare providers . llps : our llps segment provides a broad and active array of support services in connection with class action , bankruptcy labor , claims adjudication and employment and other legal matters . our customer base consists of corporate counsel , government attorneys , and law firms . acquisitions in april 2018 exela completed the acquisition of asterion international group ( “ asterion , ” the “ asterion business combination ” ) , a well-established provider of technology driven business process outsourcing , document management and business process automation across europe . the acquisition comes with minimal customer overlap and is strategic to expanding exela 's european business . through the acquisition of asterion , we expect to leverage brand awareness , strengthen margins , and expand the existing asterion sales channels . in july 2017 , we completed the novitex business combination . sourcehov was deemed to be the accounting acquirer , and is a leading provider of platform‑based enterprise information management and transaction processing solutions primarily for the healthcare , banking and financial services , commercial , public sector and legal industries . through the acquisition of sourcehov and novitex , we expect to realize revenue synergies , leverage brand awareness , strengthen margins , generate greater free cash flow , expand the existing novitex sales channels , and increase utilization of the existing workforce . we anticipate opportunities for growth through the ability to leverage additional future services and capabilities . 54 revenues itps revenues are primarily generated from a transaction‑based pricing model for the various types of volumes processed , licensing and maintenance fees for technology sales , and a mix of fixed management fee and transactional revenue for document logistics and location services . hs revenues are primarily generated from a transaction‑based pricing model for the various types of volumes processed for healthcare payers and providers . llps revenues are primarily based on time and materials pricing as well as through transactional services priced on a per item basis . people we draw on the business and technical expertise of our talented and diverse global workforce to provide our customers with high‑quality services . our business leaders bring a strong diversity of experience in our industry and a track record of successful performance and execution . as of december 31 , 2019 , we had approximately 22,700 employees globally , with 62 % located in americas and emea , and the remainder located primarily in india , the philippines and china . costs associated with our employees represent the most significant expense for our business . we incurred personnel costs of $ 721.9 million , $ 687.3 million , and $ 532.3 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the majority of our personnel costs are variable and are incurred only while we are providing our services . facilities we lease and own numerous facilities worldwide with larger concentrations of space in texas , michigan , connecticut , california , india , mexico , the philippines , and china . our owned and leased facilities house general offices , sales offices , service locations , and production facilities .
| results of operations year ended december 31 , 2019 , compared to year ended december 31 , 2018 replace_table_token_7_th revenue our revenue decreased $ 23.9 million , or 1.5 % , to $ 1,562.3 million for the year ended december 31 , 2019 compared to $ 1,586.2 million for the year ended december 31 , 2018. this decrease is primarily related to a decrease in our itps segment revenues of $ 39.4 million and llps segment revenue of $ 13.2 million . the decrease was partially offset by an increase in revenues in the hs segment by $ 28.7 million . our itps , hs , and llps segments constituted 79.0 % , 16.4 % , and 4.6 % of our total revenue , respectively , for the year ended december 31 , 2019 , compared to 80.3 % , 14.4 % , and 5.3 % , respectively , for the year ended december 31 , 2018. the revenue changes by reporting segment were as follows : itps—revenues decreased $ 39.4 million , or 3.1 % , to $ 1,234.3 million for the year ended december 31 , 2019 compared to $ 1,273.6 million for the year ended december 31 , 2018. the decrease was primarily attributable to the low 56 margin contract exit in the third quarter of 2018 and adverse currency impact that was offset partially by the revenue from acquisitions completed in 2018. hs—revenues increased $ 28.7 million , or 12.6 % , to $ 256.7 million for the year ended december 31 , 2019 compared to $ 228.0 million for the year ended december 31 , 2018. the increase was primarily attributable to the ramp up of new businesses .
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director compensation for the year ended december 31 , 2020 and 2019 , the members of our board of directors received the following cash compensation and stock awards : replace_table_token_5_th ( 1 ) pursuant to their respective offer letters in 2018 , messrs. grant begley and thomas gardner were entitled to receive for their service on the board : ( 1 ) an initial grant of five-year options to purchase 77,356 shares of common stock as accrued for time served as a board member at an exercise price of $ 0.06 per share that vested half upon issuance and the remainder is vesting equally over two years ; and ( 2 ) additional five-year options story_separator_special_tag the following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described . this discussion should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this form 10-k. this discussion contains forward-looking statements . please see the explanatory note concerning “ forward-looking statements ” in part i of this annual report on form 10-k and item 1a . risk factors for a discussion of the uncertainties , risks and assumptions associated with these forward-looking statements . the operating results for the periods presented were not significantly affected by inflation . company overview ageagle aerial systems inc. ( “ ageagle , ” “ the company , ” “ us , ” “ we , ” “ our ” ) produces , supports and operates technologically advanced drone systems and solutions for the fast-emerging unmanned aerial vehicle ( “ uav ” ) industry . we are engaged in delivering the metrics , tools and strategies necessary to invent and implement drone-enabled solutions that solve important problems for our valued customers . with our founding premise rooted in high performance , next-level thinking , and technological innovation , ageagle is intent on ensuring that new standards for quality u.s. manufacturing and the provision of precision-crafted , purpose-built drone systems and solutions are delivered to empower our customers to thrive and prosper in the drone age . founded in 2010 , ageagle was originally formed to pioneer proprietary , professional-grade , fixed-wing drones and aerial imagery-based data collection and analytics solutions for the agriculture industry . in addition to selling our innovative drones to the precision and sustainable farming markets , ageagle 's innovative data collection and analytics solutions have processed more than two million acres of crops , analyzing data from over 50 countries and 53 difference crop types , and creating more than 11,000 crop reports for its users . ageagle remains intent on earning distinction as a trusted partner to clients seeking to adopt and support productive agricultural approaches to improve farming practices which currently limit the impact on our natural resources , reduce reliance on inputs and materially increase crop yields and profits . in the first half of 2019 , the company introduced hempoverview , a scalable , responsive and cost-effective saas web- and map-based technology platform to support the operations of domestic industrial hemp programs for state and tribal nation departments of agriculture – a solution that provides users with what the company believes is the gold standard for regulatory oversight , operational assistance and reporting capabilities for the fast emerging industrial hemp industry . over the past decade , the broader drone market has continued to evolve and expand . as a result , economic and productivity benefits made possible by drones is fueling global demand for high quality , safe and reliable drone systems and solutions for commercial applications well beyond agriculture . in response , ageagle is now leveraging our technological expertise and drone engineering and manufacturing experience to penetrate new , high growth market sectors ; namely , drone package delivery , public safety/security , large venue decontamination and infrastructure/ inspection , among other high growth market opportunities . 29 ageagle 's key growth objectives are centered on three primary areas of focus : 1 ) ag solutions : leveraging our reputation as one of the leading technology solutions providers to the agriculture industry to increase market share through delivery of best-in-class drones , sensors and data analytics for hemp and other commercial crops ; 2 ) drone manufacturing : establishing ageagle as the dominant commercial drone design , engineering , manufacturing , assembly and testing company in the united states ; and 3 ) drone solutions : establishing the company as one of the industry 's leading american-made trusted source for turnkey , end-to-end , tailored drone solutions to the world . we intend to grow our business by preserving a leadership position in our core ag solutions business ; providing quality contract manufacturing , assembly and testing services ; and innovating new customer-focused drone systems and solutions to capture significant share of the broader commercial drone market . in addition , we expect to accelerate our growth and expansion through strategic acquisitions of drone-related companies offering distinct technological and competitive advantages and have defensible ip protection in place , if applicable . key growth strategies we intend to grow our business by achieving greater market penetration of the growing precision agriculture marketplace ; by promoting our new service targeting the sustainable agriculture marketplace for the 2021 growing season ; and by creating new , easier to use and higher value products that position ageagle as a leading innovator and trusted solutions provider in high growth markets where advanced aerial imaging and data capture and analytics technologies can be used to achieve specific business and sustainability objectives . currently , our management is actively exploring new vertical expansion opportunities in other industries outside of agriculture and its related areas , including drone-enabled package delivery . in addition to drone package deliveries , we believe that our solutions and services may also be well suited for use in decontamination , mapping and surveying , mining/resource exploration , insurance inspection and infrastructure/asset inspection , among other industrial applications . story_separator_special_tag ● leading-edge research and delivery – in order to propel functional commercial applications of drone solutions in real world , real-time environments , and to best aid in the determination and ultimate adoption of a regulatory framework to guide and direct mainstream commercial use of drones beyond visual line of sight , ageagle is a lead participant in the faa 's beyond program in kansas and is actively engaged in partnering with other leading drone solutions companies on pilot projects with long-term commercial potential . 31 impact of covid-19 on our business operations the outbreak of the novel coronavirus ( covid-19 ) has evolved into a global pandemic . the coronavirus has spread to many regions of the world , including the united states . the extent to which covid-19 impacts our business and operating results will depend on future developments that are highly uncertain and can not be accurately predicted , including new information that may emerge concerning covid-19 and the actions to contain the coronavirus or treat its impact , among others . should the coronavirus continue to spread , our business operations could be delayed or interrupted . for instance , we currently utilize third parties to , among other things , manufacture components and parts for the proprietary and contracted drones we produce , and to perform quality testing . we also manufacture and assemble products and perform various services at our manufacturing facility . if either we or any third-parties in the supply chain for materials used in our manufacturing and assembly processes are adversely impacted by restrictions resulting from the coronavirus pandemic , our supply chain may be disrupted , limiting our ability to manufacture and assemble products . the spread of the coronavirus , which has caused a broad impact globally , including restrictions on travel and quarantine policies put into place by businesses and governments , may have a material economic effect on our business . while the potential economic impact brought on by and the duration of the pandemic may be difficult to assess or predict , it has already caused , and is likely to result in further , significant disruptions of global financial markets , which may reduce our future ability to access capital either at all or on favorable terms . in addition , a recession , depression or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our common stock . the ultimate impact of the current pandemic , or any other health epidemic , is highly uncertain and subject to change . we do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole . however , these effects could have a material impact on our operations in the future . we will continue to monitor the situation closely . during the year ended december 31 , 2020 , in addition to complying with 'shelter at home ' mandates in those states affecting our employees , most of whom worked virtually from their homes , our supply chain was adversely impacted by the pandemic , causing material delays in the delivery of critical supply orders associated with timely fulfilling our obligations to our large ecommerce client . as a consequence , revenues originally expected to be reported in the second quarter 2020 were reported in the third quarter 2020 results . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires management 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 consolidated financial statements and the reported amount of revenues and expenses during the reporting period . our most critical estimates include those related to revenue recognition , inventories and reserves for excess and obsolescence , accounting for stock-based awards , and income taxes . on an ongoing basis , we evaluate our estimates and assumptions . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements . please see note 2 to our consolidated financial statements , which are included in item 8 “ financial statements and supplementary data ” of this annual report , for our summary of significant accounting policies . there have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements . 32 revenue recognition the majority of our revenue is generated pursuant to written contractual arrangements to develop , manufacture and or modify complex drone related products , and to provide associated engineering , technical and other services according to customer specifications . these contracts are a fixed price and we account for all revenue contracts in accordance with asc topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . under fixed-price contracts , we agree to perform the specified work for a pre-determined price . to the extent our actual costs vary from the estimates upon which the price was negotiated , we will generate more or less profit or could incur a loss .
| results of operations year ended december 31 , 2020 as compared to year ended december 31 , 2019 during the year ended december 31 , 2020 , we recorded revenues of $ 1,285,383 compared to revenues of $ 296,677 for the same period in 2019 , a 333 % increase . the increase was mainly due to new revenues derived from purchase orders to manufacture and assemble drones and related delivery products designed to meet specific criteria for package delivery in urban and suburban area . revenue growth was also positively impacted by the continued focus on expansion of our platform , providing aerial imaging and analytics solutions which serve new and emerging markets including registration , oversight , and compliance of hemp fields by state departments of agriculture . 34 during the year ended december 31 , 2020 , cost of sales totaled $ 711,650 , a $ 509,601 , or 252 % , increase when compared to $ 202,049 in the year ended december 31 , 2019. we had a gross profit of $ 573,733 , or 45 % gross profit margin , during the year ended december 31 , 2020 compared to $ 94,628 , or 32 % gross profit margin , for the year ended december 31 , 2019. the primary factors contributing to the increase in our cost of sales and gross profit margin was due to the continued shift in mix of products and services we now offer customers in the new markets we serve that have resulted in higher margin for our sales . we recorded total operating expenses of $ 5,505,040 during 2020 , a 110 % increase as compared to operating expenses of $ 2,616,821 in the same period of 2019. our operating expenses are comprised of general and administrative expenses , professional fees , and selling expenses . general and administrative expenses totaled $ 2,732,274 in 2020 compared to $ 1,850,225 in 2019 , an increase of 48 % .
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days within any 30-trading day period commencing at least 150 days after the initial business combination , or ( y ) the date on which the company completes a liquidation , merger , capital stock exchange or other similar transaction that results in all of the company 's stockholders having the right to exchange their shares of class a common stock for cash , securities or other property . related party loans on august 31 , 2020 , the sponsor agreed to loan the company an aggregate of up to $ 200,000 to cover expenses related to the initial public offering pursuant to a promissory note ( the ‘ ‘ note `` ) . this loan is non-interest bearing and is payable on the earlier of march 31 , 2021 , as amended , or the completion of the initial public offering . as of december 31 , 2020 , the company had borrowed $ 83,000 under the note . in addition , in order to finance transaction costs in connection with a business combination , the sponsor or an affiliate of the sponsor , or certain of the company 's officers and directors may , but are not obligated to , loan the company funds as may be required ( ‘ ‘ working capital loans `` ) . if the company completes a business combination , the company would repay the working capital loans out of the proceeds of the trust account released to the company . otherwise , the working capital loans would be repaid only out of funds held outside the trust account . in the event that a business combination does not close , the company may use a portion of proceeds held outside the trust account to repay the working capital loans but no proceeds held in the trust account would be used to repay the working capital loans . the working capital loans would either be repaid upon consummation of a business combination , without interest , or , at the lender 's discretion , up to $ 1.5 million of such working capital loans may be convertible into additional units of the post business combination entity at a price of $ 10.00 per unit . such units would be identical to the private placement units . as of december 31 , 2020 , the company had no borrowings under the working capital loans . except for the foregoing , the terms of such working capital loans , if any , have not been determined and no written agreements exist with respect to such loans . 65 vectoiq acquisition corp. ii notes to financial statements note 4—related party transactions ( continued ) administrative support agreement the company intends to enter into an agreement , commencing on the effective the initial public offering through the earlier of the company 's consummation of a business combination and its liquidation , to pay an affiliate of the sponsor a total of $ 10,000 per month for office space and general and administrative services . the sponsor , executive officers and directors , or any of their respective affiliates , will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the company 's behalf such as identifying potential target businesses and performing due diligence on suitable business combinations . the company 's audit committee will review on a quarterly basis all payments that were made to the sponsor , officers , directors or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed . there is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on the company 's behalf . note 5—commitments registration rights the sponsor and the company 's executive officers , directors and director nominees and their permitted transferees will be entitled to demand that the company register for resale the founder shares , the private placement units and underlying securities and any securities issued upon conversion of working capital loans . the holders of these securities will be entitled to make up to three demands , excluding short form demands , that the company register such securities . in addition , the holders will have certain ‘ ‘ piggy-back `` registration rights with respect to registration statements filed subsequent to the company 's consummation of the initial business combination . the company will bear the expenses incurred in connection with the filing of any such registration statements . underwriting agreement the company granted the underwriters a 45-day option from the final prospectus relating to the initial public offering to purchase up to 4,500,000 additional units to cover over-allotments , if any , at the initial public offering price less the underwriting discounts and commissions . see note 7 for additional information . the underwriters were entitled to an underwriting discount of $ 0.20 per unit , or $ 6.0 million in the aggregate ( or $ 6.9 million in the aggregate if the underwriters ' over-allotment option is exercised in full ) , payable upon the closing of the initial public offering . 66 vectoiq acquisition corp. ii notes to financial statements note 6—stockholder 's equity class a common stock —the company is currently authorized to issue 200,000,000 shares of class a common stock with a par value of $ 0.0001 per share . stockholders of class a common stock are entitled to one vote for each share . as of december 31 , 2020 , there were no shares of class a common stock issued or outstanding . class b common stock —the company is current authorized to issue 20,000,000 shares of class b common stock with a par value of $ story_separator_special_tag the statements in the discussion and analysis regarding industry outlook , our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties story_separator_special_tag days within any 30-trading day period commencing at least 150 days after the initial business combination , or ( y ) the date on which the company completes a liquidation , merger , capital stock exchange or other similar transaction that results in all of the company 's stockholders having the right to exchange their shares of class a common stock for cash , securities or other property . related party loans on august 31 , 2020 , the sponsor agreed to loan the company an aggregate of up to $ 200,000 to cover expenses related to the initial public offering pursuant to a promissory note ( the ‘ ‘ note `` ) . this loan is non-interest bearing and is payable on the earlier of march 31 , 2021 , as amended , or the completion of the initial public offering . as of december 31 , 2020 , the company had borrowed $ 83,000 under the note . in addition , in order to finance transaction costs in connection with a business combination , the sponsor or an affiliate of the sponsor , or certain of the company 's officers and directors may , but are not obligated to , loan the company funds as may be required ( ‘ ‘ working capital loans `` ) . if the company completes a business combination , the company would repay the working capital loans out of the proceeds of the trust account released to the company . otherwise , the working capital loans would be repaid only out of funds held outside the trust account . in the event that a business combination does not close , the company may use a portion of proceeds held outside the trust account to repay the working capital loans but no proceeds held in the trust account would be used to repay the working capital loans . the working capital loans would either be repaid upon consummation of a business combination , without interest , or , at the lender 's discretion , up to $ 1.5 million of such working capital loans may be convertible into additional units of the post business combination entity at a price of $ 10.00 per unit . such units would be identical to the private placement units . as of december 31 , 2020 , the company had no borrowings under the working capital loans . except for the foregoing , the terms of such working capital loans , if any , have not been determined and no written agreements exist with respect to such loans . 65 vectoiq acquisition corp. ii notes to financial statements note 4—related party transactions ( continued ) administrative support agreement the company intends to enter into an agreement , commencing on the effective the initial public offering through the earlier of the company 's consummation of a business combination and its liquidation , to pay an affiliate of the sponsor a total of $ 10,000 per month for office space and general and administrative services . the sponsor , executive officers and directors , or any of their respective affiliates , will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the company 's behalf such as identifying potential target businesses and performing due diligence on suitable business combinations . the company 's audit committee will review on a quarterly basis all payments that were made to the sponsor , officers , directors or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed . there is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on the company 's behalf . note 5—commitments registration rights the sponsor and the company 's executive officers , directors and director nominees and their permitted transferees will be entitled to demand that the company register for resale the founder shares , the private placement units and underlying securities and any securities issued upon conversion of working capital loans . the holders of these securities will be entitled to make up to three demands , excluding short form demands , that the company register such securities . in addition , the holders will have certain ‘ ‘ piggy-back `` registration rights with respect to registration statements filed subsequent to the company 's consummation of the initial business combination . the company will bear the expenses incurred in connection with the filing of any such registration statements . underwriting agreement the company granted the underwriters a 45-day option from the final prospectus relating to the initial public offering to purchase up to 4,500,000 additional units to cover over-allotments , if any , at the initial public offering price less the underwriting discounts and commissions . see note 7 for additional information . the underwriters were entitled to an underwriting discount of $ 0.20 per unit , or $ 6.0 million in the aggregate ( or $ 6.9 million in the aggregate if the underwriters ' over-allotment option is exercised in full ) , payable upon the closing of the initial public offering . 66 vectoiq acquisition corp. ii notes to financial statements note 6—stockholder 's equity class a common stock —the company is currently authorized to issue 200,000,000 shares of class a common stock with a par value of $ 0.0001 per share . stockholders of class a common stock are entitled to one vote for each share . as of december 31 , 2020 , there were no shares of class a common stock issued or outstanding . class b common stock —the company is current authorized to issue 20,000,000 shares of class b common stock with a par value of $ story_separator_special_tag the statements in the discussion and analysis regarding industry outlook , our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties
| results of operations we have neither engaged in any operations nor generated any revenues to date . our only activities from inception to december 31 , 2020 were organizational activities , those necessary to prepare for our initial public offering , described below , and , after the initial public offering , identifying a target company for a business combination . we do not expect to generate any operating revenues until after the completion of our business combination . we incur expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) . for the period from august 10 , 2020 ( inception ) through december 31 , 2020 , we had a net loss of $ 1,802 , which consisted of formation expenses . liquidity and capital resources until the consummation of our initial public offering , as described below , our only source of liquidity was an initial purchase of ordinary shares by the sponsor and loans from our sponsor . for the period from august 10 , 2020 ( inception ) through december 31 , 2020 , we had net cash used in operating activities of $ 546 for the payment of certain formation expenses and net cash provided by financing activities of $ 13,110 , which consisted of the sale of the company 's class b common stock for $ 25,000 to our sponsor and borrowings of $ 83,000 pursuant to a promissory note ( the “ note ” ) from our sponsor offset by the payment of deferred offering costs associated with the initial public offering of $ 94,890. at december 31 , 2020 , we had cash of $ 12,564. we used these funds and borrowings from the note with the sponsor primarily to funds the costs incurred to complete our initial public offering . on january 6 , 2021 , the registration statement for the company 's initial public offering was declared effective .
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the company 's marketable securities and certificates of deposit are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income ( loss ) , a component of stockholders ' equity . realized gains or losses on mutual funds are determined using the average cost method , while realized gains or losses on government securities and bonds are determined using the specific-identification method . realized gains or losses on the company 's marketable securities are insignificant for the years ended december 31 , 2011 and 2010. the company evaluates its investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value had been below cost basis , the financial condition of the issuer and the company 's ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value . the company would record an impairment charge to the extent that the cost of the available-for-sale securities or certificates of deposit exceeds the estimated fair value of the securities and the decline in value is determined to be other-than-temporary . during 2011 the company did not record an impairment charge regarding its investment in marketable securities or certificates of deposit because , based on management 's evaluation of the circumstances , management believes that the decline in fair value below the cost of certain of the company 's marketable securities is temporary . 14 revenue recognition the company recognizes revenue when products are shipped , title and risk of loss pass to customers , persuasive evidence of a sales arrangement exists , and collections are reasonably assured . any allowances for returns are taken as a reduction in sales within the same period the revenue is recognized . such allowances are based on historical experience as well as other factors that , in the company 's judgment , could reasonably be expected to cause sales returns or doubtful accounts to differ from historical experience . accounts receivable allowance the company performs ongoing credit evaluations of the company 's customers and adjusts credit limits , as determined by review of current credit information . the company continuously monitors collection and payments from customers and maintains an allowance for doubtful accounts based upon historical experience , the company 's anticipation of uncollectible accounts receivable and any specific customer collection issues that have been identified . while the company 's credit losses have historically been low and within expectations , the company may not continue to experience the same credit loss rates that have historically been attained . the receivables are highly concentrated in a relatively small number of customers . therefore , a significant change in the liquidity , financial position , or willingness to pay timely , or at all , of any one of the company 's significant customers would have a significant impact on the company 's results of operations and cash flows . inventory valuation allowance in conjunction with the company 's ongoing analysis of inventory valuation , management constantly monitors projected demand on a product-by-product basis . based on these projections , management evaluates the levels of write-downs required for inventory on hand and inventory on order from contract manufacturers . although the company believes that it has been reasonably successful in identifying write-downs in a timely manner , sudden changes in buying patterns from customers , either due to a shift in product interest and or a complete pull back from their expected order levels , may result in the recognition of larger than anticipated write-downs . 15 story_separator_special_tag new roman ; font-size : 10pt '' > industrial and other products : sales of the company 's industrial products , as well as other miscellaneous products , decreased by $ 35,383 ( 20.9 % ) when compared with 2010. sales were negatively impacted by an increase of $ 95,964 ( 64.5 % ) in sales discounts and allowance reserves . the increase in sales discounts and allowances was mainly due to increases in the allowance for distribution fees . cost of sales cost of sales as a percentage of net sales in 2011 increased to 39.4 % from 38.3 % in the prior year . the increase was primarily the result of increases in raw material costs , particularly the company 's primary raw material , as well as an increase in direct labor costs . operating expenses operating expenses decreased by $ 14,605 ( 0.6 % ) in 2011 compared with the prior year . this decrease was due to a reduction in legal and accounting fees . portions of the company 's operating expenses are directly attributable to the research and development that the company performs . in 2011 and 2010 , the company incurred approximately $ 637,000 and $ 596,000 , respectively , in research and development expenses , which are included in operating expenses . the increase in r & d costs incurred in 2011 was primarily attributable to increases in payroll costs . no portion of the research and development expenses was directly paid by the company 's customers . pension plan termination on july 13 , 2010 , the company terminated its non-contributory defined benefit pension plan ( `` db plan '' ) . the termination resulted in the company recognizing in 2010 a one-time non-cash expense of $ 518,296 , offset by a $ 179,641 tax benefit associated with recognizing unamortized actuarial losses . story_separator_special_tag in addition , in 2010 the company provided for a cash contribution of $ 337,378 , offset by a $ 116,900 tax benefit , in order to fully fund the db plan . the recognition of the non-cash and cash contributions resulted in a before-tax charge of $ 847,744 , and an after-tax charge of $ 559,133 ( $ 0.12 per share ) for the year ended december 31 , 2010. since the non-cash expense had previously been provided for as a charge to other comprehensive income , the net effect of the termination on stockholders ' equity in 2010 was a decrease of $ 220,478. other income ( expense ) other income ( net ) increased $ 280,299 ( 61.5 % ) for the year ended december 31 , 2011 when compared with 2010. the increase was mainly attributable to $ 385,182 in income the company received from the settlement of a claim for damages between the company and one of its suppliers . the claim resulted from the temporary suspension of production of the company 's renacidin by its supplier at the end of 2010 due to regulatory issues at the supplier 's facility . production did not resume until may 2011. as a result , the company determined that it lost approximately $ 390,000 in gross profit that would have been generated from sales of the product if production had not been curtailed . the company and its supplier entered into a settlement agreement whereby the company would be reimbursed for these losses . the miscellaneous income of $ 385,182 represents the amount that was paid to the company by the supplier during the third quarter of 2011. the company expects to receive the remaining amount ( approximately $ 4,800 ) in the second quarter of 2012. further information on this matter can be found in footnote `` g '' and the company 's filing on form 10-k for 2010 . 17 the company earns interest income from certificates of deposit , money market funds , and bonds , and dividend income from both stock and bond mutual funds . other income was reduced by a decrease in investment income in 2011 of $ 123,134 , which primarily resulted from lower interest and dividend returns compared with 2010. the company also had a gain of $ 23,774 from the sale of a company asset , which was partially offset by a loss of $ 5,523 on the sale of a company vehicle . there were no comparable gains or losses in 2010. provision for income taxes the provision for income taxes increased $ 441,209 ( 25.7 % ) in 2011 compared with 2010. this increase was mainly due to an increase in income before taxes of $ 1,358,047 ( 24.6 % ) in 2011 when compared with 2010. the company 's effective income tax rate was approximately 31 % in 2011 and 2010 , and is lower than the federal statutory rate of 34 % primarily due to the additional tax deduction for domestic production activities . liquidity and capital resources working capital increased from $ 11,765,995 at december 31 , 2010 to $ 12,895,448 at december 31 , 2011 , an increase of $ 1,129,453 ( 9.6 % ) . the current ratio increased to 13.0 to 1 at december 31 , 2011 from 12.5 to 1 at december 31 , 2010. the increases in working capital and the current ratio were primarily the result of increases in marketable securities , accounts receivable , and inventory . accounts receivable as of december 31 , 2011 increased by $ 562,729 ( net of allowance for doubtful accounts ) as compared with 2010. the average period of time that an account receivable was outstanding was approximately 35 days in 2011 and 33 days in 2010. the company has a bad debt reserve of $ 18,000 , and believes that the balance of its accounts receivable is fully collectable . the company does not maintain a line of credit with a financial institution because the company has no foreseeable need for a line of credit , and therefore management believes that the cost of maintaining a line of credit can not be justified , especially considering the strong financial condition of the company . the company generated cash from operations of $ 4,437,129 in 2011 compared with $ 4,093,318 in 2010. the increase in 2011 was primarily due to a $ 916,838 increase in net income , a $ 557,636 increase in accounts receivable , a $ 146,046 increase in inventory , and a $ 192,146 increase in accounts payable . net cash used in investing activities was $ 1,184,152 for the year ended december 31 , 2011 when compared with net cash provided by investing activities of $ 746,315 for the year ended december 31 , 2010. this was mainly due to proceeds from the sale of marketable securities and the redemption of certificates of deposit in 2010 . 18 cash used in financing activities was $ 3,677,151 and $ 8,346,117 during the years ended december 31 , 2011 and 2010 , respectively . the decrease was primarily due to there being no further acquisition of treasury stock in 2011 , and no dividend payable in the first quarter of 2011. the company chose to pay the year-end dividend in december 2010 rather than waiting until january 2011 due to uncertainties regarding the extension of certain tax cuts on qualified dividends originally enacted under the economic growth and tax relief reconciliation act of 2001. the company believes that its working capital is sufficient to support its operating requirements for the next fiscal year . the company 's long-term liquidity position will be dependent upon its ability to generate sufficient cash flow from profitable operations . the company has no material commitments for future capital expenditures . off-balance-sheet arrangements the company has no off-balance-sheet transactions that have , or are reasonably likely to have , a current or future
| results of operations year ended december 31 , 2011 compared with the year ended december 31 , 2010 net sales net sales in 2011 increased by $ 615,438 ( 4.5 % ) compared with 2010. this increase was primarily attributable to the following : ( a ) personal care products : sales of the company 's personal care products , including cosmetic ingredients , increased by $ 845,548 ( 10.1 % ) for the year ended december 31 , 2011 when compared with 2010. the increase was attributable primarily to an increase in sales to asi , the company 's largest marketing partner . sales to the company 's marketing partner in the uk also increased in 2011. sales to the company 's three other marketing partners in europe and its marketing partner in south korea all experienced a decrease in 2011. the company believes that the increase in sales of its personal care products was the result of improving economic conditions in asia and north america , which resulted in new consumer product introductions utilizing its products . the overall increase in sales was almost entirely attributable to an increase in sales of the company 's extensive line of lubrajel® products . the company 's sales to asi increased by 21.5 % in 2011 compared with 2010 , which the company believes is partially due to normal fluctuations in asi 's buying patterns but is also attributable to new consumer product introductions and new customers for the company 's products . the company had combined sales decreases of $ 338,854 ( 15.6 % ) in 2011 compared with 2010 from its other five marketing partners ( four of whom are in western europe ) . the company attributes this decrease to a decline in the economic conditions in western europe in 2011 , which resulted in a decrease in demand for personal care and cosmetic ingredients .
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overview diamondrock hospitality company is a lodging-focused maryland corporation operating as a real estate investment trust ( reit ) . as of december 31 , 2014 , we owned a portfolio of 27 premium hotels and resorts that contain 10,552 guest rooms . - 32 - subsequent to december 31 , 2014 , we acquired an additional 157-room hotel . as an owner , rather than an operator , of lodging properties , we receive all of the operating profits or losses generated by our hotels after the payment of fees due to hotel managers , which are calculated based on the revenues and profitability of each hotel . our vision is to be the premier allocator of capital in the lodging industry . our mission is to deliver long-term stockholder returns through a combination of dividends and enduring capital appreciation . our strategy is to utilize disciplined capital allocation and focus on the acquisition , ownership and innovative asset management of high-quality lodging properties in north american markets with superior growth prospects and high barriers-to-entry . in addition , we are committed to maintaining a strong asset management discipline that focuses on maximizing returns through appropriate revenue management strategies , cost containment plans and capital improvements . we do all this while maintaining low leverage and balance sheet flexibility . our portfolio is concentrated in key gateway cities and destination resort locations . each of our hotels is managed by a third party and a substantial number of our hotels are operated under a brand owned by one of the leading global lodging brand companies ( marriott international , inc. ( “ marriott ” ) , starwood hotels & resorts worldwide , inc. ( “ starwood ” ) and hilton worldwide ( “ hilton ” ) ) . we critically evaluate each of our hotels to ensure that we own a portfolio of hotels that conforms to our vision , supports our mission and corresponds with our strategy . on a regular basis , we analyze our portfolio to identify opportunities to invest capital in certain projects or market non-core assets for sale in order to increase our portfolio quality . we are committed to a conservative capital structure with prudent leverage . we regularly assess the availability and affordability of capital in order to maximize stockholder value and minimize enterprise risk . in addition , we are committed to following sound corporate governance practices and being open and transparent in our communications with our stockholders . high-quality urban- and destination resort-focused branded hotel real estate as of december 31 , 2014 , we owned 27 premium hotels and resorts throughout north america and the u.s. virgin islands . our hotels and resorts are primarily categorized as upper upscale as defined by smith travel research and are generally located in high barrier-to-entry markets with multiple demand generators . our properties are concentrated in key gateway cities and in resort destinations . we consider lodging properties located in gateway cities and resort destinations to be the most capable of creating dynamic cash flow growth and achieving superior long-term capital appreciation . we have been executing on our strategy to enhance our hotel portfolio by actively recycling capital from non-core hotels located in slower growth markets to higher quality hotels located primarily in high-growth urban and destination resort markets . since 2010 , we have repositioned our portfolio through the acquisition of approximately $ 1.6 billion of urban and resort hotels that align with our strategic goals while disposing of more than $ 0.6 billion in non-core hotels . these acquisitions increased our urban exposure with additional hotels in cities such as san diego , san francisco , boston , denver , washington , d.c. as well as our resort exposure with our recent acquisitions in key west and fort lauderdale , florida . over 90 % of our portfolio ebitda as of december 31 , 2014 is currently derived from core urban and resort hotels . our capital recycling program over the past five years also achieved several other important strategic portfolio goals that include improving our portfolio 's geographic and brand diversity and striving towards a mix of 50 percent brand-managed and 50 percent third-party managed hotels in our portfolio . moreover , the primary focus of our acquisitions over the past five years was on hotels that we believe presented unique value-add opportunities , such as repositioning through a change in brand or comprehensive renovation or changing the third-party hotel manager to a more efficient operator . for example , we recently completed a $ 140 million capital expenditure program , which included major capital investments at the lexington hotel new york , courtyard manhattan/fifth avenue , courtyard manhattan/midtown east , westin washington , d.c. city center , westin san diego , hilton boston downtown and hilton minneapolis . we evaluate each hotel in our portfolio to assess the optimal branding strategy for the individual hotel and market . we leverage the leading global hotel brands at most of our hotels , which are flagged under a brand owned by marriott , hilton or starwood . we also maintain a small portion of our hotels as independent non-branded hotels . we believe that premier global hotel brands create significant value as a result of each brand 's ability to produce incremental revenue through their strong reservation and rewards systems and sales organizations with the result being that branded hotels are able to generate greater profits than similar unbranded hotels . we are also interested in owning other non-branded hotels located in premier or unique markets where we believe that the returns on such a hotel may be higher than if the hotel were operated under a globally-recognized brand . during 2015 , we expect to evaluate opportunities to acquire hotels located in urban and destination resort markets , with an emphasis on prime markets on the west coast and south florida , as well as other select destination resort markets . story_separator_special_tag these key indicators include financial information that is prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) , as well as other financial information that is not prepared in accordance with gaap . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the performance of individual hotels , groups of hotels and or our business as a whole . we periodically compare historical information to our internal budgets as well as industry-wide information . these key indicators include : occupancy percentage ; average daily rate ( or adr ) ; revenue per available room ( or revpar ) ; earnings before interest , income taxes , depreciation and amortization ( or ebitda ) and adjusted ebitda ; and funds from operations ( or ffo ) and adjusted ffo . occupancy , adr and revpar are commonly used measures within the hotel industry to evaluate operating performance . revpar , which is calculated as the product of adr and occupancy percentage , is an important statistic for monitoring operating performance at the individual hotel level and across our business as a whole . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a company-wide and regional basis . adr and revpar include only room revenue . room revenue comprised approximately 72 % of total revenues for the year ended december 31 , 2014 and is dictated by demand , as measured by occupancy percentage , pricing , as measured by adr , and our available supply of hotel rooms . our adr , occupancy percentage and revpar performance may be impacted by macroeconomic factors such as u.s. economic conditions generally , regional and local employment growth , personal income and corporate earnings , office vacancy rates and business relocation decisions , airport and other business and leisure travel , new hotel construction and the pricing strategies of competitors . in addition , our adr , occupancy percentage and revpar performance is dependent on the continued success of our hotels ' global brands . we also use ebitda , adjusted ebitda , ffo and adjusted ffo as measures of the financial performance of our business . see “ non-gaap financial measures. ” overview of 2014 - 35 - the u.s. lodging industry exceeded prior historical peak levels of occupancy during 2014 , and new hotel supply remained below the historical average . we entered 2014 with three major strategic goals : ( 1 ) execute on asset management initiatives to maximize hotel operating results , ( 2 ) actively recycle capital to further upgrade our portfolio through acquisitions and dispositions , and ( 3 ) opportunistically take advantage of the interest rate environment to lower borrowing costs . the company was successful in achieving all three of these goals . key highlights for 2014 include the following : hotel acquisitions . on august 15 , 2014 , we acquired the 106-room inn at key west in key west , florida , for a contractual purchase price of $ 47.5 million . on august 29 , 2014 , we acquired the 282-room hilton garden inn times square in new york for a contractual purchase price of $ 127.2 million . on december 3 , 2014 , we acquired the 432-room westin fort lauderdale beach resort in fort lauderdale , florida , for a contractual purchase price of $ 149.0 million . non-core hotel dispositions . on april 14 , 2014 , we sold the 386-room oak brook hills resort for $ 30.1 million , including $ 4.0 million of seller financing . on december 18 , 2014 , we sold the 1,004-room los angeles airport marriott for proceeds of approximately $ 160 million , which included credit for the hotel 's capital replacement reserve . in conjunction with the sale , we prepaid the existing $ 82.6 million mortgage loan secured by the hotel and incurred approximately $ 1.6 million of defeasance costs . hotel refinancings . on july 18 , 2014 , we entered into a new $ 86.0 million mortgage loan secured by the courtyard manhattan/midtown east . the new loan matures in 2024 and bears interest at a fixed rate of 4.40 % . the new loan is interest-only for the first two years after which principal will amortize over 30 years . the hotel was previously encumbered by a $ 41.3 million mortgage loan bearing interest at a fixed rate of 8.81 % , which was prepaid in full on july 1 , 2014. on october 8 , 2014 , we amended our existing $ 170.4 million mortgage loan secured by the lexington hotel new york . the amendment reduces the variable-rate loan 's interest rate spread and extends the term of the loan by approximately 30 months to october 2017. allerton loan . on may 21 , 2014 , the owner of the allerton hotel prepaid to us at par the outstanding $ 58.5 million senior mortgage loan secured by the allerton hotel . public equity offering . in november 2014 , we commenced a $ 200 million “ at-the-market ” equity offering program ( the “ atm program ” ) . as of december 31 , 2014 , we sold 4,217,560 shares of our common stock at an average price of $ 15.12 for net proceeds of $ 63.1 million . subsequent to december 31 , 2014 and up to the date of this report , we sold 524,606 shares of our common stock at an average price of $ 15.18 for net proceeds of $ 7.9 million . recent developments on february 6 , 2015 , we acquired the 157-room shorebreak hotel located in huntington beach , california for a contractual purchase price of $ 58.5 million . outlook for 2015 the 2015 outlook for the u.s. economy and lodging fundamentals is optimistic .
| results of operations the following table sets forth certain operating information for the year ended december 31 , 2014 for each of the hotels we owned during 2014 . - 36 - replace_table_token_6_th ( 1 ) the percentage change from 2013 revpar reflects the comparable period in 2013 to our 2014 ownership period , excluding the hilton garden inn times square central , which opened for business on september 1 , 2014 . ( 2 ) the hotel was sold on december 18 , 2014. the operating statistics reflect the period from january 1 , 2014 to december 17 , 2014 . ( 3 ) the hotel was purchased on december 3 , 2014. the operating results reflect the period from december 3 , 2014 to december 31 , 2014 . ( 4 ) the hotel was sold on april 14 , 2014. the operating statistics reflect the period from january 1 , 2014 to april 13 , 2014 . ( 5 ) the hotel opened for business on september 1 , 2014. the operating statistics reflect the period from september 1 , 2014 to december 31 , 2014 . ( 6 ) the hotel was purchased on august 15 , 2014. the operating statistics reflect the period from august 15 , 2014 to december 31 , 2014. comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 revenue . revenue consists primarily of the room , food and beverage and other operating revenues from our hotels , as follows ( in millions ) : replace_table_token_7_th our total revenues increased $ 73.2 million from $ 799.7 million for the year ended december 31 , 2013 to $ 872.9 million for the year ended december 31 , 2014 . this increase includes amounts that are not comparable year-over-year as follows : - 37 - $ 17.4 million decrease from the oak brook hills resort , which was sold on april 14 , 2014 .
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it is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. a discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019 is presented under results of operations in this form 10-k. discussions regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 have been omitted from this annual report on form 10-k , but can be found in part ii , item 7 . `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the fiscal year ended march 30 , 2019 , filed with the sec on may 17 , 2019 , which is available free of charge on the sec 's website at sec.gov and on our website at www.poly.com . this discussion contains forward-looking statements . please see the sections entitled `` certain forward looking information '' and `` risk factors '' above for discussions of the uncertainties , risks , and assumptions associated with these statements . our fiscal year-end financial reporting periods end on the saturday closest to march 31 st . fiscal years 2020 , 2019 , and 2018 each had 52 weeks and ended on march 28 , 2020 , march 30 , 2019 , and march 31 , 2018 respectively . overview plantronics , inc. ( “ poly , ” “ company , ” “ we , ” “ our , ” or “ us ” ) is a leading global communications company that designs , manufactures , and markets integrated communications and collaboration solutions . poly combines legendary audio expertise and powerful video and conferencing capabilities to overcome the distractions , complexity and distance that make communication in and out of the workplace challenging . our major product categories are headsets , which includes wired and wireless communication headsets ; voice , video , and content sharing solutions , which includes open session initiation protocol ( “ sip ” ) and native ecosystem desktop phones , conference room phones , and video conferencing solutions and peripherals , including cameras , speakers , and microphones . all of our solutions are designed to integrate seamlessly with the platform and services of our customers choice in a wide range of unified communications & collaboration ( `` uc & c '' ) , unified communication as a service ( `` ucaas '' ) , and video as a service ( `` vaas '' ) environments . our cloud management and analytics software enables it administrators to configure and update firmware , monitor device usage , troubleshoot , and gain deep understanding of user behavior . in addition , we have a broad portfolio of services including video interoperability , support for our solutions and hardware devices , as well as professional , hosted , and managed services that are grounded in our deep expertise aimed at helping customers achieve their goals for collaboration . on july 2 , 2018 , we completed our acquisition of all of the issued and outstanding shares of capital stock of polycom for approximately $ 2.2 billion in stock and cash . as a result , on that date we also became a leading global provider of open , standards-based unified communications & collaboration ( `` uc & c '' ) endpoints for voice , video , and content sharing , and a comprehensive line of support and services for the workplace under the polycom brand . our consolidated financial results for fiscal year 2019 , includes the financial results of polycom from july 2 , 2018 or three quarters compared to full year financial results in fiscal year 2020 and therefore the results discussed below are not directly comparable . for more information regarding the acquisition , refer to note 4 , acquisition , of the accompanying notes to consolidated financial statements . 43 total net revenues ( in millions ) compared to the prior year , net revenues increased 1.3 % to $ 1.7 billion . the increase in net revenues was primarily related to the acquisition , which was partially offset by declines in sales of headset products . as a result of purchase accounting , a total of $ 34.0 million of deferred revenue that otherwise would have been recognized in fiscal year 2020 was excluded from annual net revenues of approximately $ 1.7 billion . the table below summarizes net revenues for the fiscal years ended march 28 , 2020 , and march 30 , 2019 by operating segment and product categories : replace_table_token_3_th 1 voice and video product net revenues presented net of fair value adjustments to deferred revenue of $ 1.9 million and $ 7.9 million for the fiscal year ended march 28 , 2020 , and march 30 , 2019 , respectively . 2 services net revenues presented net of fair value adjustments to deferred revenue of $ 32.1 million and $ 76.9 million for the fiscal year ended march 28 , 2020 and march 30 , 2019 , respectively . 44 operating loss ( in millions ) operating loss increased from the prior year to $ ( 804.1 ) million or ( 47.4 ) % of net revenues , driven primarily by a non-cash impairment charge of $ 179.6 million related to our intangible assets and property , plant , and equipment in the voice asset group , as well as a non-cash goodwill impairment charge of $ 483.7 million to its voice and video reporting units as a result of an overall decline in the company 's earnings and a sustained decrease in its share price . the impairment assessment was further complicated by the impact of covid-19 . our strategic initiatives are primarily focused on driving revenue growth through our end-to-end portfolio of audio and video endpoints , including headsets , desktop phones , conference room phones , and video collaboration solutions . story_separator_special_tag 50 income tax expense replace_table_token_12_th the effective tax rate for fiscal year 2020 was lower than the previous year due to increase in pre-tax losses and benefit from internal intangible property restructuring between our wholly-owned subsidiaries to align the ip structure to our evolving operations resulting in a deferred tax benefit due to the difference in book and tax basis , partially offset by a valuation allowance recorded against u.s. deferred tax assets and stock-based compensation expense recorded following the decision in altera corp v. commissioner by the u.s. court of appeals for the ninth circuit , discussed below . management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets . a significant piece of objective negative evidence evaluated was the cumulative loss incurred over the two-year period ended march 28 , 2020 and fiscal year 2021 forecasted results in the u.s. such objective evidence limits the ability to consider other subjective evidence , such as our projections for future growth . on the basis of this evaluation , as of march 28 , 2020 , a valuation allowance of $ 72 million was recorded against our u.s. deferred tax assets . the amount of the deferred tax asset considered realizable , however , could be adjusted if estimates of future taxable income are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our future projections . on june 7 , 2019 , a ninth circuit panel reversed the united states tax court 's holding in altera corp. v. commissioner and upheld the portion of the treasury regulations issued under irc section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs . at this time , the taxpayer is protesting the decision in an en banc rehearing in the us court of appeals ninth circuit . we have considered the issue and have recorded an $ 8.6 million discrete tax charge resulting from the cost sharing of prior stock-based compensation , partially offset by a reduction to the 2017 tax cuts and jobs act toll charge accrued in prior periods . we will continue to monitor developments related to the case and the potential impact on our consolidated financial statements . our effective tax rate for fiscal 2020 , 2019 , and 2018 differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates , goodwill impairment charge , income tax credits , state taxes , the tax act , and other factors . our future tax rate could be impacted by a shift in the mix of domestic and foreign income , tax treaties with foreign jurisdictions , changes in tax laws in the u.s. or internationally , or a change in estimate of future taxable income , which could result in a valuation allowance being required . 51 financial condition operating cash flow ( in millions ) investing cash flow ( in millions ) financing cash flow ( in millions ) we use cash provided by operating activities as our primary source of liquidity . we expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors , including fluctuations in our revenues , the timing of compensation-related payments , such as our annual bonus/variable compensation plan , interest payments on our long-term debt , product shipments during the quarter , accounts receivable collections , inventory and supply chain management , and the timing and amount of tax and other payments . operating activities compared to fiscal year 2019 , net cash provided by operating activities during fiscal year 2020 decreased primarily due to lower cash collections , increased cash paid for interest on long-term debt , and an increase in cash paid for restructuring activities . these were partially offset by a decrease in cash paid for integration activities as we completed our integration of the two companies . investing activities net cash used for investing activities during fiscal year 2020 primarily was used for the purchase of property , plant and equipment and was partially offset by proceeds from the sale of real property and our gaming headset product portfolio . net cash used for investing activities during fiscal year 2019 increased from the prior fiscal year primarily due to the acquisition which closed on july 2 , 2018. refer to note 4 , acquisition . this decrease was partially offset by the proceeds from the sales and maturities of investments . we anticipate our capital expenditures in fiscal year 2021 will be approximately $ 25 million to $ 35 million , pertaining to costs associated in our manufacturing capabilities , including tooling for new products , new information technology ( `` it '' ) investments , and facilities upgrades . we will continue to evaluate new business opportunities and new markets ; as a result , our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth . 52 financing activities net cash used in financing activities during fiscal year 2020 primarily was used for early repayment of long-term debt , dividend payments on our common stock , and taxes paid on behalf of employees related to net share settlements of vested employee equity awards . the uses of cash were partially offset by proceeds from issuance of common stock from our employee stock purchase plan ( `` espp '' ) . net cash provided by financing during fiscal year 2019 increased from the prior fiscal year as a result of the proceeds received from the term loan facility which were partially offset by repayment of long-term debt , dividend payments , and repurchases of common stock during the fiscal year .
| results of operations we group our operations into two reportable segments : products and services . our products segment consists of headsets , voice , and video product categories and our services segment consists of support , professional , managed and cloud services and solutions . our consolidated financial results for fiscal year 2019 includes the financial results of polycom from july 2 , 2018 , or three quarters compared to full year financial results in fiscal year 2020. therefore , the results of operations discussed below are not directly comparable . the following graphs display net revenues by segment for fiscal years 2020 , 2019 , and 2018 : net revenues ( in millions ) revenue by segment ( percent ) products 46 net revenues decreased in fiscal year 2020 compared to the prior fiscal year primarily due to the headset product category . while we saw record demand for headsets during our fourth quarter of fiscal year 2020 , we experienced annual declines across nearly all product lines including non-uc & c enterprise headsets , gaming headsets , mono bluetooth headsets , and stereo bluetooth headsets . the declines were the result of several factors , including product transitions , sales integration and channel consolidation issues , microsoft skype to teams transition , trade and tariff issues in china , and other factors . in addition , the company made the decision to reduce channel inventories in the third and fourth quarter to optimize inventory levels by reducing sales into our distributors in the following quarters . additionally , as communicated , the company determined that it would focus its headset sales on enterprise headsets and would optimize its consumer inventory while selling its gaming headset assets .
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diluted net loss per common share is computed using the weighted average number of common shares outstanding and the weighted average dilutive potential common shares outstanding using story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements , related notes and other financial information included elsewhere in this annual report on form 10-k. overview synta pharmaceuticals corp. is a biopharmaceutical company focused on discovering , developing , and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions , including cancer and chronic inflammatory diseases . we have two drug candidates in clinical trials for treating multiple types of cancer and several drug candidates in the preclinical stage of development . all of our drug candidates have been discovered and developed internally using our proprietary , unique chemical compound library and integrated discovery engine . we retain full ownership of all of our drug candidates . we were incorporated in march 2000 and commenced operations in july 2001. since that time , we have been principally engaged in the discovery and development of novel drug candidates . as of december 31 , 2013 , we have raised an aggregate of approximately $ 724.4 million in cash proceeds to fund operations , including $ 522.3 million in net proceeds from private and public offerings of our equity , $ 30.5 million in gross proceeds from term loans and $ 167.2 million in non-refundable payments from partnering activities under prior collaborations , as well as $ 4.4 million from the exercise of common stock warrants and options . we have also generated funds from government grants , equipment lease financings and investment income . we are engaged in preliminary partnership discussions for a number of our programs , which may provide us with additional financial resources if consummated . we have devoted substantially all of our capital resources to the research and development of our drug candidates . since our inception , we have had no revenues from product sales . as of december 31 , 2013 , we had an accumulated deficit of $ 551.4 million . we expect to incur significant operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical development and clinical trials , and seek regulatory approval and eventual commercialization . we will need to generate significant revenues from product sales to achieve future profitability and may never do so . oncology programs we have two clinical-stage programs in oncology ( ganetespib and elesclomol ) and a novel , proprietary small molecule cancer drug development program ( the hdc platform ) . ganetespib ( hsp90 inhibitor ) ganetespib is a novel , potent , small molecule inhibitor of hsp90 , a molecular chaperone which is required for the proper folding and activation of many cancer-promoting proteins . inhibition of hsp90 by ganetespib leads to the simultaneous degradation of many of these client proteins and the subsequent death or cell cycle arrest of cancer cells dependent on those proteins . a number of hsp90 client proteins are also involved in the resistance of cancer cells to other anti-cancer treatments , such as chemotherapy . the ability to reduce cancer-cell drug resistance suggests that the combination of ganetespib with chemotherapies or other anti-cancer agents may provide greater benefit than those agents administered alone . in preclinical studies , ganetespib has shown potent anti-cancer activity against a broad range of solid and hematologic cancers , both as a monotherapy and in combination with certain widely used anti-cancer agents . 57 ganetespib is currently being evaluated in a broad range of cancer clinical trials including our galaxy nsclc program ( galaxy-1 and galaxy-2 ) in combination with docetaxel chemotherapy , and as monotherapy in certain genetically-defined targeted patient populations . a favorable safety profile has been consistently observed across clinical trials , involving approximately 1,000 patients treated with ganetespib to date . ganetespib has not shown the serious liver or common ocular toxicities reported with other hsp90 inhibitors , or the neurotoxicity , bone marrow toxicities , and alopecia characteristic of many chemotherapies . the most common adverse event reported with ganetespib has been transient , mild or moderate diarrhea , which can be prevented or effectively managed with standard supportive care . the results observed to date in our galaxy program suggest a significant potential commercial opportunity for use of ganetespib in combination with docetaxel as second-line treatment of patients with nsclc . across the united states , united kingdom , germany , france , spain , italy , and japan , there are an estimated 160,000 patients each year who have progressed on first line therapy and are eligible for subsequent treatment of non-small cell lung adenocarcinoma . approximately 90,000 of these eligible patients are estimated to be chemosensitive and negative for both egfr mutation and alk translocation . in addition , over 500,000 patients receive taxanes each year ( docetaxel or paclitaxel ) , across all cancer indications . ganetespib mechanism of action hsp90 is required for the structural and functional maturation of numerous client proteins , many of which play critical roles in cell growth , differentiation and survival . preclinical and clinical results have shown that ganetespib is a selective inhibitor of hsp90 , supporting the potential for treating a broad range of malignancies . relative to their normal counterparts , cancer cells are more reliant on elevated levels of the active hsp90 complex and as such , appear to be selectively sensitive to hsp90 inhibitors , including ganetespib . recent published work has shown that cancer cells overexpress an active form of hsp90 that preferentially binds hsp90 inhibitors , providing a mechanistic explanation for this selectivity . in contrast to therapies that target a single oncogene driver , such as alk or her2 , inhibition of hsp90 results in the simultaneous disruption of numerous oncogenic signaling pathways that are critical for tumor cell proliferation and survival . the biological effects of ganetespib can be divided into three categories : deactivate driver oncogenes . story_separator_special_tag overall survival hazard ratio in the chemosensitive population was 0.75 ( 90 % ci 0.56 , 1.03 ; 1-sided p=0.065 ) and 0.72 ( 90 % c.i . 0.52 , 0.98 ; 1-sided p=0.040 ) in the cox proportional hazards univariate ( unadjusted ) and multivariate ( adjusted ) models , respectively . median overall survival improved from 7.4 months to 10.7 months in the d vs. g+d arms , respectively . results are shown in figure 1 below . results for progression-free survival were consistent with the improvements observed for overall survival . pfs hazard ratio in the chemosensitive population was 0.73 ( 90 % ci 0.55 , 0.96 ; 1-sided p=0.031 ) and 0.72 ( 90 % c.i . 0.53 , 0.96 ; 1-sided p=0.03 ) in the cox proportional hazards univariate ( unadjusted ) and multivariate ( adjusted ) models . median pfs improved from 3.4 months to 5.3 months , in the d vs. g+d arms , respectively . results are shown in figure 1 below . in the refractory population ( n=75 ) , which progressed rapidly on or shortly after first-line chemotherapy , no benefit was observed . the overall survival hazard ratios were 1.32 ( 90 % ci 0.82 , 2.11 ) and 1.18 ( 90 % ci 0.71 , 1.94 ) in the cox proportional hazards univariate ( unadjusted ) and multivariate ( adjusted ) models , respectively . these results are consistent with results from preclinical studies showing that ganetespib may be most effective in chemosensitive cancers . preclinical findings by our collaborators at the university of leicester , uk , showed that certain signaling pathways in mitochondria are necessary for both ganetespib and chemotherapy activity . when these pathways cease to function due to a mutation or other change , both ganetespib and chemotherapy are inactive . these findings support the observation that ganetespib may be most effective in chemosensitive cancers . final enrollment in the galaxy-1 trial was completed in may 2013. we expect to conduct the final data analysis for the galaxy-1 trial in the second quarter of 2014. publication and presentation of the final data is expected in the second half of 2014 . 60 figure 1 : pfs and os l for the chemosensitive patient population of galaxy-1 ( diagnosis > 6 months ) selected for evaluation in the galaxy-2 phase 3 trial pfs overall survival safety the safety profile of adenocarcinoma patients treated with the combination of ganetespib ( g ) and docetaxel ( d ) was favorable , consistent with previously reported results . the most common adverse events ( aes ) , all grades , were neutropenia ( 44 % vs. 45 % ) , diarrhea ( 49 % vs. 16 % ) and fatigue ( 34 % vs. 24 % ) , for g+d ( n=123 ) vs. d ( n=126 ) , respectively . diarrhea was effectively managed with supportive care ; the incidence of grade 3 or 4 diarrhea was 4 % ( g+d ) vs. 0 % ( d ) . fatigue was predominantly grade 1 and grade 2 ; grade 3 or 4 fatigue was 6 % ( g+d ) vs. 4 % ( d ) . the most common grade 3 or 4 aes were neutropenia ( 38 % vs. 42 % ) , febrile neutropenia ( 9 % vs. 4 % ) , and anemia ( 8 % vs. 2 % ) . the proportions of patients with aes leading to death were 15 % vs. 12 % , and aes leading to treatment discontinuation were 7 % vs. 6 % for g+d vs. d , respectively . a high incidence of visual impairment has been reported following treatment with certain other hsp90 inhibitors . consistent with prior findings with ganetespib , reports of visual impairment in this study were infrequent : 2 ( 2 % ) in the g+d arm and 0 ( 0 % ) in the d arm . both cases of visual impairment were transient and were grade 1. the safety profile of patients in the chemosensitive population being evaluated in phase 3 ( diagnosis of advanced disease > 6 months ) was comparable to the profile in the all adenocarcinoma population . choice of galaxy-2 phase 3 patient population a key objective of the galaxy-1 trial was to select the patient population for the confirmatory galaxy-2 phase 3 trial . results presented at prior medical meetings and at the october 2013 wclc meeting show enhanced ganetespib activity in the chemosensitive patient population , which represents approximately 70 % of all enrolled adenocarcinoma patients . optimization of the galaxy-2 operational plan based on the galaxy-1 results one of the three aims of the galaxy-1 trial noted above was to build the clinical and operational experience to optimize the design and execution of the galaxy-2 phase 3 trial . a principal element of optimizing the operational plan is reducing patient population heterogeneity , which can often confound large , global , registration trials . our analysis of data to date from galaxy-1 revealed that medical profiles from certain patients enrolled from two eastern european countries differed from patterns typical of patients enrolled from other countries in this study , as well as patients enrolled in other clinical trials for the treatment of 61 advanced second-line nsclc . forty-one patients out of the 253 adenocarcinoma patients enrolled in galaxy-1 were enrolled from these two countries . based on these findings , we are no longer enrolling patients from these two countries in the galaxy-2 trial . we expect approximately 10 % of the total galaxy-2 patient population will be from these countries when fully enrolled . we are currently adding a substantial number of sites in north america and western europe to galaxy-2 . we expect approximately 75 % of sites in galaxy-2 will be from these western regions .
| consolidated results of operations years ended december 31 , 2013 , 2012 and 2011 revenue replace_table_token_5_th roche overview . in december 2008 , as amended in february 2010 , february 2011 and july 2011 , we entered into a collaborative license agreement with roche to discover , develop , and commercialize small-molecule drugs targeting cracm channels and received a $ 16 million nonrefundable upfront payment from roche in january 2009. reimbursements of research and development costs to us by roche were recorded as cost sharing revenue in the period in which the related research and development costs were incurred . the initial two-year research term concluded on december 31 , 2010. on november 16 , 2011 , we received written notice of roche 's election to terminate the roche agreement , which termination became effective on february 16 , 2012 . ( see notes 2 and 8 in the accompanying consolidated financial statements . ) license and milestone revenue under the roche agreement decreased by $ 6.7 million in 2012 as compared to 2011. in the fourth quarter of 2011 , upon notification of roche 's election to terminate the roche agreement , we accelerated the recognition of approximately $ 2.1 million of remaining deferred revenue from the upfront payment because we had no remaining significant performance obligations . grant revenue grant revenue decreased by $ 0.1 million in 2013 as compared to 2012 and by $ 0.8 million in 2012 as compared to 2011. in march 2011 , we received a grant from the department of defense , dod , in the approximate amount of $ 1 million , for the development of sta-9584 in advanced prostate cancer . we conducted work on this study during the grant period from april 2011 through march 2012. reimbursements were based on actual costs agreed upon in the proposal ( salary , fringe benefits , overhead , and direct costs such as materials and subcontractors ) .
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the first quarter in which each nme and the diagnostic agent initially entered phase iii for any indication is shown in parentheses : flortaucipir * * ( q3 2015 ) —a positron emission tomography ( pet ) tracer intended to image tau ( or neurofibrillary ) tangles in the brain , which are an indicator of alzheimer 's disease . mirikizumab * ( q2 2018 ) —a monoclonal antibody designed for the treatment of autoimmune diseases . pegilodecakin * ( q1 2017 ) —a pegylated il-10 , which has demonstrated clinical benefit as a single agent , and in combination with both chemotherapy and checkpoint inhibitor therapy , across several tumor types . solanezumab * ( q2 2009 ) —an anti-amyloid beta monoclonal antibody for the treatment of preclinical alzheimer 's disease . tanezumab * ( q3 2008 ) —an anti-nerve growth factor monoclonal antibody for the treatment of osteoarthritis pain , chronic low back pain , and cancer pain ( in collaboration with pfizer inc. ) . tirzepatide * ( q4 2018 ) —a long-acting , combination therapy of glucose-dependent insulinotropic polypeptide ( gip ) and glucagon-like peptide 1 for the treatment of type 2 diabetes . ultra-rapid lispro * ( q3 2017 ) —an ultra-rapid insulin for the treatment of type 1 and type 2 diabetes . * biologic molecule subject to the u.s. biologics price competition and innovation act * * diagnostic agent the following table reflects the status of the recently approved products , nmes , and diagnostic agent set forth above , as well as certain other developments to our late-stage pipeline since january 1 , 2018 : compound indication u.s. europe japan developments endocrinology nasal glucagon severe hypoglycemia submitted phase iii submitted to u.s. food and drug administration ( fda ) in second quarter of 2018. submitted to european regulatory authorities in third quarter of 2018. tirzepatide type 2 diabetes phase iii phase iii trials were initiated during the fourth quarter of 2018. ultra-rapid lispro type 1 and 2 diabetes phase iii in the fourth quarter of 2018 , announced phase iii trials met primary efficacy endpoint . submission to regulatory authorities expected in 2019 . 32 compound indication u.s. europe japan developments immunology mirikizumab psoriasis phase iii phase iii trials were initiated during the second quarter of 2018. ulcerative colitis phase iii phase iii trial was initiated during the second quarter of 2018. olumiant rheumatoid arthritis launched granted approval of 2mg dose by fda and launched in u.s. in second quarter of 2018. atopic dermatitis phase iii in the first quarter of 2019 , announced phase iii trials met primary endpoint . additional phase iii trials are ongoing . systemic lupus erythematosus phase iii phase iii trials were initiated during the third quarter of 2018. granted fast track designation ( 1 ) from the fda in fourth quarter of 2018. neuroscience emgality cluster headache submitted phase iii in the second quarter of 2018 , announced phase iii trial met primary endpoint for episodic cluster headache . received breakthrough therapy designation ( 2 ) in the third quarter of 2018. submitted to fda in fourth quarter of 2018 and to european regulatory authorities in first quarter of 2019. granted priority review ( 3 ) from fda in first quarter of 2019. a separate phase iii trial did not meet primary endpoint for chronic cluster headache . migraine prevention launched phase iii approved and launched in the u.s. in the third and fourth quarters of 2018 , respectively . approved and launched in europe in the fourth quarter of 2018 and first quarter of 2019 , respectively . flortaucipir alzheimer 's disease phase iii in the third quarter of 2018 , announced phase iii trial met primary endpoints . in discussions with regulatory authorities to determine next steps . lanabecestat early and mild alzheimer 's disease discontinued phase iii trials discontinued in second quarter of 2018. lasmiditan migraine submitted phase iii submitted to fda in fourth quarter of 2018. phase iii trials are ongoing . solanezumab preclinical alzheimer 's disease phase iii phase iii trial is ongoing . tanezumab osteoarthritis pain phase iii in the third quarter of 2018 and the first quarter of 2019 , announced multiple phase iii trials met primary endpoints . we anticipate additional readouts from the program to be available in 2019. chronic low back pain phase iii in the first quarter of 2019 , announced phase iii trial met primary endpoint for the 10mg dose and did not meet primary endpoint on the 5mg dose . we anticipate additional readouts from the program to be available in 2019. cancer pain phase iii phase iii trial is ongoing . 33 compound indication u.s. europe japan developments oncology lartruvo soft tissue sarcoma launched phase iii granted accelerated approval by the fda based on phase ii data and launched in the u.s. in 2016. granted conditional approval and launched in europe in 2016. in the first quarter of 2019 , announced confirmatory phase iii trial did not meet primary endpoint . as trial did not confirm clinical benefit , we are suspending promotion and are in discussions with global regulators to determine next steps . pegilodecakin pancreatic cancer phase iii acquired with armo in the second quarter of 2018. phase iii trial is ongoing . see note 3 to the consolidated financial statements for information on the acquisition . verzenio adjuvant breast cancer phase iii phase iii trial is ongoing . metastatic breast cancer launched approved approved in europe and japan in the fourth quarter of 2018 . ( 1 ) the fda 's fast track designation is designed to expedite the development and review of new therapies to treat serious conditions and address unmet medical needs . story_separator_special_tag we lost patent exclusivity for the bipolar mania indication for zyprexa ® in japan in april 2016. generic versions of zyprexa launched in japan in june 2016. the loss of exclusivity for zyprexa in japan has caused a rapid and severe decline in revenue for the product . we lost our patent exclusivity for strattera ® in the u.s. in may 2017 , and generic versions of strattera were approved in the same month . following a settlement related to the compound patent challenge for effient ® , generic products launched in the u.s. in the third quarter of 2017. the entry of generic competition for these products has caused a rapid and severe decline in revenue , which , in the aggregate , has had a material adverse effect on our consolidated results of operations and cash flows . our compound patent protection for cialis ® ( tadalafil ) and adcirca ® ( tadalafil ) expired in major european markets and the u.s. in november 2017 ; however , in the u.s. , we were granted pediatric exclusivity through may 2018. pursuant to a settlement agreement related to our unit dose patent in the u.s. , generic tadalafil entered the u.s. market in september 2018. we expect that the entry of additional generic competition into these markets following the loss of exclusivity will continue to cause a rapid and severe decline in revenue , which will , in the aggregate , have a material adverse effect on our consolidated results of operations and cash flows . our formulation patents for forteo ® expired in december 2018 and use patents will expire in august 2019 in major european markets and the u.s. both the formulation patent and the use patent expire in 2019 in japan . while it is difficult to estimate the severity of the impact of generic and or biosimilar competition in these markets , we expect a rapid and severe decline in revenue in the u.s. as a result of generic competition when the u.s. patents expire . outside the u.s. , we expect a decline in revenue following patent expirations ; however the decline may not be rapid and severe . in the aggregate , we expect that the decline in revenue will have a material adverse effect on our consolidated results of operations and cash flows . 35 the alimta ® vitamin regimen patents , which provide us with patent protection for alimta through june 2021 in japan and major european countries , and through may 2022 in the u.s. , have been challenged in each of these jurisdictions . our vitamin regimen patents have also been challenged in other smaller european jurisdictions . our compound patent for alimta expired in the u.s. in january 2017 , and expired in major european countries and japan in december 2015. we expect that the entry of generic competition for alimta following the loss of effective patent protection will cause a rapid and severe decline in revenue for the product , which will , in the aggregate , have a material adverse effect on our consolidated results of operations and cash flows . see note 15 to the consolidated financial statements for a more detailed account of the legal proceedings currently pending in the u.s. , europe , and japan regarding our alimta patents . the compound patent for humalog ® ( insulin lispro ) has expired in major markets . global regulators have different legal pathways to approve similar versions of insulin lispro . a similar version of insulin lispro launched in the u.s. in the second quarter of 2018 and in certain european markets in 2017. while it is difficult to estimate the severity of the impact of similar insulin lispro products entering the market , we do not expect and have not experienced a rapid and severe decline in revenue ; however , we expect additional pricing pressure and some loss of market share that would continue over time . foreign currency exchange rates as a global company with substantial operations outside the u.s. , we face foreign currency risk exposure from fluctuating currency exchange rates , primarily the u.s. dollar against the euro and japanese yen . while we manage a portion of these exposures through hedging and other risk management techniques , significant fluctuations in currency rates can have a substantial impact , either positive or negative , on our revenue , cost of sales , and operating expenses . while there is uncertainty in the future movements in foreign exchange rates , fluctuations in these rates could negatively impact our future consolidated results of operations and cash flows . the impact of the venezuelan financial crisis , including the significant deterioration of the bolívar , resulted in a charge of $ 203.9 million in 2016. see note 17 to the consolidated financial statements for additional information related to the charge . as of december 31 , 2018 , our venezuelan subsidiaries represented a de minimis portion of our consolidated assets and liabilities . we continue to monitor other deteriorating economies and it is possible that additional charges may be recorded in the future . any additional charges are not expected to have a material adverse effect on our future consolidated results of operations . 36 trends affecting pharmaceutical pricing , reimbursement , and access united states in the u.s. , public concern over access to and affordability of pharmaceuticals continues to drive the regulatory and legislative debate . these policy and political issues increase the risk that taxes , fees , rebates , or other cost control measures may be enacted to manage federal and state budgets . key health policy proposals affecting biopharmaceuticals include a reduction in biologic data exclusivity , modifications to medicare parts b and d , language that would allow the department of health and human services to negotiate prices for biologics and drugs in medicare , proposals that would require biopharmaceutical manufacturers to disclose proprietary drug pricing
| financial results the following table summarizes our key operating results : replace_table_token_10_th nm - not meaningful revenue and gross margin increased in 2017. the increase in operating expense in 2017 was primarily due to an increase in marketing , selling , and administrative expense . income before income taxes decreased in 2017 as higher asset impairment , restructuring , and other special charges , acquired ipr & d charges and , to a lesser extent , higher operating expense were partially offset by a higher gross margin . tax expense exceeded income before income taxes in 2017 as a result of the 2017 tax act , resulting in a net loss for the year . 42 certain items affect the comparisons of our 2017 and 2016 results . the 2017 highlighted items are summarized in the `` results of operations - executive overview '' section . the 2016 highlighted items are summarized as follows : acquired ipr & d ( note 3 to the consolidated financial statements ) we recognized acquired ipr & d charges of $ 30.0 million ( pretax ) , or $ 0.02 per share , related to upfront fees paid in connection with a collaboration agreement with astrazeneca to co-develop medi1814 , a potential disease-modifying treatment for alzheimer 's disease . asset impairment , restructuring , and other special charges ( note 5 to the consolidated financial statements ) we recognized charges of $ 382.5 million ( pretax ) , or $ 0.29 per share , related to integration and severance costs related to the acquisition of novartis ah , other global severance costs , and asset impairments primarily related to the closure of an animal health manufacturing facility in ireland . other-net , ( income ) expense ( note 17 to the consolidated financial statements ) we recognized charges of $ 203.9 million ( pretax ) , or $ 0.19 per share , related to the impact of the venezuelan financial crisis , including the significant deterioration of the bolívar .
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the following tables summarize the gross unrealized holding losses and fair value for investments in an unrealized loss position at january 28 , 2012 and january 29 , 2011 , and the length of time that individual securities have been in a continuous loss position ( in thousands ) : replace_table_token_22_th we did not record a realized loss for other-than-temporary impairments during the fiscal years ended january 28 , 2012 , january 29 , 2011 and january 30 , 2010. at january 28 , 2012 and january 29 , 2011 , we had $ 0.9 million invested , net of temporary impairment charge of $ 0.1 million , in an auction rate story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document . 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 certain factors , including those discussed in item 1a risk factors. see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. overview we are a mall based specialty retailer of action sports related apparel , footwear , equipment and accessories operating under the zumiez brand name . at january 28 , 2012 , we operated 444 stores primarily located in shopping malls , giving us a presence in 38 states and canada . our stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing a lifestyle centered on activities that include skateboarding , surfing , snowboarding , bmx and motocross . we support the action sports lifestyle and promote our brand through a multi-faceted marketing approach that is designed to integrate our brand image with our customers ' activities and interests . this approach , combined with our differentiated merchandising strategy , store design , comprehensive training programs and passionate employees , allows us to provide an experience for our customers that we believe is consistent with their attitudes , fashion tastes and identities and is otherwise unavailable in most malls . accordingly , our success is largely dependent upon our ability to anticipate , identify and respond to the fashion tastes of our customers and to provide merchandise that satisfies customer demands . fiscal 2011a review of this past year in fiscal 2011 zumiez achieved record sales and earnings levels and continued to build on the momentum we had seen in fiscal 2010. sales , margins and profit all improved for the year , exceeding internal projections , which was significant in an environment where increases in production costs and lingering economic worries had an impact on all of retail . in addition , while accomplishing these results , we continued to make strategic investments that we believe will reap long-term benefits focused on enhancing the customer experience across multiple sales channels , and on our people and infrastructure aimed at improving decision making and product speed to market . the table below shows net sales , operating profit and margin and diluted earnings per share growth for fiscal 2011 compared to fiscal 2010 : replace_table_token_9_th our sales results were primarily driven by an increase in dollars per transaction partially offset by a decrease in comparable store transactions . dollars per transaction increased primarily due to an increase in average unit retail , partially offset by a decline in units per transaction . these sales results were achieved with record product margins , demonstrating the strength of our distinctive product offering and the unique customer experience our store associates provide . as a result of our continued focus on managing our cost structure , these sales results translated into strong operating profit and diluted earnings per share growth . 28 fiscal 2012a look at the upcoming year there are indications that economic worries are less prevalent and the consumer psyche seems to be improving . while there is some uncertainty , particularly in today 's global economy , unemployment figures seem to be improving , consumer confidence is up and the inflationary concerns that retail faced a year ago should be less impactful in the upcoming year . we believe that we have momentum heading into fiscal 2012 , and regardless of the macro economic landscape , we should perform well relative to other retailers by staying true to what makes us unique while continuing to make return based investments . long-term we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing on our growth initiatives while managing our cost structure . our primary growth vehicles are : 1. initiatives that drive comparable store sales gains ; 2. opening high return stores ; 3. ecommerce penetration ; and 4. new ventures such as our recent expansion into canada . in fiscal 2012 we expect total sales to increase driven by an increase in comparable store sales , the opening of approximately 50 new stores , including up to 10 stores in canada , and increased sales from our ecommerce channel . if we achieve our sales projections , we expect earnings will increase . we will make further investments in people and infrastructure in fiscal 2012 , building on the progress we have made through fiscal 2011 , primarily focused on the development of our omni-channel sales strategies , continued progress on our product assortment planning and supply chain solutions , the move of our ecommerce fulfillment center to edwardsville , kansas , and a capital investment related to building a new home office planned to open in the second quarter of fiscal 2012. we anticipate inventory levels per square foot to grow slightly . we expect our cash , short-term investments and working capital to increase , and do not anticipate any borrowings on our credit facility . story_separator_special_tag on a regular basis , we review the accounting policies , assumptions , estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . our significant accounting policies are discussed in note 2 , summary of significant accounting policies , of the notes to consolidated financial statements , included in part iv item 15 , exhibits and consolidated financial statements , of this annual report on form 10-k. we believe that the following accounting estimates 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 . 30 description judgments and uncertainties effect if actual results differ from assumptions valuation of merchandise inventories we value our inventory at the lower of cost or fair market value through the establishment of write-down and inventory loss reserves . our write-down reserve represents the excess of the carrying value over the amount we expect to realize from the ultimate sales or other disposal of the inventory . write-downs establish a new cost basis for our inventory . subsequent changes in facts or circumstances do not result in the restoration of previously recorded write-downs or an increase in that newly established cost basis . our inventory loss reserve represents anticipated physical inventory losses ( shrinkage reserve ) that have occurred since the last physical inventory dates . each quarter , we reserve for anticipated physical inventory losses on an aggregate basis . our write-down reserve contains uncertainties because the calculation requires management to make assumptions based on the current rate of sales , the age of inventory , the profitability of the inventory and other factors . our inventory loss reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors , including historical percentages that can be affected by changes in merchandise mix and changes in actual shrinkage trends . we have not made any material changes in the accounting methodology used to calculate our write-down and inventory loss reserves in the past three fiscal years . 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 inventory reserves . however , if actual results are not consistent with our estimates and assumptions , we may be exposed to losses or gains that could be material . a 10 % decrease in ultimate sales price at january 28 , 2012 would have affected net income by $ 0.1 million in fiscal 2011. a 10 % difference in actual physical inventory shrinkage reserved at january 28 , 2012 would have affected net income by $ 0.2 million in fiscal 2011. fixed assets we review the carrying value of our fixed assets for impairment whenever events or changes in circumstances indicate that the carrying value of such asset may not be recoverable . recoverability of assets to be held and used is determined by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered impaired , the impairment recognized is measured by comparing projected individual store discounted cash flow to the asset carrying values . declines in projected store cash flow could result in the impairment of assets . the actual economic lives of our fixed assets may be different from our estimated useful lives , thereby resulting in a different carrying value . these evaluations could result in a change in the depreciable lives of these assets and therefore our depreciation expense in future periods . our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values , including forecasting future sales , gross profit and operating expenses and selecting the discount rate that reflects the risk inherent in future cash flows . our fixed assets accounting methodology contains uncertainties because it requires management to make estimates with respect to the useful lives of our fixed assets that we believe are reasonable . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses . however , if actual results are not consistent with our estimates and assumptions , our operating results could be adversely affected . although management believes that the current useful lives estimates assigned to our fixed assets are reasonable , factors could cause us to change our estimates , thus affecting the future calculation of depreciation . 31 description judgments and uncertainties effect if actual results differ from assumptions revenue recognition revenue is recognized upon purchase at our retail store locations . for orders placed through our website , revenue is recognized upon estimated delivery to the customer . revenue is recorded net of estimated and actual sales returns and deductions for promotions . revenue is not recorded on the sale of gift cards . a current liability is recorded upon sale , and revenue is recognized when the gift card is redeemed for merchandise . the amount of the gift card liability is determined taking into account our estimate of the portion of gift cards that will not be redeemed or recovered ( gift card breakage ) . gift card breakage is recognized as revenue after 24 months , at which time the likelihood of redemption is considered remote based on our historical redemption data .
| results of operations the following table presents , for the periods indicated , selected items in the consolidated statements of operations as a percent of net sales : replace_table_token_10_th ( 1 ) cost of goods sold and selling , general and administrative expenses for the fiscal years ended january 29 , 2011 and january 30 , 2010 have been revised to account for the reclassification of certain expenses from selling , general and administrative expenses to cost of goods sold . 33 fiscal 2011 results compared with fiscal 2010 net sales net sales were $ 555.9 million for fiscal 2011 compared to $ 478.8 million for fiscal 2010 , an increase of $ 77.1 million or 16.1 % . the increase reflected a comparable store sales increase of 8.7 % for fiscal 2011 as well as the net addition of 44 stores ( 45 new stores offset by one store closure ) in fiscal 2011. the increase in comparable stores sales was primarily driven by an increase in dollars per transaction , partially offset by a decline in comparable store transactions . dollars per transaction increased due to an increase in average unit retail , partially offset by a decrease in units per transaction . comparable store sales increases in footwear , men 's apparel , accessories and junior 's apparel were partially offset by comparable store sales decreases in hardgoods and boy 's apparel . for information as to how we define comparable stores , see general above . gross profit gross profit was $ 201.7 million for fiscal 2011 compared to $ 167.8 million for fiscal 2010 , an increase of $ 33.9 million , or 20.2 % .
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subsequently the fasb issued asu 2021-01 ( topic 848 ) , which clarifies the scope of asc 848. this asu is available for adoption effective immediately , or as of january 1 , 2020 or any date thereafter for the company , and applies prospectively to contract modifications and hedging relationships . for example , entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met . additionally , entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met story_separator_special_tag acquisition by teledyne on january 4 , 2021 , teledyne and the company announced that the companies have entered into a merger agreement under which teledyne will acquire flir in a cash and stock transaction valued at approximately $ 8.0 billion . under the terms of the merger agreement , flir stockholders will receive $ 28.00 per share in cash and 0.0718 shares of teledyne common stock for each flir share , which implies a total purchase price of approximately $ 56.00 per flir share based on teledyne 's 5-day volume weighted average price as of december 31 , 2020. the transaction is expected to close in the middle of 2021 subject to the receipt of required regulatory approvals , including expiration or termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act , approvals of teledyne and flir stockholders and other customary closing conditions . we can not guarantee that the mergers contemplated by the merger agreement will be completed or that , if completed , it will be exactly on the terms as set forth in the merger agreement . should the mergers not be completed , the company may receive or pay a breakup fee , as provided for in the merger agreement . impact of covid-19 on january 30 , 2020 , the world health organization declared the covid-19 outbreak as a global health emergency . on march 11 , 2020 , the world health organization raised the covid-19 outbreak to “ pandemic ” status . transmission of covid-19 and efforts to contain its spread resulted in international , national and local border closings and other significant travel restrictions and disruptions , significant disruptions to business operations , supply chains and customer activity , event cancellations and restrictions , service cancellations , reductions and other changes , significant challenges in healthcare service preparation and delivery , quarantines and related government actions and policies , as well as general concern and uncertainty that has negatively affected the u.s. and global economy and financial environments . in addition , as cases have resurged in parts of the u.s. , including areas in which we maintain large facilities , we have seen governments slow or reverse efforts to reopen or shift into later phases of recovery , with increased risks to our operations . the health and safety of our employees across the globe remain our top priority during this crisis . we have enacted stringent safety protocols to protect our employees and ensure we can continue to service our customers . we initiated a site entry restriction policy for external visitors to our facilities . we have also developed contingency plans for staggered work schedules designed to reduce the number of employees working at a given time . we are regularly deep cleaning our facilities , advising all employees to follow safe hygiene practices , and requiring employees to stay home if they have any of the known symptoms or have come into contact with people who have tested positive for covid-19 . we have also implemented global employee travel restrictions and allowed employees to work remotely if they are able to do so . in aggregate , the outbreak did not have a material impact on our consolidated financial results in 2020. while the industrial technologies segment experienced an increase in demand for its est cameras during 2020 as a result of the covid-19 pandemic , which are being deployed to help prevent the spread of the virus , this increase has been partially offset by lower volume in certain commercial end markets . the defense technologies segment has experienced administrative processing delays impacting the timing of bookings and revenue . these trends are likely to affect the segment 's results in subsequent quarters , although it is not yet possible to estimate the longer-term effects of the pandemic . we continue to monitor the evolving situation related to covid-19 . the extent to which covid-19 impacts our operations or financial results will further depend on future developments , which are highly uncertain and can not be predicted , including the status of state and local government reopening plans and any resurgence of illness and the reimposition of certain restrictions in connection therewith , additional actions taken by governments , businesses and individuals to contain the virus or address its impact , new information which may emerge concerning the severity or treatability of the virus , the successful rollout of vaccines , new strains of the virus , and the extent of the economic downturn resulting from the response to the virus , among others . overview we are a world leader in sensor systems that enhance perception and awareness . we were founded in 1978 and have since become a premier designer , manufacturer , and marketer of thermal imaging and other sensing products and systems . our advanced sensors and integrated sensor systems enable the gathering and analysis of critical information through a wide variety of applications in government , industrial and commercial markets worldwide . 37 our goal is to both enable our customers to benefit from the valuable information produced by advanced sensing technologies and to deliver sustained superior financial performance for our shareholders . story_separator_special_tag we believe the following critical accounting policies and the related judgments and estimates are the most significant to the presentation of our consolidated financial statements and require the most difficult , subjective and complex judgments : revenue recognition . we record revenue under accounting standards codification ( `` asc '' ) topic 606 , revenue from contracts with customers . we design , market and sell products primarily as commercial , off-the-shelf products . certain customers request different system configurations , based on standard options or accessories that we offer . revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . we regularly enter into contracts that can include various combinations of products and services , which are generally capable of being distinct and accounted for as separate performance obligations . in such situations , contract values are allocated to each performance obligation based on its relative estimated standalone selling price . the vast majority of our revenues are recognized at a point in time when goods are transferred to a customer . however , for certain contracts that include highly customized components , if performance does not create an asset with an alternative use and termination for convenience clauses provide an enforceable right to payment for performance completed to date , revenue is recognized over time as the performance obligation is satisfied . revenue includes certain shipping and handling costs and is stated net of third-party agency fees . shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold . revenue is recognized net of allowances for returns and net of taxes collected from customers which are subsequently remitted to governmental authorities . our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our products over a specified period of time , generally twelve to twenty-four months , at no cost to our customers . warranty liabilities are established at the time that revenue is recognized at levels that represent our estimate of the costs that will be incurred to fulfill those warranty requirements . provisions for estimated losses on sales or related receivables are recorded when identified . service revenue is deferred and recognized over the contract period , as is the case for extended warranty contracts , or recognized as services are provided . inventory . our policy is to record inventory write-downs when conditions exist that indicate that our inventories are likely to be in excess of anticipated demand or are obsolete based upon our assumptions about future demand for our products and market conditions . we regularly evaluate the ability to realize the value of our inventories based on a combination of factors including the following : historical usage rates , forecasted sales or usage , product end of life dates , estimated current and future market values and new product introductions . purchasing requirements and alternative usages are evaluated within these processes to mitigate inventory exposure . when recorded , our write-downs are intended to reduce the carrying value of our inventories to their net realizable value and establish a new cost basis . as of december 31 , 2020 , our inventories of $ 472.2 million are stated net of prior inventory write-downs . if actual demand for our products deteriorates or market conditions are less favorable than those that we project , additional inventory write-downs may be required in the future . intangible assets . we allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired and liabilities assumed based upon their respective fair values , with the excess recorded as goodwill . such fair value assessments require judgments and estimates that can be affected by contract performance and other factors over time , which may cause final amounts to differ materially from original estimates . adjustments to the fair value of purchased assets and liabilities after the initial measurement period are recognized in net earnings . we recognize purchased intangible assets in connection with our business acquisitions at fair value on the acquisition date . the most significant purchased intangible assets recognized from our acquisitions are generally identifiable intangible assets . we determine the fair value of those intangible assets based on estimates and judgments , including , but not limited to , the amount and timing of expected future cash flows , growth rates and discount rates . intangible assets are amortized using the method that best reflects how their economic benefits are utilized , or , if a pattern of economic benefits can not be reliably determined , are amortized using a straight-line methodology over their estimated useful lives . intangible assets with indefinite useful lives are evaluated annually for impairment , or more frequently if required when circumstances indicate that the carrying amounts may not be recoverable . impairment exists when the carrying value is greater than the expected undiscounted future cash flows expected to be provided by the asset group . if impairment exists , the asset group is written down to its fair value . the company did not recognize any impairment charges on intangible assets during the year ended december 31 , 2020 . 39 goodwill . effective january 1 , 2019 , we adopted the requirements of asu 2017-04 , `` intangibles-goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment . '' goodwill represents the excess purchase price of an acquired enterprise over the estimated fair value of identifiable net assets acquired . we assess goodwill for potential impairment at the reporting unit level during the third quarter of each year , or whenever events or circumstances indicate that the carrying value of these assets may exceed their fair value .
| segment operating results in the first quarter of 2020 , we completed a business reorganization as part of our `` project be ready '' restructuring program , which resulted in identification of two reportable segments ( industrial technologies and defense technologies ) . we commenced operating and reporting under the new organization structure effective january 1 , 2020. see note 19 , “ operating segments and related information ” of the notes to the consolidated financial statements in item 8 for a description of each operating segment , including the types of products and services from which each operating segment derives its revenues . see note 21 , `` restructuring '' of the notes to the consolidated financial statements in item 8 for further information on project be ready . industrial technologies segment industrial technologies operating results are as follows ( in thousands , except percentages ) : replace_table_token_4_th the increase in revenue for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 was primarily attributable to increased demand for est solutions as a result of the covid-19 pandemic , partially offset by lower volume in commercial end markets . the increase in segment operating margin for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 was primarily attributable to the aforementioned higher revenue and associated gross profit , favorable product mix , operating expense reductions from project be ready and decreases in marketing and travel costs .
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for directors ' and officers ' liability , property damage and certain other exposures , we use third-party insurance plans that may include per occurrence and annual aggregate limits . we believe the deductibles and liability limits for all of our insurance policies are appropriate for our business and are adequate for companies of our size in story_separator_special_tag the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and related notes contained in item 8 of this annual report on form 10-k. business overview we operate in three reportable business segments of the heating , ventilation , air conditioning and refrigeration ( “ hvacr ” ) industry . our reportable segments are residential heating & cooling , commercial heating & cooling , and refrigeration . for more detailed information regarding our reportable segments , see note 19 in the notes to the consolidated financial statements . we sell our products and services through a combination of direct sales , distributors and company-owned parts and supplies stores . the demand for our products and services is seasonal and significantly impacted by the weather . warmer than normal summer temperatures generate demand for replacement air conditioning and refrigeration products and services , and colder than normal winter temperatures have a similar effect on heating products and services . conversely , cooler than normal summers and warmer than normal winters depress the demand for hvacr products and services . in addition to weather , demand for our products and services is influenced by national and regional economic and demographic factors , such as interest rates , the availability of financing , regional population and employment trends , new construction , general economic conditions and consumer spending habits and confidence . a substantial portion of the sales in each of our business segments is attributable to replacement business , with the balance comprised of new construction business . the principal elements of cost of goods sold are components , raw materials , factory overhead , labor , estimated costs of warranty expense and freight and distribution costs . the principal raw materials used in our manufacturing processes are steel , copper and aluminum . in recent years , pricing volatility for these commodities and related components has impacted us and the hvacr industry in general . we seek to mitigate the impact of higher commodity prices through a combination of price increases , commodity contracts , improved production efficiency and cost reduction initiatives . we also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts . financial highlights net sales increased $ 100.0 million , or 3 % , to $ 3,467 million in 2015 from $ 3,367 million in 2014. operational income from continuing operations in 2015 was $ 305 million compared to $ 335 million in 2014. the decrease was primarily due to goodwill and asset impairment charges . net income in 2015 decreased to $ 187 million from $ 206 million in 2014. diluted earnings per share from continuing operations were $ 4.11 per share in 2015 compared to $ 4.28 per share in 2014 , including non-cash impairment charges in our refrigerated display case business in 2015. we generated $ 331 million of cash flow from operating activities in 2015 compared to $ 185 million in 2014. in 2015 , we returned $ 59 million through dividend payments . overview of results the residential heating & cooling segment led our overall financial performance in 2015 , with a 8 % increase in net sales and a $ 43 million increase in segment profit compared to 2014. this segment 's results benefited from industry growth in the replacement and new construction markets as well as market share gains . our commercial heating & cooling segment also performed well in 2015 with a 1 % increase in net sales and a $ 6 million increase in segment profit compared to 2014. this segment 's results benefited from market share gains , market growth in north america and material cost savings . sales in our refrigeration segment were down 5 % and segment profit decreased $ 3 million compared to 2014. this segment 's results were impacted by unfavorable mix , unfavorable australian dollar exchange rates , and decreased profitability of our refrigerant business in australia due to the repeal of the carbon tax . on a consolidated basis , our gross profit margins increased to 27.3 % in 2015 due primarily to favorable price and material cost savings across all of our segments . these improvements were partially offset by unfavorable foreign exchange rates , continued investment in distribution expansion across all segments , unfavorable mix in all segments , and reduced profitability in our australian wholesale business due to the repeal of the carbon tax . 16 story_separator_special_tag increased $ 43 million due to $ 39 million from material cost savings , $ 29 million from higher sales volume , and $ 10 million from favorable price and mix . partially offsetting these increases were $ 12 million of unfavorable foreign exchange rates , $ 10 million in higher distribution expenses related to continued investment in distribution expansion , $ 10 million of sg & a inflation , and $ 3 million due to lower factory absorption and higher warranty expenses . commercial heating & cooling the following table presents our commercial heating & cooling segment 's net sales and profit for 2015 and 2014 ( dollars in millions ) : 19 replace_table_token_9_th commercial heating & cooling net sales increased 1 % in 2015 compared to 2014 driven by higher volumes . net sales increased by 6 % due to higher volumes while changes in foreign currency exchange rates unfavorably impacted net sales by 5 % . story_separator_special_tag 21 income taxes the income tax provision was $ 110 million in 2014 compared to $ 94 million in 2013 , and the effective tax rate was 34.5 % in 2014 compared to 34.4 % in 2013. our effective tax rates differ from the statutory federal rate of 35 % for certain items , including tax credits , state and local taxes , non-deductible expenses , foreign taxes at rates other than 35 % and other permanent tax differences . loss from discontinued operations the loss from discontinued operations relates to the service experts business sold in march 2013 and the hearth business sold in april 2012. the $ 4 million of pre-tax losses incurred in 2014 primary relate to changes in retained product liabilities and general liabilities for service experts and hearth . in 2013 , there were $ 13 million of pre-tax losses from discontinued operations consisting primarily of operating losses in the service experts business . the hearth business had no significant gains or losses in 2013. year ended december 31 , 2014 compared to year ended december 31 , 2013 - results by segment residential heating & cooling the following table presents our residential heating & cooling segment 's net sales and profit for 2014 and 2013 ( dollars in millions ) : replace_table_token_12_th residential heating & cooling net sales increased 10 % in 2014 compared to 2013 driven by strong volume increases and favorable price and mix . sales volume increases contributed 9 % and were attributable to industry growth in new construction and replacement markets and market share gains . benefits of price increases and favorable product mix contributed 2 % . changes in foreign currency exchange rates unfavorably impacted net sales by 1 % . segment profit in 2014 increased $ 56 million due to $ 27 million contributed by incremental volume , $ 30 million from commodity and non-commodity material cost savings , $ 12 million from favorable price , $ 5 million from favorable mix , $ 4 million from lower warranty costs , and $ 1 million from favorable other product costs . partially offsetting these increases was $ 7 million in distribution expenses related to continued investment in distribution expansion , unfavorable foreign exchange rates of $ 9 million , and a $ 7 million increase in sg & a expenses primarily due to higher wages and other administrative expenses . commercial heating & cooling the following table presents our commercial heating & cooling segment 's net sales and profit for 2014 and 2013 ( dollars in millions ) : replace_table_token_13_th commercial heating & cooling net sales increased 4 % in 2014 compared to 2013 driven by higher volumes . sales volume increases contributed 5 % and were attributable to market share gains and industry growth in the north american markets . changes in foreign currency exchange rates unfavorably impacted net sales by 1 % . segment profit in 2014 increased $ 6 million compared to 2013 due to $ 12 million from incremental volume , $ 11 million from material cost savings , $ 2 million from favorable price , and $ 4 million from increased factory productivity . these increases were 22 offset by $ 7 million higher sg & a expenses primarily for start-up costs to enter the vrf market and to support product development , $ 3 million from unfavorable mix , $ 6 million from unfavorable foreign exchange rates , with the $ 7 million balance associated with other costs including investments in distribution expansion . refrigeration the following table presents our refrigeration segment 's net sales and profit for 2014 and 2013 ( dollars in millions ) : replace_table_token_14_th refrigeration net sales declined 3 % in 2014 compared to 2013 primarily due to a 2 % impact from unfavorable australian and brazilian foreign currency exchange rates and a 1 % negative impact to our refrigerant business in australia due to the repeal of the carbon tax . the north american supermarket and australian wholesale businesses have been soft . we continue to expect the north american supermarket business to improve in 2015 based on national account business won in 2014. in australia , with the repeal of the carbon tax , we expect a negative impact to the profitability of our refrigerant business as compared to prior year periods through the second quarter of 2015. segment profit decreased $ 35 million in 2014 compared to 2013 primarily due to unfavorable price and mix of $ 13 million , unfavorable foreign exchange rates of $ 6 million , and $ 6 million of lower profitability in our australia refrigerant business caused by the carbon tax repeal . also contributing to the decrease in profit was $ 7 million of investments in growth initiatives , $ 7 million of higher distribution and other costs , and $ 5 million of increased sg & a expenses primarily related to wages . partially offsetting the cost increases was $ 9 million of commodity and non-commodity material cost savings . corporate and other corporate and other expenses decreased $ 14 million in 2014 to $ 74 million from $ 88 million in 2013 driven primarily by lower incentive compensation . accounting for futures contracts realized gains and losses on settled futures contracts are a component of segment profit ( loss ) . unrealized gains and losses on unsettled futures contracts are excluded from segment profit ( loss ) as they are subject to changes in fair value until their settlement date . both realized and unrealized gains and losses on futures contracts are a component of losses and other expenses , net in the accompanying consolidated statements of operations . see note 8 of the notes to consolidated financial statements for more information on our derivatives and note 19 of the notes to the consolidated financial statements for more information on our segments and for a reconciliation of segment profit to income from continuing operations before income taxes .
| results of operations the following table provides a summary of our financial results , including information presented as a percentage of net sales ( dollars in millions ) : replace_table_token_5_th the following table provides net sales by geographic market ( dollars in millions ) : replace_table_token_6_th year ended december 31 , 2015 compared to year ended december 31 , 2014 - consolidated results net sales net sales increased 3 % in 2015 compared to 2014 , with sales volumes up approximately 6 % and price and mix up approximately 1 % . the increase in volume was driven by our residential heating & cooling , commercial heating & cooling and refrigeration segments . the benefit of price and mix was a combination of price increases across all segments and favorable product mix predominantly in our residential heating & cooling segment . partially offsetting these increases was a 4 % decrease from foreign currency exchange rates . gross profit gross profit margins for 2015 increased 50 basis points ( `` bps '' ) to 27.3 % compared to 26.8 % in 2014. lower material costs increased our profit margin by 200 bps , increased factory productivity increased our profit margin by 20 bps and reduced product warranty costs increased our profit margin by 10 bps . offsetting these increases were decreases of 70 bps from unfavorable mix , 50 bps from unfavorable foreign currency adjustments , 20 bps from lower refrigerant pricing on our australia wholesale business when compared to the prior year , 30 bps for investments in distribution and other growth initiatives , and 10 bps from one-time inventory write down costs . 17 selling , general and administrative expenses sg & a expenses increased by $ 7 million in 2015 compared to 2014. as a percentage of net sales , sg & a expenses decreased 30 bps from 17.0 % to 16.7 % in the same periods .
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million and net income per diluted share of $ 0.07 for 2019. in terms of cash flow , for 2020 we used $ 3.5 million of cash in operating activities . during 2020 , we completed an underwritten public offering ( the “ offering ” ) which raised net proceeds of $ 8.7 million and the company was granted the $ 2.2 million ppp loan . we ended the year with cash and cash equivalents of $ 10.4 million on our consolidated balance sheet at december 31 , 2020. critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates , judgments and assumptions that affect both balance sheet items and statement of operations categories . such estimates and judgments are based upon historical experience and certain assumptions that are believed to be reasonable in the particular circumstances . we evaluate our assumptions on an ongoing basis by comparing actual results with our estimates . actual results may differ from the original estimates . the following accounting policies are those that we believe to be most critical in the preparation of our financial statements . these items utilize assumptions and estimates about the effect of future events that are inherently uncertain and are therefore based on our judgment . please refer to note 2 – summary of significant accounting policies in the accompanying consolidated financial statements for a complete listing of our significant accounting policies . revenue recognition – we account for revenue in accordance with the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 606 , “ revenue from contracts with customers ( “ asc 606 ” ) . we adopted asc 606 effective january 1 , 2018 and elected the modified retrospective approach . in accordance with asc 606 , a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer . some of our contracts with customers contain a single performance obligation , while other contracts contain multiple performance obligations ( most commonly when contracts include a hardware product , software and extended warranties ) . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . the transaction price is determined based on the consideration to which the company will be entitled in exchange for transferring services to the customer . to the extent the transaction price includes variable consideration , such as price protection , reserves for returns and other allowances , the company estimates the amount of variable consideration that should be included in the transaction price utilizing either the “ expected value ” method or the “ most likely amount ” method depending on the nature of the variable consideration . variable consideration is included in the transaction price if , in the company 's judgment , it is probable that a significant future reversal of cumulative revenue under the contract will not occur . 19 for a majority of our revenue , which consists of printers , terminals , consumables , and replacement parts , the company recognizes revenue as of a point of time . the transaction price is recognized upon shipment of the order when control of the goods is transferred to the customer and at the time the performance obligation is fulfilled . we also sell a software solution in our casino and gaming market , epicentral , that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine . epicentral tm is primarily comprised of both a software component , which is licensed to the customer , and a hardware component . epicentral software and hardware are integrated to deliver the system 's full functionality . the transaction prices from epicentral software license and hardware are recognized upon installation and formal acceptance by the customer when control of the license is transferred to the customer . for out-of-warranty repairs , the transaction price is recognized after the repair work is completed and the printer or terminal is returned to the customer , as control of the product is transferred to the customer and our performance obligation is completed . performance obligations are satisfied over time if the customer receives the benefits as we perform work , if the customer controls the asset as it is being produced , or if the product being produced for the customer has no alternative use and we have a contractual right to payment . for our separately priced extended warranty , boha ! cloud-based software applications , technical support for our food service technology terminals and maintenance agreements ( including free one-year maintenance received by customers upon completion of epicentral installation ) revenue is recognized over time as the customer receives the benefit . the transaction price from the maintenance services is recognized ratably over time , using output methods , as control of the services is transferred to the customer . our cloud-based boha ! software allows customers to use hosted software over the contract period without taking possession of the software and are provided on a subscription basis and is recognized ratably over the contract period . for extended warranties , the transaction price is recognized ratably over the warranty period , using output methods , as control of the services is transferred to the customer . when there is more than one performance obligation in a customer arrangement , the company typically uses the “ standalone selling price ” method to determine the transaction price to allocate to each performance obligation . the company sells the performance obligations separately and has established standalone selling prices for its products and services . in the case of an overall price discount , the discount is applied to each performance obligation proportionately based on standalone selling price . story_separator_special_tag on a quarterly basis , we evaluate the recoverability of our deferred tax assets based upon historical results and forecasted taxable income over future years , and match this forecast against the basis differences , deductions available in future years and the limitations allowed for net operating loss and tax credit carryforwards to ensure that there is adequate support for the realization of the deferred tax assets . although we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance , in the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the valuation allowance or tax reserves would be charged as a reduction to income in the period such determination was made . likewise , should we determine that we would be able to realize future deferred tax assets in excess of its net recorded amount , an adjustment to the valuation allowance would increase net income in the period such determination was made . we account for income taxes in accordance with asc 740 , “ income taxes ” ( “ asc 740 ” ) among other things this provision prescribes a minimum recognition threshold that an income tax position must meet before it is recorded in the reporting entity 's financial statements . it also requires that the effects of such income tax positions be recognized only if , as of the balance sheet reporting date , it is “ more likely than not ” ( i.e. , more than a 50 % likelihood ) that the income tax position will be sustained based solely on its technical merits . when making this assessment , management must assume that the responsible taxing authority will examine the income tax position and have full knowledge of all relevant facts and other pertinent information . the accounting guidance also clarifies the method of accruing for interest and penalties when there is a difference between the amount claimed , or expected to be claimed , on a company 's income tax returns and the benefits recognized in the financial statements . warranty – we generally warrant our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded . estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs . if actual future product repair rates or the actual costs of material and labor differ from the estimates , adjustments to the accrued warranty liability and related warranty expense would be made . share-based compensation – we calculate share-based compensation expense in accordance with asc 718 , “ compensation – stock compensation ” using the black-scholes option-pricing model to calculate the fair value of share-based awards . the key assumptions for this valuation method include the expected term of an option grant , stock price volatility , risk-free interest rate , and dividend yield . we account for forfeitures as they occur . results of operations : year ended december 31 , 2020 compared to year ended december 31 , 2019 net sales . net sales , which include printer , terminal and software sales as well as sales of replacement parts , consumables and maintenance and repair services , by market for the years ended december 31 , 2020 and 2019 are detailed in the below table . replace_table_token_1_th * international sales do not include sales of products made to domestic distributors or other customers who in turn ship those products to international destinations . net sales for 2020 decreased $ 15.2 million , or 33 % , from 2019. printer , terminal and other hardware sales volume decreased by 44 % to approximately 62,000 units , due to volume decreases in almost all our markets except for a slight increase in food service technology terminal sales . the volume decrease in 2020 was driven primarily by a 52 % decrease in unit volume from the casino and gaming market and , to a lesser extent , a 28 % decrease in the pos automation and banking market and 50 % decrease in the lottery market . the average selling price of our printers , terminals and other hardware increased 2 % during 2020 compared to 2019 primarily due to a lower level of pos automation and banking printer sales , which sell at a lower price than our other products . the sales volume decreases were partially offset by a $ 1.9 million , or 96 % , increase in software , labels and other recurring revenue from our food service technology market . international sales for 2020 decreased $ 4.6 million , or 44 % , compared to 2019 , primarily due to a 51 % decrease of international casino and gaming sales . 21 food service technology : our primary offering in the food service technology market is our boha ! ecosystem , which combines our latest generation terminal , cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in restaurants , convenience stores and food service operations . the software component of boha ! consists of a suite of software-as-a-service ( “ saas ” ) -based applications , including applications for inventory management , temperature monitoring of food and equipment , timers , food safety labeling , food recalls , checklists and procedures , equipment service management , and delivery management . these applications are combined into a single platform with the associated hardware , which includes the boha ! terminal , handheld devices , tablets , temperature probes and temperature sensors . the boha ! terminal combines the software and hardware components in a device that includes an operating system , touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels , grab and go labels for prepared foods , and “ enjoy by ” date labels .
| overview the year ended december 31 , 2020 was a very challenging year , as the covid-19 pandemic unexpectedly occurred and significantly impacted our and our customers ' businesses . the pandemic caused us to quickly react and take actions and measures to reduce costs , increase liquidity and protect our employees . the good news is that transact persevered and made it through these difficult times . even with the pandemic raging , we continued to focus our efforts on the sales execution and growing revenue of boha ! software-as-a-service ( “ saas ” ) -based software and hardware ecosystem launched in 2019. boha ! is a comprehensive ecosystem of cloud-based saas software applications and hardware designed to help restaurant and food service companies automate their back-of-house operations . boha ! represents the first single-vendor solution to allow customers to choose from any combination of applications for inventory management , temperature monitoring of food and equipment , food safety labeling , food recalls , checklists & procedures , equipment service management , timers and delivery management . despite the negative impact from the covid-19 pandemic explained above , food service technology sales increased in 2020 compared to 2019 due primarily to sales of our boha ! software , labels and other recurring revenue to both new customers and our existing installed base of boha ! terminals . during 2020 , sales in all markets other than food service technology decreased primarily due to the negative impact from the covid-19 pandemic . pos automation and banking sales declined primarily due to lower sales of our ithaca 9000 printer to mcdonald 's in 2020 compared to 2019. casino and gaming sales were lower in 2020 due to casino closures and gradual reopenings in the second half of 2020 in response to the covid-19 pandemic .
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the agreement provides for an annual base salary of $ 99,000 and an annual royalty fee of $ 99,000 payable as consideration for the ceo 's assignment to the company of all of his rights , title and interest in certain patents . payment of the royalty continues only for as long as the company is using the inventions underlying the patents . additionally , if the ceo ( i ) voluntarily leaves the employ of the company within six months of his becoming aware of a change of control ( as defined in the agreement ) of the company , then he shall be entitled to receive a lump sum amount equal to three times the five -year average of his combined total annual compensation , which includes the base salary and bonus , less one dollar ( $ 1.00 ) , and certain other unpaid accrued amounts as of the date of his termination , or ( ii ) is terminated by the company without cause ( as defined in the agreement ) or leaves the company with good reason ( as defined in the agreement ) , the ceo shall be entitled to a lump sum payment equal to three times the combined base salary and bonus paid during the immediately preceding calendar year , and such other unpaid accrued amounts . in any of such cases , the company will provide the ceo with certain company fringe benefits for two years , subject to certain conditions as provided for in the agreement , and all of the ceo 's unvested options , if any , to purchase company stock shall become fully vested and exercisable on the date of termination . the ceo will be entitled to exercise all such options for three years from the date of termination . in the event the ceo 's employment by the company is terminated as a result of the ceo 's ( i ) death , his estate shall be entitled to a lump sum payment of one times the combined base salary and bonus , and certain other accrued and unpaid amounts , or f-21 smith-midland corporation and subsidiaries notes to consolidated financial statements ( continued ) ( ii ) disability , ceo shall be entitled to base salary and bonus for a period of one year commencing with the date of termination , and all other unpaid accrued amounts . the company is party to legal proceedings and disputes which may arise in the ordinary course of business . in the opinion of the company , it is unlikely that liabilities , if any , arising from legal disputes will have a material adverse effect on the consolidated financial position of the company . f-22 note 9 . - earnings ( loss ) per share earnings ( loss ) per share are calculated as follows : replace_table_token_20_th outstanding options excluded from the diluted earnings per share calculation because they would have an anti-dilutive effect were 305,099 and 254,166 for the years ended december 31 , 2014 and 2013 , respectively . f-23 story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of the company ( including the notes thereto ) included elsewhere in this report . 10 the company generates revenues primarily from the sale , shipping , licensing , leasing and installation of precast concrete products for the construction , utility and farming industries . the company 's operating strategy has involved producing innovative and proprietary products , including slenderwall , a patented , lightweight , energy efficient concrete and steel exterior wall panel for use in building construction ; j-j hooks® barrier , a positive-connected highway safety barrier ; sierra wall , a sound barrier primarily for roadside use ; transportable concrete buildings ; and softsound , a highway sound attenuation system . in addition , the company produces utility vaults ; farm products such as cattleguards , and water and food troughs ; and custom order precast concrete products with various architectural surfaces . overview overall , the company 's financial performance declined significantly in 2014 when compared to 2013 . the company had a net loss in 2014 in the amount of $ 804,838 as compared to net income of $ 691,502 for 2013 . the fourth quarter saw a reduction in sales of $ 3.3 million and a net loss of $ 618,774 when compared to the fourth quarter of 2013. management did not expect to incur a loss of this magnitude because of its large backlog of product sales and projects available for production . due to factors outside of the company 's control such as cold weather and project owner financing issues , much of the production anticipated for the fourth quarter of 2014 was pushed into the spring of 2015 , thereby , leaving a shortfall in production for the fourth quarter and extending into the first quarter of 2015. the construction economy in the company 's geographical sales area has been slowly improving over the last year particularly in the past six months , and while pricing has not returned to the pre-recession highs , competitive pricing has eased considerably and jobs are more readily available . while production and sales were down in the fourth quarter of 2014 , the company 's sales department continued to bid on open projects and has now received commitments during the fourth quarter and into the first quarter of 2015 in excess of $ 10 million . the projects range from slenderwall projects to miscellaneous projects and all will begin production in 2015 with most being substantially completed during the year as well . because of the new projects recently acquired and with the standard products we sell continually , management believes 2015 will be a profitable year for the company . story_separator_special_tag the decrease was due to a decrease sales salaries and commissions , a decrease in advertising expense and a decrease in general and miscellaneous expenses . operating income – the company had an operating loss for the year ended december 31 , 2014 of $ 1,194,936 compared to operating income of $ 1,279,670 for the year ended december 31 , 2013 , a decrease of $ 2,474,606 . the decrease in operating income was primarily the result of a significant decrease in sales and an increase in the cost of goods sold for year ended december 31 , 2014 as a percentage of revenue as discussed above . interest expense – interest expense was $ 116,229 for the year ended december 31 , 2014 compared to $ 132,026 for the year ended december 31 , 2013 . the decrease of $ 15,797 , or 12 % , was due primarily to lower balances on notes payable outstanding . income tax expense – the company had an income tax benefit of $ 498,000 for the year ended december 31 , 2014 compared to an income tax expense of $ 391,000 for the year ended december 31 , 2013 , due to the pretax loss in 2014. the company had an effective rate of 38 % for the year ended december 31 , 2014 compared to an effective rate of 36 % for the same period in 2013. the changes in the tax expense for the periods correlated to the change in pre-tax income . net income – the company had a net loss of $ 804,838 for the year ended december 31 , 2014 , compared to net income of $ 691,502 for the same period in 2013 . the basic and diluted loss per share for 2014 was $ 0.16 , compared to basic and diluted net earnings per share of $ 0.14 for the year ended december 31 , 2013 . there were 4,881,548 basic and diluted weighted average shares outstanding in 2014 and 4,839,205 basic and 4,880,453 diluted weighted average shares outstanding in the 2013 . liquidity and capital resources the company financed its capital expenditures and operating requirements in 2014 with cash flows from operations , cash balances on hand and notes payable to the bank . the company has a note payable to summit community bank ( the “ bank ” ) , with a balance of $ 1,814,825 as of december 31 , 2014 . the note has a term of approximately eight years and a fixed interest rate of 3.99 % annually with monthly payments of $ 25,642 and is secured by principally all of the assets of the company . under the terms of the note , the bank will permit chattel mortgages on purchased equipment not to exceed $ 250,000 for any one individual loan so long as the company is not in default . also , the company is limited to $ 1,000,000 for annual capital expenditures . at december 31 , 2014 , the company was in compliance with all covenants pursuant to the loan agreement as amended except for the payment of cash dividends on december 31 , 2014 , for which the company received approval prior to payment . in addition to the note payable discussed above , the company also has a $ 2,000,000 line of credit with the bank , of which none was outstanding at december 31 , 2014 . the line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on september 12 , 2015. the loan is collateralized by a first lien position on the company 's accounts receivable and inventory and a second lien position on all other business assets . key provisions of the line of credit require the company , ( i ) to obtain bank approval for capital expenditures in excess of $ 1,000,000 during the term of the loan ; ( ii ) to obtain bank approval prior to its funding any acquisition and ( iii ) to obtain bank approval prior to the payment of cash dividends on the company 's common stock . on october 12 , 2014 the company received a commitment letter from the bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $ 1,000,000. the commitment provides for the purchase of equipment with minimum advances of $ 50,000 for which a note payable will be executed with a term not to exceed five years with an interest rate at the wall street journal prime rate plus .5 % with a floor of 4.49 % per annum . the loan is collateralized by a first lien position on all equipment purchased under the line . the commitment for the guidance line of credit matures on october 13 , 2015 . 14 at december 31 , 2014 , the company had cash totaling $ 3,572,405 and $ 1,013,417 of investment securities available for sale compared to cash totaling $ 3,136,063 and $ 915,341 of investment securities available for sale at december 31 , 2013 . during 2014 , the company 's operating activities provided $ 1,426,351 due mainly to changes in current asset and current liability accounts during 2014 . the significant decrease in accounts receivable during 2014 resulted from two large customers that were delinquent in 2013 and paid their accounts current in 2014 and a significant reduction in sales during the third and fourth quarters of 2014 compared to the same periods in 2013. in 2014 , investing activities used $ 498,049 primarily for the purchase of investment securities available for sale and the purchase of capital equipment .
| results of operations year ended december 31 , 2014 compared to the year ended december 31 , 2013 for the year ended december 31 , 2014 , the company had total revenue of $ 22,470,837 compared to total revenue of $ 27,710,542 for the year ended december 31 , 2013 , a decrease of $ 5,239,705 , or 19 % . sales include revenues from product sales , royalty income , barrier rental income and shipping and installation income . product sales are further divided into wall panel sales , which include soundwall , architectural and slenderwall panels , highway barrier , beach prisms , easi-set® and easi-span® buildings , utility and farm products and miscellaneous precast products . the following table summarizes the sales by product type and a comparison for the years ended december 31 , 2014 and 2013 : 11 replace_table_token_1_th wall panel sales – wall panel sales are generally medium to large contracts issued by general contractors for production and delivery of a specific wall panel product for a specific construction project . changes in the mix of wall panel sales depend on what contracts are in production during the period . soundwall sales increased by 21 % in 2014 over 2013 due primarily to a large soundwall contract for a road project started in mid 2013 and ending in late 2014. in addition , there were three more soundwall projects in production during 2014 as compared to 2013. the company is currently producing another large soundwall contract that should complete in early 2016. architectural sales declined by 56 % in 2014 over 2013 due to the lack of competitively priced projects available in the company 's geographical sales area during 2014. the company has seen a slight increase in architectural projects bidding and at slightly less competitive prices over the past several months .
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those standards require that we plan and perform the audit to obtain reasonable assurance about whether story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto that are included in this annual report on form 10-k. capitalized terms not defined in this item 7 shall have the definitions ascribed to those terms in items 1-6 of this annual report on form 10-k. overview—basis of presentation wpg inc. is an indiana corporation that operates as a self‑administered and self‑managed reit , under the code . wpg inc. will generally qualify as a reit for u.s. federal income tax purposes as long as it continues to distribute at least 90 % of its reit taxable income , exclusive of net capital gains , and satisfy certain other requirements . wpg inc. will generally be allowed a deduction against its u.s. federal income tax liability for dividends paid by it to reit shareholders , thereby reducing or eliminating any corporate level taxation to wpg inc. wpg l.p. is wpg inc. 's majority‑owned limited partnership subsidiary that owns , develops and manages , through its affiliates , all of wpg inc. 's real estate properties and other assets . wpg inc. is the sole general partner of wpg l.p. on may 28 , 2014 , wpg separated from spg through the distribution of 100 % of the outstanding units of wpg l.p. to the owners of spg l.p. and 100 % of the outstanding shares of wpg inc. to the spg common shareholders in a tax-free distribution . prior to the separation , wpg inc. and wpg l.p. were wholly owned subsidiaries of the spg businesses . on january 15 , 2015 , the company acquired glimcher realty trust in a stock and cash transaction valued at approximately $ 4.2 billion , including the assumption of debt . as of december 31 , 2018 , our assets consisted of material interests in 108 shopping centers in the united states , consisting of open air properties and enclosed retail properties , comprised of approximately 58 million square feet of managed gla . the consolidated financial statements are prepared in accordance with u.s. gaap . the consolidated balance sheets as of december 31 , 2018 and december 31 , 2017 include the accounts of wpg inc. and wpg l.p. , as well as their wholly-owned subsidiaries . the consolidated statements of operations include the consolidated accounts of the company . all intercompany transactions have been eliminated in consolidation . leadership changes and severance impacting financial results 2019 activity on february 5 , 2019 , the company 's executive vice president , head of open air centers , was terminated without cause from his position and received severance payments and other benefits pursuant to the terms and conditions of his employment agreement . in addition , the company terminated , without cause , additional non-executive personnel in the property management department as part of an effort to reduce overhead costs . the company expects to record aggregate severance charges of approximately $ 1.9 million , including $ 0.1 million of non-cash stock compensation in the form of accelerated vesting of equity incentive awards . 2018 activity on may 7 , 2018 , the company 's executive vice president , property management was terminated without cause from his position and received severance payments and other benefits pursuant to the terms and conditions of his employment agreement . in addition , the company terminated without cause additional non-executive personnel in the property management department . in connection with and as part of the aforementioned management and personnel changes , the company recorded aggregate severance charges of $ 2.0 million , including $ 0.5 million of non-cash stock compensation in the form of accelerated vesting of equity incentive awards , which costs are included in general and administrative expense in the consolidated statements of operations and comprehensive income for the year ended december 31 , 2018 . 2016 activity on june 20 , 2016 , the company announced the following leadership changes : ( 1 ) the resignation of mr. michael p. glimcher as the company 's chief executive officer and vice chairman of the board ; ( 2 ) the appointment of mr. louis g. conforti , a current board member , as interim chief executive officer ; ( 3 ) the resignation of mr. mark s. ordan as non-executive chairman of the board ; and ( 4 ) the resignation of mr. niles c. overly from the board . in july of 2016 , the company terminated some additional executive and non-executive personnel as part of an effort to reduce overhead costs . on october 6 , 2016 , the company announced that mr. conforti would serve as the company 's chief executive officer for a term ending december 31 , 2019 , subject to early termination clauses and automatic renewals pursuant to his employment agreement . in connection with and as part of the aforementioned management changes , the company recorded aggregate charges of $ 29.6 million during the year ended december 31 , 2016 , of which $ 25.5 million related to severance and restructuring-related costs , including $ 9.5 million of non-cash stock compensation for accelerated vesting of equity incentive awards , and $ 4.1 million related to fees and expenses incurred in connection with the company 's investigation of various strategic alternatives , which costs are included in merger , restructuring and transaction costs in the consolidated statements of operations and comprehensive income . 42 the facility on january 22 , 2018 , wpg l.p. amended and restated $ 1.0 billion of the existing unsecured revolving credit facility , or `` revolver '' and unsecured term loan , or `` term loan '' ( collectively known as the `` facility '' ) . the recasted facility can be increased to $ 1.5 billion through currently uncommitted facility commitments . excluding the accordion feature , the recasted facility includes a $ 650.0 million revolver and $ 350.0 million term loan . story_separator_special_tag the o'connor joint ventures the company has two joint ventures with o'connor mall partners , l.p. ( `` o'connor '' ) . the o'connor joint venture i this investment consists of a 51 % noncontrolling interest held by the company in a portfolio of five enclosed retail properties and related outparcels , consisting of the following : the mall at johnson city located in johnson city , tennessee ; pearlridge center located in aiea , hawaii ; polaris fashion place® ; scottsdale quarter® located in scottsdale , arizona ; and town center plaza ( which consists of town center plaza and the adjacent town center crossing ) located in leawood , kansas . we retain management , leasing , and development responsibilities for the o'connor joint venture i. on april 11 , 2018 , the o'connor joint venture i closed on the acquisition of the sears department store located at polaris fashion place® in connection with our acquisition of additional sears department stores ( see details under `` overview - basis of presentation - sears parcel acquisitions '' ) . on march 2 , 2017 , the o'connor joint venture i acquired an additional section at pearlridge center for a gross purchase price of $ 70.0 million . pearlridge center is currently comprised of two distinct enclosed venues commonly referred to as uptown and downtown . the acquired section consists of approximately 153,000 square feet , which is part of uptown ( and referenced herein as pearlridge uptown ii ) , and is anchored by ross dress for less and tj maxx . subsequent to the purchase , the joint venture placed secured debt on the property ( see below for details ) . our share of the purchase price was funded by a combination of our share of the secured debt and availability on our credit facility . on march 30 , 2017 , the o'connor joint venture i closed on a $ 43.2 million non-recourse mortgage note payable with an eight year term and a fixed interest rate of 4.071 % secured by pearlridge uptown ii . the mortgage note payable requires monthly interest only payments until april 1 , 2019 , at which time monthly interest and principal payments are due until maturity . our pro-rata share of the mortgage note payable issuance is $ 22.0 million . on march 29 , 2017 , the o'connor joint venture i closed on a $ 55.0 million non-recourse mortgage note payable with a ten year term and a fixed interest rate of 4.36 % secured by sections of scottsdale quarter® known as block k and block m. the mortgage note payable requires monthly interest only payments until may 1 , 2022 , at which time monthly interest and principal payments are due until maturity . our pro-rata share of the mortgage note payable issuance is $ 28.1 million . the o'connor joint venture ii during the year ended december 31 , 2017 , we completed an additional joint venture transaction with o'connor with respect to the ownership and operation of seven of the company 's retail properties and certain related outparcels , consisting of the following : the arboretum , located in austin , texas ; arbor hills , located in ann arbor , michigan ; classen curve and the triangle at classen curve , each located in oklahoma city , oklahoma and nichols hills plaza , located in nichols hills , oklahoma ( the `` oklahoma city properties , '' collectively ) ; gateway centers , located in austin , texas ; malibu lumber yard , located in malibu , california ; palms crossing i and ii , located in mcallen , texas and the shops at arbor walk , located in austin , texas ( the `` o'connor joint venture ii '' ) . the transaction valued the properties at $ 598.6 million before closing adjustments and debt assumptions . 44 under the terms of the joint venture agreement , we retained a non-controlling 51 % interest in the o'connor joint venture ii and sold the remaining 49 % to o'connor . the transaction generated net proceeds to the company of approximately $ 138.9 million , after taking into consideration costs associated with the transaction and the assumption of debt ( including the new mortgage loans on the arboretum , gateway centers , and oklahoma city properties which closed prior to the joint venture transaction ; see `` financing & debt '' below for net proceeds to the company from the new mortgage loans ) , which we used to reduce the company 's debt as well as for general corporate purposes . at the time of closing , we deconsolidated the properties included in the o'connor joint venture ii and recorded a gain in connection with this partial sale of $ 126.1 million , which is included in gain ( loss ) on disposition of interests in properties , net in the consolidated statements of operations and comprehensive income . the gain was recorded pursuant to asc 360-20 and calculated based upon proceeds received , less 49 % of the book value of the deconsolidated net assets . our retained 51 % non-controlling equity method interest was valued at historical cost based upon the pro rata book value of the retained interest in the net assets . we retain management and leasing responsibilities for the properties included in the o'connor joint venture ii . in connection with the formation of this joint venture , we recorded transaction costs of approximately $ 6.4 million as part of our basis in this investment . impairment during the fourth quarter of 2017 , a major anchor tenant of rushmore mall , located in rapid city , south dakota , informed us of their intention to close their store at the property .
| results of operations the following acquisitions and dispositions affected our results in the comparative periods : on november 16 , 2018 , we completed the sale of the fifth tranche of restaurant outparcels with four corners . on october 31 , 2018 , we completed the sale of the fourth tranche of restaurant outparcels with four corners . on october 23 , 2018 , we transitioned rushmore mall to the lender . on july 27 , 2018 , we completed the sale of the third tranche of restaurant outparcels with four corners . on june 29 , 2018 , we completed the sale of the second tranche of restaurant outparcels with four corners . on april 24 , 2018 , we closed on the acquisition of southgate mall . on april 11 , 2018 , we closed on the acquisition of four sears department stores located at longview mall , polaris fashion place® ( unconsolidated ) , southern hills mall , and town center at aurora . on january 12 , 2018 , we completed the sale of the first tranche of restaurant outparcels with four corners . on november 3 , 2017 , we completed the sale of colonial park mall . on october 17 , 2017 , we completed a discounted payoff of the mortgage loan secured by southern hills mall , located in sioux city , iowa . on october 3 , 2017 , we transitioned valle vista mall , located in harlingen , texas , to the lender . on june 13 , 2017 , we sold 49 % of our interest in malibu lumber yard as part of the o'connor joint venture ii transaction . on june 7 , 2017 , we completed the sale of morgantown commons . on may 16 , 2017 , we completed the sale of an 80,000 square foot vacant anchor parcel at indian mound mall , located in heath , ohio . on may 12 , 2017 , we completed the transaction forming the o'connor joint venture ii with regard to the ownership and operation of six of the company 's retail properties and certain related outparcels .
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plan against waiver of cash salary for the period from october to december 2019 . ( 15 ) on november 22 , 2018 , mr. jarry was granted 6,000 options to purchase shares of our common stock which will vest over a three-year period from the grant date . one-third story_separator_special_tag readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . see “ cautionary note regarding forward-looking statements ” . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a leading global digital therapeutics ( dtx ) company revolutionizing the way people manage their health across the chronic condition spectrum by delivering evidence-based interventions that are driven by precision data analytics , high quality software , and personalized coaching . we empower individuals to make healthy adjustments to their daily lifestyle choices in a personalized way and improve their overall health . our cross-functional team operates at the intersection of life science , behavioral science , and software technology to deliver highly engaging therapeutic interventions . with 4.9/5.0 stars from 9,000+ reviews on the apple app store as of march 2020 , the dario tm blood sugar monitor 's user-centric approach is loved by tens of thousands of customers around the globe . we are rapidly expanding solutions for additional chronic conditions such as hypertension , using a performance-based approach to improve the health of users managing chronic disease . 51 our flagship product , dario , which we also refer to as our dario smart diabetes management solution , is a mobile , real-time , cloud-based , diabetes management solution based on an innovative , multi-feature software application to track and monitor all facets of diabetes , combined with a stylish , ‘ all-in-one ' , pocket-sized , blood glucose monitoring device , which we call the dario blood glucose monitoring system , that essentially turns a smartphone into a glucometer . in addition , our product offerings will focus on the newly launched darioengage software platform , where we digitally engage with dario users , assist them in monitoring their chronic illnesses and provide them with coaching , support , digital communications and real time alerts , trends and pattern analysis . the darioengage platform can be leveraged by our potential partners , such as clinics , health care service providers , employers and payers for scalable monitoring of people with diabetes in a cost-effective manner , which we expect will open for us additional revenue streams . finally , we intend to utilize the data we obtain from our dario smart diabetes management solution and darioengage platform to develop our upcoming healthcare analytics program , dario intelligence . as such , we intend to develop our solutions such that they will span the full spectrum of disease monitoring , user-centric engagement , coaching tools , and big data and intelligence solutions . we have obtained regulatory clearance or approval for the dario blood glucose monitoring system in the u.s. , canada , the e.u. , israel and australia , among others . we believe that our targeted health platform is a highly personalized preventative and proactive approach to health improvement based on individual behavior and treatment , tailored to each person 's unique profile . our principal operating subsidiary , labstyle innovation ltd. , is an israeli company with its headquarters in caesarea , israel . we were formed on august 11 , 2011 as a delaware corporation . we commenced a commercial launch of our free application in the united kingdom in late 2013 and commenced an initial soft launch of the full dario solution ( including the app and the dario blood glucose monitoring system ) in selected jurisdictions in march 2014. we continued to scale up launch during 2014 in the united kingdom , the netherlands and new zealand , and during 2015 in australia , israel and canada , with the goal of collecting customer feedback to refine our longer-term roll-out strategy . we are consistently adding new additional features and functionality in making dario the new standard of care in diabetes data management . through our israeli subsidiary , labstyle innovation ltd. , our plan of operations is to continue the development of our software and hardware offerings and related technology . during 2015 , we successfully launched the dario smart diabetes management solution according to plan and are currently expanding the launch to other jurisdictions . in 2016 , we established our direct to consumer model in the u.s. to achieve higher and faster penetration into the market during the launch phase . we have invested in a robust digital marketing department with in-house platforms , experienced personnel and robust infrastructures to support expected growth of users and online subscribers in this market . during the third quarter of 2016 we expanded these efforts to include australia as well . in 2017 , we expanded our direct to consumer marketing efforts in the united kingdom in cooperation with our local distributor and launched similar marketing efforts in germany . story_separator_special_tag the fee paid in upfront , fixed or determinable , the allocation of the transaction price to each performance obligations product and service based on the best estimate of selling price which is established considering several internal factors including , but not limited to , historical sales , pricing practices and geographies in which we offer our products . 53 inventories inventory write-down is measured as the difference between the cost of the inventory and net realized value based upon assumptions about future demand , and is charged to the cost of sales . at the point of the loss recognition , a new , lower-cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . if there were to be a sudden and significant decrease in demand for our products or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to increase our inventory write-downs and our gross margin could be adversely affected . inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility , to help ensure competitive lead times with the risk of inventory obsolescence . during the year ended december 31 , 2019 , total inventory write-off expenses amounted to $ 62,000. production lines capitalization of costs . we capitalize direct incremental costs of third-party manufacturers related to the equipment in our production lines . we cease construction cost capitalization relating to our production lines once they are ready for its intended use and held available for occupancy . all renovations and betterments that extend the economic useful lives of assets and or improve the performance of the production lines are capitalized . useful lives of assets . we are required to make subjective assessments as to the useful lives of our production lines for purposes of determining the amount of depreciation to record on an annual basis with respect to our construction of the production lines . these assessments have a direct impact on our net income ( loss ) . production lines are usually depreciated on a straight-line basis over a period of up to seven years , except any renovations and betterments which are depreciated over the remaining life of the production lines . impairment of production lines . we are required to review our production lines for impairment in accordance with asc 360 , “ property , plant and equipment , ” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . story_separator_special_tag rwards as of december 31 , 2019 , we had u.s. federal net operating loss carryforwards of approximately $ 11,046,000 , of which 7,120,000 was generated from tax years 2011-2017 and can be carryforward and offset against taxable income and that expires during the years 2031 to 2037. on december 22 , 2017 , the u.s. tax cuts and jobs act of 2017 ( the “ tcja ” ) modified the rules regarding utilization of net operating loss and net operating losses generated subsequent to the tcja can only be used to offset 80 % of taxable income with an indefinite carryforward period for unused carryforwards ( i.e. , they should not expire ) . during 2018 and 2019 , we generated additional $ 3,926,000 of net operating losses carryforwards which are not subject to the annual limitation described above . our israeli subsidiary has accumulated net operating losses for israeli income tax purposes as of december 31 , 2019 in the amount of approximately $ 62,470,000. the net operating losses may be carried forward and offset against taxable income in the future for an indefinite period . in accordance with u.s. gaap , it is required that a deferred tax asset be reduced by a valuation allowance if , based on the weight of available evidence it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized . as a result , we recorded a valuation allowance with respect to our deferred tax asset . under sections 382 and 383 of the internal revenue code , if an ownership change occurs with respect to a “ loss corporation ” ( as defined in the internal revenue code ) , there are annual limitations on the amount of the net operating loss and other deductions which are available to us . the factors described above resulted in net loss attributable to common stockholders of $ 20,891,000 and $ 18,296,000 for the year ended december 31 , 2019 and 2018 , respectively . non-gaap financial measures to supplement our consolidated financial statements presented in accordance with u.s. gaap within this annual report on form 10-k , management provides certain non-gaap financial measures ( “ ngfm ” ) of the company 's financial results , including such amounts captioned : “ net loss before interest , taxes , depreciation , and amortization ” or “ ebitda , ” and “ non-gaap adjusted loss , ” as presented herein below .
| results of operations comparison of the year ended december 31 , 2019 to year ended december 31 , 2018 revenues revenues for the year ended december 31 , 2019 amounted to $ 7,559,000 , compared to $ 7,394,000 during the year ended december 31 , 2018. revenues generated during the year ended december 31 , 2019 were derived mainly from the sales of the dario blood glucose monitoring system , through direct sales to consumers located mainly in the united states through our on-line store and through distributors , and from the offering of our membership services to our customers located mainly in the united states . this increase in revenues is mainly due to the increase in sales of our membership offering compared to 2018 . 54 cost of revenues during the years ended december 31 , 2019 and 2018 , we recorded costs related to revenues in the amount of $ 4,962,000 and $ 5,629,000 , respectively . the decrease in cost of revenues was mainly due to the increase in the sales of our membership offerings , which includes a service component in addition to our products , and therefore resulted in a reduction in the quantities of product sold compared to 2018. cost of revenues consist mainly of cost of device production , employees ' salaries and related overhead costs , depreciation of production line and related cost of equipment used in production , shipping and handling costs and inventory write-downs . research and development expenses our research and development expenses increased by $ 16,000 to $ 3,692,000 for the year ended december 31 , 2019 compared to $ 3,676,000 for the year ended december 31 , 2018. this increase was mainly due to increase in salaries , partially offset by software development costs .
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to assess the amount of the transition tax , we must determine , in addition to other factors , the amount of post-1986 e & p of the relevant subsidiaries , as well as the amount of non-u.s. income taxes paid on story_separator_special_tag the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and related notes contained in item 8 of this annual report on form 10-k. business overview we operate in three reportable business segments of the heating , ventilation , air conditioning and refrigeration ( “ hvacr ” ) industry . our reportable segments are residential heating & cooling , commercial heating & cooling , and refrigeration . for more detailed information regarding our reportable segments , see note 18 in the notes to the consolidated financial statements . we sell our products and services through a combination of direct sales , distributors and company-owned stores . the demand for our products and services is seasonal and significantly impacted by the weather . warmer than normal summer temperatures generate demand for replacement air conditioning and refrigeration products and services , and colder than normal winter temperatures have a similar effect on heating products and services . conversely , cooler than normal summers and warmer than normal winters depress the demand for hvacr products and services . in addition to weather , demand for our products and services is influenced by national and regional economic and demographic factors , such as interest rates , the availability of financing , regional population and employment trends , new construction , general economic conditions and consumer spending habits and confidence . a substantial portion of the sales in each of our business segments is attributable to replacement business , with the balance comprised of new construction business . the principal elements of cost of goods sold are components , raw materials , factory overhead , labor , estimated costs of warranty expense and freight and distribution costs . the principal raw materials used in our manufacturing processes are steel , copper and aluminum . in recent years , pricing volatility for these commodities and related components has impacted us and the hvacr industry in general . we seek to mitigate the impact of commodity price volatility through a combination of pricing actions , vendor contracts , improved production efficiency and cost reduction initiatives . we also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts . financial highlights net sales increased $ 198 million , or 5.4 % , to $ 3,840 million in 2017 from $ 3,642 million in 2016. operating income in 2017 was $ 495 million compared to $ 429 million in 2016. the increase was primarily due to increased sales , sourcing and engineering-led cost reductions , and a reduction in pension settlement costs partially offset by an increase in commodities in 2017. net income in 2017 increased to $ 306 million from $ 278 million in 2016. diluted earnings per share from continuing operations were $ 7.17 per share in 2017 compared to $ 6.34 per share in 2016. we generated $ 325 million of cash flow from operating activities in 2017 compared to $ 374 million in 2016. the decrease was primarily due to an increase in working capital , partially offset by a reduction in pension contributions and an increase in net income . in 2017 , we returned $ 80 million to shareholders through dividend payments and we used $ 250.0 million to purchase 1.5 million shares of stock under our share repurchase plans . overview of results the residential heating & cooling segment led our overall financial performance in 2017 , with a 7.0 % increase in net sales and a $ 25 million increase in segment profit compared to 2016. this segment 's results benefited from market growth in the replacement and new construction markets and favorable foreign currency exchange rates . our commercial heating & cooling segment also performed well in 2017 with a 6.1 % increase in net sales and a $ 8 million increase in segment profit compared to 2016. this segment 's results benefited from market growth in north america . sales in our refrigeration segment were up slightly and segment profit increased $ 4 million compared to 2016. this segment 's profit benefited from sourcing and engineering-led cost reductions partially offset by lower factory productivity . on a consolidated basis , our gross profit margins decreased to 29.3 % in 2017 due primarily to unfavorable commodities , factory inefficiencies , and continued investment in distribution expansion . these declines were partially offset by favorable price and mix and sourcing and engineering-led cost reductions across our business . 17 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > segment profit in 2017 increased $ 25 million due to $ 39 million from higher sales volume , $ 21 million from sourcing and engineering-led cost reductions , $ 15 million from favorable price , $ 5 million from favorable foreign currency , $ 2 million from lower warranty expense , and $ 1 million from higher income from equity method investments . partially offsetting these increases was $ 20 million in higher commodity costs , $ 15 million in sg & a expenses to support investments in technology and research and development , incremental headcount and higher personnel costs , $ 12 million in freight and distribution investments , $ 6 million from unfavorable mix , and $ 5 million from increases in other product costs . 20 commercial heating & cooling the following table presents our commercial heating & cooling segment 's net sales and profit for 2017 and 2016 ( dollars in millions ) : replace_table_token_9_th commercial heating & cooling net sales increased 6 % in 2017 compared to 2016. sales volume increased by 5 % primarily due to market growth and 1 % from favorable foreign currency . story_separator_special_tag in addition , as part of our ongoing strategy to de-risk our pension plan obligations , we completed a one-time , lump sum pension buyout in the fourth quarter of 2016 for certain vested participants . as a result of the pension buy-out , we recorded a pension settlement charge of $ 31 million in the fourth quarter . income from equity method investments investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting . income from equity method investments increased to $ 18 million in 2016 compared to $ 13 million in 2015 due to increases in earnings from our joint ventures . interest expense , net net interest expense of $ 27 million in 2016 increased from $ 24 million in 2015 primarily due to an increase in our average borrowings . income taxes the income tax provision was $ 124 million in 2016 compared to $ 95 million in 2015 , and the effective tax rate was 30.8 % in 2016 compared to 33.8 % in 2015. our effective tax rate declined in 2016 due to the benefit from a repatriation of earnings recognized in the second quarter . loss from discontinued operations the $ 1 million of pre-tax losses incurred in 2016 primarily relates to changes in retained product liabilities and general liabilities for the service experts business sold in 2013 and the hearth business sold in 2012. in 2015 , there were $ 1 million of pre-tax losses incurred primarily related to changes in retained product liabilities and general liabilities for service experts and hearth . year ended december 31 , 2016 compared to year ended december 31 , 2015 - results by segment residential heating & cooling the following table presents our residential heating & cooling segment 's net sales and profit for 2016 and 2015 ( dollars in millions ) : replace_table_token_12_th residential heating & cooling net sales increased 7 % in 2016 compared to 2015. sales volume increased net sales by 6 % due to industry growth and market share gains and the benefits of favorable price and mix contributed 1 % . segment profit in 2016 increased $ 70 million due to $ 51 million in lower commodities and material costs , $ 33 million from higher sales volume and $ 12 million from favorable factory productivity which includes the addition of a second factory in mexico , and $ 5 million in other product costs . partially offsetting these increases was $ 6 million from unfavorable price and mix combined , 23 $ 4 million of unfavorable foreign currency exchange rates , $ 11 million in distribution investments , and $ 10 million of sg & a expenses to support wage inflation and investments in information technology and research and development . commercial heating & cooling the following table presents our commercial heating & cooling segment 's net sales and profit for 2016 and 2015 ( dollars in millions ) : replace_table_token_13_th commercial heating & cooling net sales increased 3 % in 2016 compared to 2015. sales volume increased net sales by 3 % , price and mix increased net sales by 1 % and changes in foreign currency exchange rates unfavorably impacted net sales by 1 % . segment profit in 2016 increased $ 19 million compared to 2015. the benefits of $ 9 million from incremental volume , $ 18 million from lower commodities and material costs , $ 4 million from combined price and mix and $ 1 million from lower freight expenses were partially offset by $ 6 million in other product costs and unfavorable factory productivity , $ 6 million of higher sg & a expenses , and $ 1 million for investments in infrastructure for our north american service business . refrigeration the following table presents our refrigeration segment 's net sales and profit for 2016 and 2015 ( dollars in millions ) : replace_table_token_14_th refrigeration net sales increased 1 % in 2016 compared to 2015 primarily due to 3 % volume growth which was partially offset by a 1 % impact from unfavorable foreign exchange rates and a 1 % impact from mix and price reductions . segment profit in 2016 compared to 2015 increased $ 16 million compared to 2015 primarily due to $ 7 million from increased sales volume , $ 21 million in lower commodities and material costs , $ 6 million from lower depreciation and amortization due to the impairment of our refrigerated display case business recorded in 2015. partially offsetting these increases were $ 8 million from unfavorable price and mix combined , $ 8 million from higher sg & a expenses , $ 1 million from other product costs , and $ 1 million from changes in foreign currency exchange rates . corporate and other corporate and other expenses increased $ 13 million in 2016 as compared to 2015 due primarily to higher incentive compensation , general wage inflation , and consulting fees . partially offsetting these increases were decreases in health care costs . 24 accounting for futures contracts realized gains and losses on settled futures contracts are a component of segment profit ( loss ) . unrealized gains and losses on unsettled futures contracts are excluded from segment profit ( loss ) as they are subject to changes in fair value until their settlement date . both realized and unrealized gains and losses on futures contracts are a component of losses and other expenses , net in the accompanying consolidated statements of operations . see note 8 of the notes to consolidated financial statements for more information on our derivatives and note 18 of the notes to the consolidated financial statements for more information on our segments and for a reconciliation of segment profit to operating income . liquidity and capital resources our working capital and capital expenditure requirements are generally met through internally generated funds , bank lines of credit and an asset securitization arrangement .
| results of operations the following table provides a summary of our financial results , including information presented as a percentage of net sales ( dollars in millions ) : replace_table_token_5_th the following table provides net sales by geographic market ( dollars in millions ) : replace_table_token_6_th year ended december 31 , 2017 compared to year ended december 31 , 2016 - consolidated results net sales net sales increased 5.4 % in 2017 compared to 2016 , primarily driven by volume increases . the increase in volume was primarily due to market growth in our residential heating and cooling and commercial heating and cooling segments . changes in foreign currency exchange rates and the effects of price and mix also had positive impacts on net sales . gross profit gross profit margins for 2017 decreased 30 basis points ( `` bps '' ) to 29.3 % compared to 29.6 % in 2016. we saw margin decreases of 80 bps from higher commodity costs , 50 bps for investments in distribution expansion , and 40 bps from other product costs . these decreases were offset by increases of 100 bps from sourcing and engineering-led cost reductions and 40 bps from favorable price and mix . 18 selling , general and administrative expenses sg & a expenses increased by $ 17 million in 2017 compared to 2016. as a percentage of net sales , sg & a expenses decreased 50 bps from 17.1 % to 16.6 % in the same periods . sg & a increased due to general wage inflation , increased healthcare costs and increased investment in information technology and research and development partially offset by decreases in incentive compensation .
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these forward-looking statements may include statements regarding profitability , liquidity , allowance for loan losses , interest rate sensitivity , market risk , growth strategy and financial and other goals . forward-looking statements often use words such as “ believes , ” “ expects , ” “ plans , ” “ may , ” “ will , ” “ should , ” “ projects , ” “ contemplates , ” “ anticipates , ” “ forecasts , ” “ intends ” or other words of similar meaning . you can also identify them by the fact that they do not relate strictly to historical or current facts . forward-looking statements are subject to numerous assumptions , risks and uncertainties , and actual results could differ materially from historical results or those anticipated by such statements . there are many factors that could have a material adverse effect on the operations and future prospects of the company including , but not limited to : · changes in assumptions underlying the establishment of allowances for loan losses , and other estimates ; · the risks of changes in interest rates on levels , composition and costs of deposits , loan demand , and the values and liquidity of loan collateral , securities , and interest sensitive assets and liabilities ; · the effects of future economic , business and market conditions ; · legislative and regulatory changes , including the dodd-frank act and other changes in banking , securities , and tax laws and regulations and their application by our regulators , and changes in scope and cost of fdic insurance and other coverages ; · our inability to maintain our regulatory capital position ; · the company 's computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error , malfeasance , or other disruptions despite security measures implemented by the company ; · changes in market conditions , specifically declines in the residential and commercial real estate market , volatility and disruption of the capital and credit markets , soundness of other financial institutions we do business with ; · risks inherent in making loans such as repayment risks and fluctuating collateral values ; · changes in operations of the mortgage company as a result of the activity in the residential real estate market ; · exposure to repurchase loans sold to investors for which borrowers failed to provide full and accurate information on or related to their loan application or for which appraisals have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor ; · governmental monetary and fiscal policies ; · changes in accounting policies , rules and practices ; · reliance on our management team , including our ability to attract and retain key personnel ; · competition with other banks and financial institutions , and companies outside of the banking industry , including those companies that have substantially greater access to capital and other resources ; · demand , development and acceptance of new products and services ; 30 · problems with technology utilized by us ; · changing trends in customer profiles and behavior ; and · other factors described from time to time in our reports filed with the sec . for additional information on factors that could materially influence the forward-looking statements included in this report , see the risk factors in item 1a – “ risk factors ” in this report . these risks and uncertainties should be considered in evaluating the forward-looking statements contained herein , and readers are cautioned not to place undue reliance on such statements . any forward-looking statement speaks only as of the date on which it is made , and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made . in addition , past results of operations are not necessarily indicative of future results . general the company 's primary source of earnings is net interest income , and its principal market risk exposure is interest rate risk . the company is not able to predict market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the company 's results of operations and financial condition . although we endeavor to minimize the credit risk inherent in the company 's loan portfolio , we must necessarily make various assumptions and judgments about the collectability of the loan portfolio based on our experience and evaluation of economic conditions . if such assumptions or judgments prove to be incorrect , the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance may be necessary , which would have a negative impact on net income . story_separator_special_tag an evaluation of the level of loans outstanding , the level of nonperforming loans , historical loan loss experience , delinquency trends , underlying collateral values , the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions . the level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , and present economic , political and regulatory conditions . portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the company 's control , including the performance of the company 's loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . story_separator_special_tag additionally , as a significant amount of the loan losses we have experienced in the past is attributable to construction and land development loans , our strategy has shifted from reducing this type of lending to closely manage the quality and concentration in these loan types . approximately 81 % of all loans are secured by mortgages on real property located principally in the commonwealth of virginia . we are less reliant on real estate secured lending than was the case in 2012 when 90 % of our loan portfolio consisted of this type of lending . approximately 9 % of the loan portfolio consists of rehabilitated student loans purchased by the bank in 2017 , 2016 , 2015 and 2014 ( see discussion following ) . the company 's commercial and industrial loan portfolio represents approximately 9 % of all loans . loans in this category are typically made to individuals and small and medium-sized businesses , and range between $ 250,000 and $ 2.5 million . based on underwriting standards , commercial and industrial loans may be secured in whole or in part by collateral such as liquid assets , accounts receivable , equipment , inventory , and real property . the collateral securing any loan may depend on the type of loan and may vary in value based on market conditions . the remainder of our loan portfolio is in consumer loans which represent less than 1 % of the total . 37 the following tables present the composition of our loan portfolio at the dates indicated ( dollars in thousands ) . replace_table_token_7_th for more financial data and other information about loans refer to note 1 “ summary of significant accounting policies ” and note 3 “ loans ” in the “ notes to consolidated financial statements ” contained in item 8 of this form 10-k. allowance for loan losses we monitor and maintain an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio . for more financial data and other information about loans refer to note 1 “ summary of significant accounting policies ” and note 4 “ allowance for loan losses ” in the “ notes to consolidated financial statements ” contained in item 8 of this form 10-k. 38 asset quality the following table summarizes asset quality information at the dates indicated ( dollars in thousands ) . replace_table_token_8_th ( 1 ) all loans 90 days past due and still accruing are rehabilitated student loans which have a 98 % guarantee by the doe . ( 2 ) loans are net of unearned income and deferred cost . the following table presents an analysis of the changes in nonperforming assets for 2018 ( in thousands ) . replace_table_token_9_th nonperforming restructured loans are included in nonaccrual loans . until a nonperforming restructured loan has performed in accordance with its restructured terms for a minimum of six months , it will remain on nonaccrual status . 39 interest is accrued on outstanding loan principal balances , unless the company considers collection to be doubtful . commercial and unsecured consumer loans are designated as nonaccrual when the company considers collection of expected principal and interest doubtful . mortgage loans and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that concern over our ability to collect principal and interest is not significant . when loans are placed in nonaccrual status , previously accrued and unpaid interest is reversed against interest income in the current period and interest is subsequently recognized only to the extent cash is received . interest accruals are resumed on such loans only when in the judgment of management , the loans are estimated to be fully collectible as to both principal and interest . of the total nonaccrual loans of $ 2,259,000 at december 31 , 2018 that were considered impaired , three loans totaling $ 17,000 had specific allowances for loan losses totaling $ 17,000. this compares to $ 2,320,000 in nonaccrual loans at december 31 , 2017 of which 13 loans totaling $ 1,053,000 had specific allowances for loan losses of $ 454,000. cumulative interest income that would have been recorded had nonaccrual loans been performing would have been $ 240,000 and $ 159,000 , for 2018 and 2017 , respectively . student loans totaling $ 5,573,000 and $ 7,229,000 at december 31 , 2018 and 2017 , respectively , were past due 90 days or more and interest was still being accrued as principal and interest on such loans have a 98 % guarantee by the doe . the 2 % not covered by the doe guarantee is provided for in the allowance for loan losses . deposits the following table gives the composition of our deposits at the dates indicated ( dollars in thousands ) . replace_table_token_10_th total deposits increased by $ 27,423,000 , or 6.7 % , from $ 411,624,000 at december 31 , 2017 to $ 439,047,000 at december 31 , 2018. checking and savings accounts increased by $ 17,423,000 , money market accounts increased by $ 3,772,000 and time deposits increased by $ 6,228,000 during 2018. the cost of our interest-bearing deposits increased to 0.90 % for 2018 compared to 0.80 % for 2017. the variety of deposit accounts that we offer has allowed us to be competitive in obtaining funds and has allowed us to respond with flexibility to , although not to eliminate , the threat of disintermediation ( the flow of funds away from depository institutions such as banking institutions into direct investment vehicles such as government and corporate securities ) . our ability to attract and retain deposits , and our cost of funds , has been , and is expected to continue to be , significantly affected by money market conditions . 40 the following table is a schedule of average balances and average rates paid for each deposit category for the periods presented ( dollars in thousands ) .
| results of operations the following presents management 's discussion and analysis of the financial condition of the company at december 31 , 2018 and 2017 , and results of operations for the company for the years ended december 31 , 2018 and 2017. this discussion should be read in conjunction with the company 's audited financial statements and the notes thereto appearing elsewhere in this annual report . summary the company recorded net income of $ 3,037,000 and net income available to common shareholders , which deducts from net income the dividends on preferred stock , of $ 2,924,000 , or $ 2.04 per fully diluted share in 2018 , compared to a net loss of $ 3,096,000 and net loss available to common shareholders of $ 3,594,000 , or ( $ 2.55 ) per fully diluted share in 2017. the company 's results for the year ended december 31 , 2017 were significantly impacted by a reduction in the corporate tax rate . on december 22 , 2017 , the president signed into law the tax reform act . the tax reform act includes a number of changes in existing tax law impacting businesses . one of the most significant changes is a permanent reduction in the corporate income tax rate from 35 % to 21 % . the rate reduction took effect on january 1 , 2018. accounting principles generally accepted in the united states of america ( “ gaap ” ) require companies to re-value their deferred tax assets and liabilities as of the date of enactment , with resulting tax effects accounted for in the reporting period of enactment . as of december 31 , 2017 , the company had net deferred tax assets of $ 11 million . the company recorded a re-valuation of its deferred tax assets and liabilities as of december 31 , 2017 , at the new rate of 21 % , based upon balances in existence at date of enactment .
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the company anticipates contributing $ 37,000 towards postretirement benefits in 2018. there was no other comprehensive income impact because a regulatory asset is recorded as provided by fasb asc topic 980. note 10 commitments and contingencies leases in october 1997 , artesian water entered into a 33 year operating lease for story_separator_special_tag overview our profitability is primarily attributable to the sale of water . gross water sales comprise 88.8 % o f total operating revenues for the year ended december 31 , 2017. our profitability is also attributed to the various contract operations , water , sewer , and internal service line protection plans and other services we provide . water sales are subject to seasonal fluctuations , particularly during summer when water demand may vary with rainfall and temperature . in the event temperatures during the typically warmer months are cooler than expected , or rainfall is greater than expected , the demand for water may decrease and our revenues may be adversely affected . we believe the effects of weather are short term and do not materially affect the execution of our strategic initiatives . our contract operations and other services provide a revenue stream that is not affected by changes in weather patterns . while water sales are our primary source of revenues , we continue to seek growth opportunities to provide wastewater service in delaware and the surrounding areas . we also continue to explore and develop relationships with developers and municipalities in order to increase revenues from contract water and wastewater operations , wastewater management services , design , construction and engineering services . we plan to continue developing and expanding our contract operations and other services in a manner that complements our growth in water service to new customers . our anticipated growth in these areas is subject to changes in residential and commercial construction , which may be affected by interest rates , inflation and general housing and economic market conditions . we anticipate continued growth in our non-regulated division due to our water , sewer , and internal service line protection plans . water division overview artesian water , artesian water maryland and artesian water pennsylvania provide water service to residential , commercial , industrial , governmental , municipal and utility customers . increases in the number of customers contribute to increases , or help to offset any intermittent decreases in our operating revenue . as of december 31 , 2017 , we had approximately 84,200 metered water customers in delaware , an increase of approximately 1,500 compared to december 31 , 2016. the number of metered water customers in maryland totaled approximately 2,300 as of december 31 , 2017 , a slight increase compared to december 31 , 2016. the number of metered water customers in pennsylvania remained consistent compared to december 31 , 2016. for the year ended december 31 , 2017 , approximately 7.8 billion gallons of water were distributed in our delaware systems and approximately 130 million gallons of water were distributed in our maryland systems . wastewater division overview artesian wastewater owns wastewater infrastructure and began providing wastewater services in delaware in july 2005. artesian wastewater maryland , which was incorporated on june 3 , 2008 , is able to provide regulated wastewater services in maryland . our residential and commercial wastewater customers are billed a flat monthly fee , which contributes to providing a revenue stream unaffected by weather . there has been consistent customer growth over the years . the number of delaware wastewater customers totaled approximately 1,800 as of december 31 , 2017 , an increase of approximately 200 , or 12.5 % , compared to december 31 , 2016. in addition , artesian wastewater entered into a wastewater services agreement with allen harim foods , llc , or allen harim , a large industrial customer , under which service is expected to begin in 2018. the wastewater services agreement with allen harim is discussed further in the `` strategic direction '' section below . 22 non-regulated division overview artesian utility provides contract water and wastewater operation services to private , municipal and governmental institutions . artesian utility currently operates wastewater treatment facilities for the town of middletown , delaware under a 20-year contract that expires in july 2022. the facilities include two wastewater treatment stations with capacities of up to approximately 2.5 million gallons per day and 250,000 gallons per day , respectively . we also operate a wastewater disposal facility in middletown in order to support the 2.5 million gallons per day wastewater facility . in addition to water and wastewater services described above . artesian utility also offers three protection plans to customers , the wslp plan , the sslp plan , and the islp plan . the wslp plan covers all parts , material and labor required to repair or replace participating customers ' leaking water service lines up to an annual limit . the sslp plan covers all parts , material and labor required to repair or replace participating customers ' leaking or clogged sewer lines up to an annual limit . the islp plan enhances available coverage to include water and wastewater lines within customers ' residences . as of december 31 , 2017 , approximately 19,500 , or 24.6 % , of our eligible water customers enrolled in the wslp plan , approximately 15,400 , or 19.5 % , of our eligible customers enrolled in the sslp plan , and approximately 4,700 or 5.9 % , of our eligible customers enrolled in the islp plan . approximately 1,600 non-utility customers enrolled in one of our three protection plans . artesian development is a real estate holding company that owns properties , including land zoned for office buildings , a water treatment plant and wastewater facility , as well as property for current operations , including an office facility in sussex county , delaware . the facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space . story_separator_special_tag on september 27 , 2016 , artesian wastewater entered into a wastewater services agreement with allen harim for artesian wastewater to provide treatment and disposal services for sanitary wastewater discharged from allen harim 's properties located in sussex county , delaware upon completion of a pipeline to transfer the sanitary wastewater . the pipeline was completed in the second quarter of 2017. the transfer of sanitary wastewater is pending receipt of a construction permit and installation of related on-site improvements by allen harim . on january 27 , 2017 , artesian wastewater entered into a second wastewater agreement with allen harim for artesian wastewater to provide disposal services for approximately 1.5 million gallons per day of treated industrial process wastewater upon completion of an approximately eight mile pipeline that will transfer the wastewater from allen harim 's properties to a 90 million gallon storage lagoon at artesian 's northern sussex regional water recycling facility . we will use the reclaimed wastewater for spray irrigation on agricultural land in the area . the completion of the industrial process wastewater pipeline and storage lagoon should occur during the third quarter of 2018. the general need for increased capital investment in our water and wastewater systems is due to a combination of population growth , more protective water quality standards and aging infrastructure . our capital investment plan for the next three years includes projects for water treatment plant improvements and additions in both delaware and maryland and wastewater treatment plant improvements and expansion in delaware . capital improvements are planned and budgeted to meet anticipated changes in regulations and needs for increased capacity related to projected growth . the delaware public service commission and maryland public service commission have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers . in our non-regulated division , we continue pursuing opportunities to expand our contract operations . through artesian utility , we will seek to expand our contract design , engineering and construction services of water and wastewater facilities for developers , municipalities and other utilities . we also anticipate continued growth due to our water , sewer and internal service line protection plans . artesian development owns two nine-acre parcels of land , located in sussex county , delaware , which will allow for construction of a water treatment facility and wastewater treatment facility . artesian storm water was recently formed to expand contract work related to the design , installation , maintenance and repair services associated with existing or proposed storm water management systems in delaware and the surrounding areas . inflation we are affected by inflation , most notably by the continually increasing costs required to maintain , improve and expand our service capability . the cumulative effect of inflation results in significantly higher facility costs compared to investments made 20 to 40 years ago , which must be recovered from future cash flows . 24 critical accounting policies and estimates critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates , assumptions or other judgments by management . the following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the company . changes in the estimates , assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period . we consider the following policies to be the most critical in understanding the judgment that is involved in preparing our consolidated financial statements . senior management has discussed the selection and development of our critical accounting policies and estimates with the audit committee of the board of directors . all additions to utility plant are recorded at cost . cost includes direct labor , materials , and indirect charges for such items as transportation , supervision , pension , medical , and other fringe benefits related to employees engaged in construction activities . when depreciable units of utility plant are retired , any cost associated with retirement , less any salvage value or proceeds received , is charged to a regulated retirement liability . maintenance , repairs , and replacement of minor items of utility plant are charged to expense as incurred . we record water service revenue , including amounts billed to customers on a cycle basis and unbilled amounts , based upon estimated usage from the date of the last meter reading to the end of the accounting period . as actual usage amounts are received , adjustments are made to the unbilled estimates in the next billing cycle based on the actual results . estimates are made on an individual customer basis , based on one of three methods ( the previous year 's consumption in the same period , the previous billing period 's consumption , or averaging ) and are adjusted to reflect current changes in water demand on a system-wide basis . while actual usage for individual customers may differ materially from the estimate , we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption . we record accounts receivable at the invoiced amounts . the reserve for bad debts is adjusted based on the provision for bad debts , which is calculated as a percentage of total water sales . the company reviews the bad debt provision expense and the reserve for bad debts on a quarterly basis . account balances are written off against the reserve when it is probable the receivable will not be recovered . our regulated utilities record deferred regulatory assets under financial accounting standards board , or fasb , accounting standards codification , or asc , topic 980 , which are costs that may be recovered over various lengths of time as prescribed by the depsc , mdpsc and papuc .
| results of operations 2017 compared to 2016 operating revenues revenues totaled $ 82.2 million for the year ended december 31 , 2017 , $ 3.1 million , or 4.0 % , above revenues for the year ended december 31 , 2016 of $ 79.1 million . water sales revenues increased $ 2.5 million , or 3.5 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase in water sales is primarily due to an increase in dsic , an increase in overall water consumption and an increase in customer charges from customer growth . we realized 88.8 % of our total operating revenue for the year ended december 31 , 2017 from the sale of water as compared to 89.3 % for the year ended december 31 , 2016. other utility operating revenue increased approximately $ 0.4 million , or 9.5 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase is primarily due to an increase in wastewater revenue from customer growth and an increase in water service charges . non-utility operating revenue increased approximately $ 0.3 million , or 6.7 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase is primarily due to an increase in service line protection plans , or slp plans , revenue . replace_table_token_6_th residential residential water service revenues in 2017 amounted to $ 43.6 million , an increase of $ 1.3 million , or 3.1 % , above the $ 42.3 million recorded in 2016 , primarily due to an increase in dsic revenue and an increase in the number of customers . the volume of water sold to residential customers decreased slightly to 3,731 million gallons in 2017 compared to 3,741 million gallons in 2016 , a 0.3 % decrease .
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the allowance for credit losses for credit cards and unsecured lines of credit is calculated using two transition matrix models to project portfolio-level net charge-off rates . both models use current balance and delinquency status as key risk drivers . these models are not natively sensitive to macroeconomic conditions . the necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework . for other consumer loans , a regression model is used to project portfolio-level net charge-off rates story_separator_special_tag our principal business consists of collecting deposits and making loans secured by various types of collateral , including real estate and other assets in the markets in which we are located . attracting and maintaining deposits is affected by a number of factors , including interest rates paid on competing deposits and other 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 investment and mortgage-backed securities and income provided from operations . our earnings depend primarily on net interest income , which is the difference between interest earned on our interest-earning assets , consisting primarily of loans and 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 the average balance of 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 , fees related to insurance and investment management and trust services , and net gains and losses on the sale of assets . net interest income and noninterest income are offset by provisions for credit losses , general administrative and other expenses , including employee compensation and benefits and occupancy and processing costs , as well as by state and federal income tax expense . our net income was $ 74.9 million , or $ 0.62 per diluted share , for the year ended december 31 , 2020 compared to $ 110.4 million , or $ 1.04 per diluted share , for the year ended december 31 , 2019 and $ 105.5 million , or $ 1.02 per diluted share , for the year ended december 31 , 2018. the provision for credit losses was $ 84.0 million for the year ended december 31 , 2020 compared to $ 22.7 million for the year ended december 31 , 2019 and $ 20.3 million for the year ended december 31 , 2018. 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 credit losses . we recognize that losses will be experienced on loans and that the risk of loss varies with 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 expected lifetime losses in the loan portfolio . the allowance for credit losses represents management 's estimate of lifetime expected losses based on all available information . the allowance for credit losses is based on management 's evaluation of relevant available information , from internal and external sources , relating to past events , current conditions and reasonable and supportable forecasts . the loan portfolio is reviewed regularly by management in its determination of the allowance for credit losses . the methodology for assessing the appropriateness of the allowance includes a review of historical losses , peer group comparisons , industry data and economic conditions . as an integral part of their examination process , regulatory agencies periodically review our allowance for credit losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management . in establishing the allowance for credit losses , a combination of statistical models are applied to various pools of outstanding loans . we use a twelve month forecasting period and revert to historical average loss rates thereafter . credit relationships that have been classified as substandard or doubtful and are greater than or equal to $ 1.0 million are reviewed by the credit administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool . if a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed . the allowance calculation is also supplemented with qualitative reserves that takes into consideration the current portfolio and specific risk characteristics , such as changes in underwriting standards , portfolio mix , delinquency level , or term , as well as changes in environmental conditions , among other factors , that have occurred but are not yet reflected in the quantitative model component . story_separator_special_tag during the first quarter of 2020 , the company determined the covid-19 pandemic and its negative effect on the global economy to be a triggering event . as a result , the company , with the assistance of a third-party specialist , performed a quantitative impairment analysis in accordance with asu 2017-04 as of march 31 , 2020. this analysis indicated the aggregate fair value of northwest bank , the sole reporting unit of northwest bancshares , inc. , exceeded the carrying value and therefore goodwill was not impaired . given the results of the quantitative goodwill analysis performed during the first quarter and the absence of any significant changes in the economic environment that would indicate a change in the conclusion of the quantitative analysis performed , the company elected to perform a qualitative goodwill impairment test as of june 30 , 2020 in accordance with asc 350 , as updated by asu 2017-04 , and concluded that goodwill was not impaired as of june 30 , 2020. as of december 31 , 2020 and 2019 , there were no events or changes in circumstances that would cause us to update that goodwill impairment test and we have concluded there is no impairment in goodwill . deferred income taxes . we use the asset and liability method of accounting for income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the 32 realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . pension benefits . pension expense and obligations depend on assumptions used in calculating such amounts . these assumptions include discount rates , anticipated salary increases , interest costs , expected return on plan assets , mortality rates , and other factors . in accordance with u.s. generally accepted accounting principles , actual results that differ from the assumptions are amortized over average future service and , therefore , generally affect recognized expense . while management believes that the assumptions used are appropriate , differences in actual experience or changes in assumptions may affect our pension obligations and future expense . in determining the projected benefit obligations for pension benefits at december 31 , 2020 and 2019 , we used a discount rate of 2.39 % and 3.14 % , respectively . we use the ftse ( previously citigroup ) pension liability index rates matching the duration of our benefit payments as of the measurement date , december 31 , to determine the discount rate . recently issued accounting standards the following accounting standard updates ( `` asu '' ) issued by the fasb have not yet been adopted . in august 2018 , the fasb issued asu 2018-14 , “ compensation - retirement benefits - defined benefit plans - general ( subtopic 715-20 ) - disclosure framework-changes to the disclosure requirements for defined benefit plans. ” this guidance removes and adds disclosure requirements for defined benefit pension or other post-retirement plans . this guidance is effective for annual periods beginning after december 15 , 2020 , with early adoption permitted , and requires retrospective adoption for all periods presented . we do not expect this guidance to have a material impact on our financial statements . in december 2019 , the fasb issued asu 2019-12 , `` income taxes - simplifying the accounting for income taxes . '' this guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in asc 740 related to the approach for intraperiod tax allocation , the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences . asu 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill . this guidance is effective for annual periods beginning after december 15 , 2020 , including interim periods within those years , with early adoption permitted . we do not expect this guidance to have a material impact on our financial statements . in march 2020 , the fasb issued asu no . 2020-04 , “ facilitation of the effects of reference rate reform on financial reporting. ” this asu provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from libor and other interbank offered rates to alternative reference rates . the guidance provides expedients and exceptions for applying gaap to transactions affected by reference rate reform if certain criteria are met . the amendments primarily include contract modifications and hedge accounting , as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity . this guidance is effective march 12 , 2020 through december 31 , 2022. we are currently in the process of evaluating the amendments and determining the impact on our financial statements . balance sheet analysis assets .
| general . net income for the year ended december 31 , 2019 was $ 110.4 million , or $ 1.04 per diluted share , an increase of $ 4.9 million , or 4.7 % , from $ 105.5 million , or $ 1.02 per diluted share , for the year ended december 31 , 2018. the increase in net income resulted from an increase in net interest income of $ 21.8 million , or 6.4 % and noninterest income of $ 7.7 million , or 8.4 % . partially offsetting these increases were an increase in provision for credit losses of $ 2.3 million , or 11.4 % , an increase in noninterest expense of $ 20.0 million , or 7.2 % , and an increase in income tax expense of $ 2.3 million , or 7.9 % . 41 net income for the year ended december 31 , 2019 represents returns on average equity and average assets of 8.36 % and 1.07 % , respectively , compared to 8.61 % and 1.11 % for the year ended december 31 , 2018. a discussion of significant changes follows . interest income . total interest income increased by $ 41.6 million , or 11.1 % , to $ 417.4 million for the year ended december 31 , 2019 from $ 375.8 million for the year ended december 31 , 2018. this increase is the result of an increase in the average balance of interest earning assets of $ 675.3 million , or 7.7 % , to $ 9.438 billion for the year ended december 31 , 2019 from $ 8.763 billion for the year ended december 31 , 2018 and an increase in the average yield on interest-earning assets to 4.44 % for the year ended december 31 , 2019 from 4.30 % for the year ended december 31 , 2018. interest income on loans receivable increased by $ 38.2 million , or 10.7 % , to $ 394.8 million for the year ended december 31 , 2019 from $ 356.6 million for the year ended
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net revenues — as a result of the foregoing factors , the company 's net revenues were $ 45.8 million for fiscal 2016 as compared to $ 76.3 million for fiscal 2015 , a decrease of $ 30.5 million , or 40.1 % . cost of sales — cost of sales includes those components as described in note 1 “ cost of sales ” of the notes to the consolidated financial statements . in absolute terms , cost of sales decreased $ 23.3 million , or 37.5 % , to $ 38.8 million in fiscal 2016 as compared to $ 62.1 million in fiscal 2015. cost of sales as a percentage of net product sales was 94.6 % in fiscal 2016 as compared to 90.0 % in fiscal 2015. the decrease in absolute terms for fiscal 2016 as compared to fiscal 2015 was primarily related to the reduced net product sales , partly offset by higher year-over-year gross cost of sales as a percentage of gross sales and approximately $ 1.6 million in reversals of reserves no longer required during fiscal 2015. other operating costs and expenses — other operating costs and expenses include those components as described in note 1 “ other operating costs and expenses ” of the notes to the consolidated financial statements . other operating costs and expenses as a percentage of net product sales was 0.9 % in fiscal 2016 and 1.0 % in fiscal 2015. in absolute terms , other operating costs and expenses was $ 0.4 million in fiscal 2016 as compared to $ 0.7 million in fiscal 2015. selling , general and administrative expenses ( “ s , g & a ” ) — s , g & a , as a percentage of net revenues , was 17.4 % in fiscal 2016 as compared to 11.6 % in fiscal 2015. fiscal 2016 s , g & a , in absolute terms , was $ 7.9 million and fiscal 2015 s , g & a , in absolute terms , was $ 8.8 million , a decrease of $ 0.9 million , or 9.7 % . analysis of s , g & a fiscal 2016 s , g & a included approximately $ 0.3 million in legal and advisory fees pertaining to work performed for the special committee of the company 's board of directors and approximately $ 0.5 million in tax advisory fees related to the audit of the company 's tax returns by the irs , as mentioned elsewhere within this annual report on form 10-k. fiscal 2015 s , g & a included approximately $ 1.6 million in legal and advisory fees pertaining to work performed for the special committee of the company 's board of directors and approximately $ 0.3 million in tax advisory fees related to the audit of the company 's tax returns by the irs , as mentioned elsewhere within this annual report on form 10-k. excluding the aforementioned items , the fiscal 2016 s , g & a was $ 7.2 million and the fiscal 2015 s , g & a was $ 6.9 million , an increase of $ 0.3 million , or 4.3 % , primarily due to higher year-over-year corporate and personnel costs . 21 interest income , net — interest income , net , was $ 178,00 0 in fiscal 2016 as compared to $ 215,000 in fiscal 2015 , resulting from a reduction of its investments in certificates of deposit during fiscal 2016 . ( benefit ) provision for income tax expense — in fiscal 2016 , the company recorded an income tax benefit of $ 0.3 million , of which approximately $ 0.2 million was recorded in the fourth quarter of fiscal 2016 , as compared to income tax expense of $ 3.1 million in fiscal 2015. see note 5 “ income taxes ” . net ( loss ) income — as a result of the foregoing factors , the company recorded a net loss of $ 1.0 million for fiscal 2016 as compared to net income of $ 1.9 million for fiscal 2015. liquidity and capital resources general as of march 31 , 2016 , the company had cash and cash equivalents of approximately $ 30.1 million as compared to approximately $ 43.5 million at march 31 , 2015. working capital decreased to $ 55.7 million at march 31 , 2016 as compared to $ 56.5 million at march 31 , 2015 as adjusted to remove $ 0.9 million in deferred tax assets which were reclassified from current to noncurrent upon the early and retrospective adoption of accounting standards update 2015-17 by the company as of march 31 , 2016. the decrease in cash and cash equivalents of approximately $ 13.4 million was due to the below factors . net cash provided by operating activities was approximately $ 6.8 million for fiscal 2016 resulting from a $ 2.5 million decrease in inventories , a $ 2.2 million decrease in accounts receivable , a $ 2.2 million decrease in royalty receivable , a $ 2.1 million decrease in prepaid purchases , a $ 0.6 million decrease in deferred tax assets , a $ 0.2 million decrease in prepaid expenses and other current assets , partially offset by a $ 1.0 million loss generated during the period , a $ 0.7 million increase in asset allowances , a $ 0.5 million decrease in long term liabilities , a $ 0.4 million decrease in accounts payable and other current liabilities and a $ 0.4 million decrease in income taxes payable . net cash used by investing activities was $ 20.2 million due to investments made in short term certificates of deposit . net cash used by financing activities was nil during fiscal 2016. credit arrangements letters of credit — the company has utilized hang seng bank in the past to issue letters of credit on behalf of the company , as needed , on a 100 % cash collateralized basis , although no letter of credit agreement is in place between the company and hang seng bank or any financial institution . 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 . 23 i nventories . 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 . 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 .
| financial condition and results of operations 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. in addition to historical information , the following discussion contains forward-looking statements that reflect the company 's plans , estimates and beliefs . the company 's actual results could differ materially from those contained in or implied by any forward-looking statements . factors that could cause or contribute to these differences include those under item 1a – “ risk factors ” or in other parts of this annual report on form 10-k. in the following discussions , most percentages and dollar amounts have been rounded to aid presentation . as a result , all figures are approximations . results of operations : the following table summarizes certain financial information for the fiscal years ended march 31 ( in thousands ) : replace_table_token_3_th results of operations — fiscal 2016 compared with fiscal 2015 net product sales — net product sales for fiscal 2016 were $ 41.0 million as compared to $ 69.0 million for fiscal 2015 , a decrease of $ 28.0 million , or 40.5 % as detailed below . the company 's sales during fiscal 2016 and fiscal 2015 were highly concentrated among the company 's two largest customers , target and wal-mart , where gross product sales comprised approximately 82.9 % and 88.4 % , 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 .
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overview the overarching strategy of xg technology , inc. ( “ xg technology ” , “ xg ” , the “ company ” , “ we ” , “ our ” , “ us ” ) is to design , develop and deliver advanced wireless communications solutions that provide customers in our target markets with enhanced levels of reliability , mobility , performance and efficiency in their business operations and missions . xg 's business lines include the brands of integrated microwave technologies llc ( “ imt ” ) , vislink communication systems ( “ vislink ” ) , and xmax . there is considerable brand interaction , owing to complementary market focus , compatible product and technology development roadmaps , and solution integration opportunities . in addition to these brands , xg has a dedicated federal sector group focused on providing next-generation spectrum sharing solutions to national defense , scientific research and other federal organizations . imt : on january 29 , 2016 , xg completed the acquisition of the net assets that constituted the business of imt , pursuant to an asset purchase agreement by and between xg and skyview capital , llc . the imt business develops , manufactures and sells microwave communications equipment utilizing cofdm ( coded orthogonal frequency division multiplexing ) technology . cofdm is a transmission technique that combines encoding technology with ofdm ( orthogonal frequency division multiplexing ) modulation to provide the low latency and high image clarity required for real-time live broadcasting video transmissions . imt has extensive experience in ultra-compact cofdm wireless technology , and this has allowed imt to develop integrated solutions over the past 20 years that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations . imt provides product and service solutions marketed under the well-established brand names nucomm , rf central and imt . its video transmission products primarily address three major market areas : broadcasting , sports and entertainment , and surveillance ( for military and government ) . the broadcasting market consists of electronic news gathering , wireless camera systems , portable microwave , and fixed point to point systems . customers within this market are blue-chip tier-1 major network tv stations that include over-the-air broadcasters , and cable and satellite news providers . for this market , imt designs , develops and markets solutions for use in news helicopters , ground-based news vehicles , camera operations , central receive sites , remote onsite and studio newscasts and live television events . in this market , imt 's nucomm line is recognized as a premium brand of digital broadcast microwave video systems . the sports and entertainment market consists of key segments that include sports production , sports venue entertainment systems , movie director video assist , and the non-professional user segment . customers within this market are major professional sports teams , movie production companies , live video production service providers , system integrators and a growing segment of drone and unmanned ground vehicle providers . among the key solutions imt provides to this market are wireless camera systems and mobile radios . imt 's rf central is a well-established brand of compact microwave video equipment in the market for both licensed and license-free sports and entertainment applications . the government/surveillance market consists of key segments that include state and local law enforcement agencies , federal “ 3-letter ” agencies and military system integrators . customers within this market include recognizable state police forces , sheriff 's departments , fire departments , first responders , the department of justice and the department of home land security . the key solutions imt provides to this market are mission-critical wireless video solutions for applications including manned and unmanned aerial and ground systems , mobile and handheld receive systems and transmitters for concealed video surveillance . imt 's products in this market are sold under the brand name imt . 20 vislink : xg technology originally announced the acquisition of vislink on october 20 , 2016 in a $ 16 million binding asset purchase agreement . on february 2 , 2017 , xg completed the acquisition and assumed full legal ownership of vislink . vislink specializes in the wireless capture , delivery and management of secure , high-quality , live video from the field to the point of usage . vislink designs and manufactures products encompassing microwave radio components , satellite communication , cellular and wireless camera systems , and associated amplifier items . vislink serves two core markets : broadcast & media , and law enforcement , public safety & surveillance . in the broadcast & media market , vislink provides broadcast communication links for the collection of live news , sports and entertainment events . customers in this market include national broadcasters , multi-channel broadcasters , network owners and station groups , sports and live broadcasters and hosted service providers . in the law enforcement , public safety & surveillance markets , vislink provides secure video communications and mission-critical solutions for law enforcement , defense and homeland security applications . its public safety & surveillance customers include metropolitan , regional and national law enforcement agencies as well as domestic and international defense agencies and organizations . while our intent is to merge vislink 's operations with those of imt , the vislink brand and its legacy brands , including gigawave , link , advent and mrc , will be preserved . imt has assumed all the vislink product warranties and will continue to support all the vislink and imt product offerings . vislink 's business in the americas will become part of imt , and their business in the rest of the world will be handled by vislink 's existing uk operation . imt is maintaining all the existing physical facilities around the world , including offices in colchester in the uk , billerica ( massachusetts ) , anaheim ( california ) , singapore , dubai , and imt 's newest factory in hackettstown ( nj ) . story_separator_special_tag interest expense increased $ 0.4 million , or 80 % , from $ 0.5 million in the year ended december 31 , 2015 to $ 0.9 million in the year ended december 31 , 2016. the increase was due to the 35 % prepayment penalty recorded as interest on the conversion of the 8 % convertible notes issued in june 2015 and july 2015 ( the “ 8 % convertible notes ” ) into the february 2016 financing ; interest on the 5 % convertible notes issued in january 2016 and the 8 % convertible notes ; and interest on promissory notes issued to the sellers of imt and our ceo , george schmitt . 23 net loss for the year ended december 31 , 2016 , the company had a net loss of $ 20.9 million , as compared to a net loss of $ 17.9 million for the year ended december 31 , 2015 , an increase of $ 3.0 million or 17 % . the increase in net loss was due to the acquisition of imt on january 29 , 2016 along with an increase in inventory valuation adjustments of $ 1.5 million and impairment charges of $ 0.6 million . cost reduction initiatives in 2015 , we implemented cost reduction initiatives that included a decrease in our current full , part-time and contracted workforce . these initiatives resulted in a reduction in monthly operating expenses to approximately $ 800,000 – an improvement of over 30 percent . this saved us approximately $ 3.5 million in 2015. on april 6 , 2016 , we announced the implementation of further additional cost reduction initiatives including a decrease in our current , full , part-time and contracted workforce , transitioning other employees to non-cash compensation agreements , and other reductions in operating expenses . this saved us approximately $ 2.7 million in 2016. liquidity and capital resources our operations primarily have been funded through cash generated by debt and equity financing . cash comprises cash on hand and demand deposits . our cash balances were as follows ( in thousands ) : replace_table_token_2_th cash flows the following table sets forth the major components of our consolidated statements of cash flows data for the periods presented ( in thousands ) . replace_table_token_3_th operating activities net cash used in operating activities for the year ended december 31 , 2016 totaled $ 8.1 million as compared to $ 7.8 million for the year ended december 31 , 2015. of the $ 8.1 million used in 2016 , $ 0.1 million was due to the increase of our payables ; $ 0.5 million was due to from the increase in accrued expense ; and the remaining consisted principally of the net loss from operations . of the $ 7.8 million used in 2015 , $ 0.3 million was due to the increase of our payables and $ 1.1 million was from the increase in accrued expense and the remaining consisted principally of the net loss from operations . investing activities net cash used in investing activities for the year ended december 31 , 2016 was $ 0.04 million as compared to $ 2.2 million for the year ended december 31 , 2015. the net cash proceeds from the imt acquisition were $ 0.023 million for the year ended december 31 , 2016. no capitalization of intangible assets occurred during the year ended december 31 , 2016. we have invested in product and technology development , with $ 0 million accounted for as investment in intangible assets in the year ended december 31 , 2016 , and $ 2.2 million in the year ended december 31 , 2015. in addition , the company 's investment in property and equipment , comprising of the purchase of two cell-on-wheels and a deployment vehicle in 2015 of $ 0.02 million in the year ended december 31 , 2016 , and $ 0.03 million in the year ended december 31 , 2015. financing activities our net cash provided by financing activities for the year ended december 31 , 2016 was $ 16.8 million as compared to $ 9.6 million for 2015. the $ 16.8 million in 2016 primarily consisted of proceeds from the issuance of common and preferred stock , warrant exercises and short-term convertible notes . during 2016 , there were net proceeds from the issuance of preferred stock in february and the issuance of common stock in may , july and december totaling $ 15.6 million ; $ 1.0 million from the issuance of short-term convertible notes ; and $ 0.5 million from the exercise of warrants . the proceeds of $ 9.6 million in 2015 primarily consisted of proceeds from the issuance of common and preferred stock advances from related parties , warrant exercises , and short-term convertible notes . during 2015 , there were net proceeds from the august financing totaling $ 4.0 million ; net proceeds from the conversion of the august financing series b , c and d warrants totaling $ 1.8 million , net proceeds from the series b and c preferred stock totaling $ 2.0 million ; and net proceeds from a short term convertible note totaling $ 1.5 million . going concern and liquidity the company 's consolidated financial statements have been prepared assuming it will continue as a going concern , which contemplates continuity of operations , realization of assets , and the settling of liabilities in the normal course of business . as reflected in the financial statements , the company had an accumulated deficit at december 31 , 2016 of $ 209.3 million and a net loss of approximately $ 20.9 million for the year then ended . as of december 31 , 2016 , the company has been funding its business principally through debt and equity financings and advances from related parties . the company expects cash flows from operating activities to be positively affected as a result of the acquisition of vislink in february 2017 , although no assurance can be provided of this ( see note 18 ) .
| result of operations the following table sets forth the items contained in the consolidated statements of operations of the financial statements included herewith for the fiscal years ended december 31 , 2016 and december 31 , 2015. xg technology , inc. consolidated statements of operations ( in thousands except net loss per share data ) replace_table_token_1_th revenue our revenues for the fiscal year ended december 31 , 2016 increased 605 % from $ 932,000 in the year ended december 31 , 2015 to $ 6,574,000 which can be attributed to the acquisition of imt during the first quarter of fiscal year 2016. of the $ 6,574,000 revenue in 2016 , $ 6,292,000 resulted from sales of equipment and $ 282,000 resulted from engineering and consulting services agreements . of the $ 932,000 revenue in 2015 , $ 701,000 resulted from sales of equipment and $ 231,000 resulted from an engineering and consulting services agreement . cost of revenue and operating expenses cost of components and personnel cost of components and personnel for the fiscal year ended december 31 , 2016 increased 514 % from $ 510,000 in the year ended december 31 , 2015 to $ 3,133,000 which can be attributed to the acquisition of imt during fiscal year 2016. of the $ 3,133,000 cost of components and personnel in 2016 , $ 3,008,000 is based on the cost of components and the time allocated to building the products sold and $ 125,000 is based on the cost of the time allocated towards the engineering and consulting services agreements . of the $ 510,000 cost of components and personnel in 2015 , $ 458,000 is based on the cost of components and the time allocated to building the products sold and $ 52,000 is based on the cost of the time allocated towards the engineering and consulting services agreements .
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our md & a consists of the following sections : overview - a general description of our business strategy and the casual dining segment of the restaurant industry results of operations - an analysis of the consolidated statements of comprehensive income included in the consolidated financial statements liquidity and capital resources - an analysis of cash flows , including capital expenditures , aggregate contractual obligations , share repurchase activity , and known trends that may impact liquidity impact of inflation - a discussion of the effect of inflation on our business off-balance sheet arrangements - a discussion of the off-balance sheet arrangements entered into by us critical accounting estimates - a discussion of accounting policies that require critical judgments and estimates including recent accounting pronouncements the following md & a includes a discussion comparing our results in fiscal 2020 to fiscal 2019 , and should be read together with part ii , item 6 - selected financial data presented for the fiscal year ended june 24 , 2020 and part ii , item 8 - financial statements and supplementary data of our annual report . for a discussion comparing our results from fiscal 2019 to fiscal 2018 , refer to “ management 's discussion and analysis of financial condition and results of operations ” in exhibit 13 of our annual report on form 10-k for the fiscal year ended june 26 , 2019 , filed with the sec on august 22 , 2019. the consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , and include the accounts of brinker international , inc. and our wholly-owned subsidiaries . all 28 intercompany accounts and transactions have been eliminated in consolidation . we have a 52/53 week fiscal year ending on the last wednesday in june . we utilize a 13 week accounting period for quarterly reporting purposes , except in years containing 53 weeks when the fourth quarter contains 14 weeks . fiscal years 2020 , 2019 and 2018 , which ended on june 24 , 2020 , june 26 , 2019 and june 27 , 2018 , respectively , each contained 52 weeks . all amounts within the md & a are presented in millions unless otherwise specified . overview we are principally engaged in the ownership , operation , development , and franchising of the chili 's ® grill & bar ( “ chili 's ” ) and maggiano 's little italy ® ( “ maggiano 's ” ) restaurant brands . at june 24 , 2020 , we owned , operated , or franchised 1,663 restaurants , consisting of 1,116 company-owned restaurants and 547 franchised restaurants , located in the united states , 28 countries and two united states territories . our two restaurant brands , chili 's and maggiano 's , are both operating segments and reporting units . covid-19 pandemic impact of covid-19 pandemic covid-19 caused a dramatic decrease in sales during the last sixteen weeks of fiscal 2020 as it became a global pandemic . at the end of the third quarter of fiscal 2020 , we temporarily closed all company-owned restaurant dining and banquet rooms as we transitioned to an off-premise business model and temporarily delayed our expansion plans . beginning on april 27 , 2020 , we began to reopen certain dining room locations as permitted by governments . at the end of fiscal 2020 , as of june 24 , 2020 , 94.9 % of our company-owned restaurant dining rooms or patios were open in a limited capacity . our priority has been protecting the health and safety of team members and guests while continuing to serve our communities . both chili 's and maggiano 's have been able to serve our guests during the covid-19 pandemic as a result of our decision to invest in technology , training and partnerships that enable online ordering , mobile app ordering , curbside service and third-party delivery . our off-premise sales have grown significantly during the covid-19 pandemic , and during the first period of fiscal 2021 ended july 29 , 2020 , off-premise sales represented approximately 50 % of total revenues . we have been carefully assessing the effect of covid-19 on our business as conditions continue to evolve throughout the communities we serve . as a result of covid-19 , we have experienced a material adverse impact on our revenues , results of operations and cash flows in the third and fourth quarters of fiscal 2020 , and expect this to continue into fiscal 2021. the financial impacts include : comparable restaurant sales in the fourth quarter of fiscal 2020 decreased 36.7 % ( chili 's decreased 32.2 % , and maggiano 's decreased 66.7 % ) compared to the same prior year period certain charges , net of ( credits ) were recorded in the second half of fiscal 2020 related to the covid-19 pandemic in other ( gains ) and charges in the consolidated statements of comprehensive income , these primarily included : – employee assistance - $ 17.3 million of expenses related to both chili 's and maggiano 's employee assistance payments and related payroll taxes for the team members that experienced reduced shifts during this pandemic , who would have otherwise not received such payment under our normal compensation practices – other covid-19-related expenses - $ 1.5 million of expenses related to restaurant supplies such as face masks and hand sanitizer required to reopen dining rooms , as well as costs related to canceled projects due to the pandemic , and $ 1.1 million of expenses related to spoiled inventory at both chili 's and maggiano 's due to the unexpected decline in sales and dining room closures – employee retention credit - $ 7.9 million credit of certain payroll taxes was received as part of the coronavirus aid relief and economic security ( “ cares ” ) act relief package . the cares act was designed primarily to help keep businesses running during and after the pandemic . story_separator_special_tag this initiative improved kitchen efficiency and allowed our managers and cooks to deliver our food hotter and faster to our guests . we also invested in the quality of our food . during fiscal 2019 , we continued to focus on our core equities and improving guest satisfaction with our food and service by improving execution of our operations standards . in fiscal 2020 , we upgraded the quality of certain menu items , including new upgraded quality chicken breast we have integrated into several of our menu items . part of our strategy is to differentiate chili 's from our competitors with a flexible platform of value offerings at both lunch and dinner . we are committed to offering consistent , quality products at a price point that is compelling to our guests . our “ 3 for $ 10 ” platform allows guests to combine a starter , a non-alcoholic drink and an entrée for just $ 10.00 as part of the every-day base menu and is available for guests to enjoy in our dining rooms or off-premise . additionally , we have continued our margarita of the month promotion that features a premium-liquor margarita every month at an every-day value price of $ 5.00. in fiscal 2020 , we continued to see an increase in popularity of both 3 for $ 10 and margarita of the month , helping us increase guest traffic . we have also invested in our technology and off-premise options as more guests are opting for to-go and delivery . our to-go menu is available through our chili 's mobile app , on our brand websites , our exclusive delivery partner doordash , or by calling the restaurant . since fiscal 2018 , as of the end of fiscal 2020 , our off-premise business has grown by 133 % . chili 's exclusive partnership with doordash has proven instrumental in offering our guests continued service during the covid-19 pandemic . we leveraged technology so that doordash orders are sent directly into our point of sale system , creating efficiencies and a system that allows us to better serve our guests by quickly developing and adapting new operational procedures . we believe that guests will continue to prefer more convenience and off-premise options . we plan to continue investments in our technology systems to support our carryout and delivery capabilities . it 's just wings , a virtual brand offering , launched on june 23 , 2020 and is available only through doordash delivery . the virtual brand allows us to leverage our existing infrastructure , while adding little complexity within our current system . it 's just wings is a no-frills offering that consists of chicken wings available in 11 different sauces and rubs , curly fries , ranch dressing and fried oreos for a value price . we will continue to identify opportunities to drive restaurant growth by utilizing our existing restaurant infrastructure and doordash partnership . in dining rooms we use tabletop devices to engage our guests at the table . in fiscal 2020 we rolled out a new tabletop device to continue to enhance this experience . we also believe our digital guest experience will help us engage our guests more effectively , particularly during the covid-19 pandemic . our my chili 's rewards loyalty database , as of the end of fiscal 2020 , included more than 8 million loyal members who have interacted with chili 's in the previous six months . we customize offerings for our guests based on their purchase behavior , and we continue to shift more of 31 our overall marketing spend to these customized channels and promotions . we believe this strategy gives us a sustained competitive advantage over independent restaurants and the majority of our competitors . we believe that improvements at our domestic chili 's will have a significant impact on the business ; however , our results will also benefit through additional contributions from maggiano 's and our global chili 's franchise business . maggiano 's has focused on execution of operating fundamentals to improve service and food for its guests . in fiscal 2020 , maggiano 's also began testing electronic check presenters that facilitate a pay-at-the-table option to provide convenience and efficiency to guests and to increase digital guest engagement . maggiano 's also has an exclusive partnership with doordash . our exclusive partnership creates a more affordable rate structure , making third party delivery more sustainable and efficient for the brand to operate . in fiscal 2020 , our guests were given the ability to order delivery directly through our maggiano 's website , in addition from the doordash platforms . in fiscal 2019 , maggiano 's opened its first franchise location in the dallas fort worth international airport . progress for a second franchise airport location has been made . our global franchisees continue to grow the chili 's brand around the world , opening 23 restaurants in fiscal 2020 including our first chili 's restaurant in vietnam . our chili 's international franchisees are expected to open approximately 6-9 new restaurants in fiscal 2021. we plan to strategically pursue expansion of chili 's internationally through development agreements with new and existing franchise partners . during the covid-19 pandemic , our franchise partners have experienced similar regulated closures both domestically and globally . during the fourth quarter of fiscal 2020 , we have partnered with our domestic and global franchisees to offer certain royalty payment flexibility to help provide liquidity relief during this time . results of operations the following table sets forth selected operating data as a percentage of total revenues ( unless otherwise noted ) for the periods indicated .
| segment results chili 's segment replace_table_token_14_th ( 1 ) company restaurant expenses include food and beverage costs , restaurant labor , and restaurant expenses , including advertising . chili 's total revenues decreased 1.8 % primarily due to the covid-19 pandemic that impacted restaurant sales due to guests dining out less , temporary dining room closures and capacity limitations , partially offset by the acquisition of 116 chili 's restaurants in the first quarter of fiscal 2020 and increased off-premise sales . refer to “ revenues ” section above for further details about chili 's revenues changes . company restaurant expenses for chili 's , as a percentage of company sales , increased 1.9 % consisting of 2.2 % of sales deleverage as a result of covid-19 , 1.4 % of higher expenses primarily related to delivery fees and supplies in connection with the growth in off-premise sales , and 0.4 % of unfavorable commodity pricing primarily related to beef and produce . these increases were partially offset by 1.0 % of lower advertising expenses , 0.4 % of lower repairs and maintenance expenses , 0.3 % of favorable menu pricing , 0.3 % of lower hourly wages as a result of reduced staffing during the fiscal 2020 temporary closures and dining room limited capacities and 0.1 % of lower other net company restaurant expenses . other ( gains ) and charges for chili 's in fiscal 2020 consisted primarily of $ 15.4 million of charges related to restaurant impairments , $ 10.1 million of charges primarily related to the covid-19 pandemic from employee relief payments and inventory spoilage , $ 3.7 million related to restaurant closure expenses and $ 3.2 million of remodel charges , partially offset by a $ 3.7 million gain on modification of lease liability .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties , including those described in “ risk factors ” and “ cautionary note regarding forward-looking statements ” and elsewhere in this annual report on form 10-k. we assume no obligation to update any of these forward-looking statements . overview we are a global oilfield products company , serving the drilling , subsea , completions , production and infrastructure sectors of the oil and natural gas industry . we design , manufacture and distribute products and engage in aftermarket services , parts supply and related services that complement our product offering . our product offering includes a mix of frequently replaced consumable products and highly engineered capital products that are used in the exploration , development , production and transportation of oil and natural gas . our consumable products are used in drilling , well construction and completions activities , within the supporting infrastructure , and at processing centers and refineries . our engineered capital products are directed at : drilling rig equipment for new rigs , upgrades and refurbishment projects ; subsea construction and development projects ; the placement of production equipment on new producing wells ; pressure pumping equipment ; and downstream capital projects . in 2018 , approximately 80 % of our revenue was derived from consumable products and activity-based equipment , while the balance was primarily derived from capital products with a small amount from rental and other services . we seek to design , manufacture and supply high quality reliable products that create value for our diverse customer base , which includes , among others , oil and natural gas operators , land and offshore drilling contractors , oilfield service companies , subsea construction and service companies , and pipeline and refinery operators . we operate three business segments that cover all stages of the well cycle . a summary of the products and services offered by each segment is as follows : drilling & subsea segment . this segment designs and manufactures products and provides related services to the drilling , energy subsea construction and services markets , and other markets such as alternative energy , defense and communications . the products and related services consist primarily of : ( i ) capital equipment and a broad line of expendable drilling products consumed in the drilling process ; and ( ii ) subsea remotely operated vehicles and trenchers , specialty components and tooling , products used in subsea pipeline infrastructure , and a broad suite of complementary subsea technical services and rental items . completions segment . this segment designs , manufactures and supplies products and provides related services to the well construction , completion , stimulation and intervention markets . the products and related services consist primarily of : ( i ) well construction casing and cementing equipment , protectors for artificial lift equipment and cables used in completions , composite plugs used for zonal isolation in hydraulic fracturing ; and ( ii ) capital and consumable products sold to the pressure pumping , hydraulic fracturing and flowback services markets , including hydraulic fracturing pumps , pump consumables , cooling systems and flow iron as well as coiled tubing , wireline cable , and pressure control equipment used in the well completion and intervention service markets . production & infrastructure segment . this segment designs , manufactures and supplies products and provides related equipment and services for production and infrastructure markets . the products and related services consist primarily of : ( i ) engineered process systems , production equipment and related field services , as well as oil and produced water treatment equipment ; and ( ii ) a wide range of industrial valves focused on serving upstream , midstream , and downstream oil and natural gas customers as well as power and other general industries . 35 market conditions the level of demand for our products is directly related to activity levels and the capital and operating budgets of our customers , which in turn are heavily influenced by energy prices and expectations as to future price trends . in addition , the availability of existing capital equipment adequate to serve exploration and production requirements , or lack thereof , drives demand for our capital equipment products . the probability of any cyclical change in energy prices and the extent and duration of such a change are difficult to predict . oil prices strengthened in 2017 and through much of 2018 , giving rise to higher drilling and completions activity and spending by our customers , primarily in north america . the volume of rigs drilling for oil and natural gas in north america and the level of hydraulic fracturing and other well completion activities are drivers for our revenue from this region . the heightened level of activity led to increased revenues and orders in 2017 and 2018 , principally from the sale of consumable products . more recently , these favorable results have been tempered due to the decline in oil prices resulting from slowing growth in global oil demand and a surge in u.s. oil production . in addition , pipeline capacity constraints in the permian basin have limited the ability of operators to transport additional production from this basin , causing a reduction in completion activity in the fourth quarter of 2018. additional pipeline capacity is projected to come online sometime in 2019. drilling and completions activity for the u.s. onshore market was strong through much of 2018 , before falling off late in the year . activity in regions with higher costs for the production of energy , especially offshore and in some international regions , has lagged the u.s. onshore activity recovery . early signs of an increase in activity in these areas began to emerge in 2018 , but the timing and pace of any such recovery has been thrown into doubt by the recent decrease in oil prices . story_separator_special_tag on january 9 , 2017 , we acquired substantially all of the assets of cooper valves , llc as well as 100 % of the general partnership interests of innovative valve components ( collectively , “ cooper ” ) for total aggregate consideration of $ 14.0 million . the aggregate consideration includes the issuance of stock valued at $ 4.5 million and certain contingent stock issuances . these acquisitions are included in the production & infrastructure segment . there are factors related to the businesses we have acquired that may result in lower net profit margins on a go-forward basis , primarily the federal income tax status of the legal entity and the level of depreciation and amortization charges arising out of the accounting for the purchase . for additional information regarding our acquisitions , refer to note 4 acquisitions & dispositions . factors affecting the comparability of our future results of operations to our historical results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , primarily for the following reasons : since our initial public offering in 2012 , we have grown our business both organically and through strategic acquisitions . we have expanded and diversified our product portfolio and business lines with the acquisition of two businesses in 2018 and three businesses in 2017 . the historical financial data for periods prior to the acquisitions does not include the results of any of the acquired companies for the periods presented and , as such , does not provide an accurate indication of our future results . as we integrate acquired companies and further implement internal controls , processes and infrastructure to operate in compliance with the regulatory requirements applicable to companies with publicly traded shares , it is likely that we will incur incremental selling , general and administrative expenses relative to historical periods . our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy . 38 story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > for the years ended december 31 , 2018 and 2017 , respectively , with these costs primarily related to the acquisitions of ght and espct in 2018 and global tubing and multilift in 2017. in the fourth quarter of 2018 , there was a significant decline in oil prices , lowered industry expectations for u.s. drilling and completions activities and a substantial decline in the quoted market prices of our common stock . as a result , we determined that the carrying value of our drilling and downhole reporting units exceeded their estimated fair values and recorded non-cash impairment charges of $ 245.4 million and $ 53.4 million to write-off goodwill in our drilling and downhole reporting units , respectively . in addition , we determined that certain intangible assets in our downhole reporting unit were impaired and recognized $ 50.2 million of impairment losses on these intangible assets ( primarily customer relationships and trade names ) in the fourth quarter of 2018. in the second quarter 2018 , impairment losses totaling $ 14.5 million were recorded on certain intangible assets ( primarily customer relationships ) within the subsea and downhole reporting units related to management 's decision to abandon specific product lines . see note 7 goodwill and intangible assets for further information related to these charges . in the second quarter 2017 , there was a decline in oil prices and a developing consensus view that production from lower cost oil basins would be sufficient to meet anticipated demand for a longer period , delaying the need for production from higher cost basins . with this indication of further delays in the recovery of the offshore market , we performed an impairment test and determined that the carrying value of the goodwill in our subsea reporting unit was impaired resulting in a $ 68.0 million charge in the second quarter 2017. also in 2017 , impairment losses totaling $ 1.1 million were recorded on certain intangible assets within the subsea and downhole reporting units related to management 's decision to abandon specific product lines . see note 7 goodwill and intangible assets for further information related to these charges . other income and expense other income and expense includes interest expense , foreign exchange losses ( gains ) , a gain recognized on the contribution of our subsea rentals business and a gain realized on the previously held equity investment in global tubing . we incurred $ 32.5 million of interest expense during the year ended december 31 , 2018 , an increase of $ 5.7 million compared to the year ended december 31 , 2017 primarily due to an increase in outstanding borrowings under our revolving line of credit . the foreign exchange gain was $ 6.3 million for the year ended december 31 , 2018 compared to a loss of $ 7.3 million for the year ended december 31 , 2017 . the foreign exchange losses ( gains ) are primarily the result of movements in the british pound and the euro relative to the u.s. dollar . these movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location 's functional currency , primarily u.s. dollar denominated cash , trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the u.s. dollar . in 2018 , we recognized a gain of $ 33.5 million as a result of the deconsolidation of our forum subsea rentals business . in 2017 , we recognized a gain of $ 120.4 million on the previously held equity investment in global tubing upon acquiring the remaining interest in the fourth quarter of 2017. refer to note 4 acquisitions & dispositions for additional information .
| results of operations year ended december 31 , 2018 compared with year ended december 31 , 2017 replace_table_token_6_th 39 revenue our revenue for the year ended december 31 , 2018 was $ 1,064.2 million , an increase of $ 245.6 million , or 30.0 % , compared to the year ended december 31 , 2017 . in general , the increase in revenue is due to higher market activity resulting from higher oil prices . for the year ended december 31 , 2018 , our drilling & subsea segment , completions segment , and production & infrastructure segment comprised 21.5 % , 44.5 % and 34.0 % of our total revenue , respectively , compared to 28.7 % , 31.3 % and 40.0 % , respectively , for the year ended december 31 , 2017 . the changes in revenue by operating segment consisted of the following : drilling & subsea segment — revenue was $ 229.1 million for the year ended december 31 , 2018 , a decrease of $ 5.7 million , or 2.4 % , compared to the year ended december 31 , 2017 . approximately $ 14.9 million of the decrease relates to lower sales in our subsea product line primarily due to the contribution of our subsea rentals business to ashtead in exchange for a 40 % interest in the combined business . this decrease was partially offset by a $ 9.2 million increase in sales of our drilling products primarily due to higher sales of capital equipment to international markets in 2018 . completions segment — revenue was $ 478.0 million for the year ended december 31 , 2018 , an increase of $ 217.8 million , or 83.7 % , compared to the year ended december 31 , 2017 .
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in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . this standard will require all leases with durations greater than twelve months to be recognized on the balance sheet and is effective for interim and annual reporting periods beginning after december 15 , 2018 , although early adoption is permitted . we believe adoption of this standard will have an impact on our consolidated balance sheets . although we have not completed our assessment , we do not expect the adoption to change the recognition , measurement or presentation of lease expenses within the results of operations . in august 2016 , the fasb issued asu no . 2016-15 , statement of cash flows ( topic 230 ) classification of certain cash receipts and cash payments . this update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice . the amendments in this update are effective for public business entities for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . the adoption of asu 2016-15 is not expected to have a significant impact on the company 's consolidated financial position or results of operations . n ote 3 – allowance for doubtful accounts the activity in the allowance for doubtful accounts was as follows during the years ended december 31 , 2016 and 2015 : replace_table_token_10_th f-11 note 4– property and equipment the net carrying value of property and equipment at december 31 , 2016 and 2015 was as follows : replace_table_token_11_th note 5 – intangible assets and goodwill during 2016 and 2015 , we evaluated our intangible assets and goodwill for impairment at the reporting unit level . we elected to omit the qualitative assessment of impairment factors and proceed directly to impairment testing with the assistance of a third-party valuation firm . no indication of impairment was noted . the following is a schedule of intangible assets and goodwill from continuing operations as of december 31 , 2016 : replace_table_token_12_th the following is a schedule of intangible assets and goodwill from continuing operations as of december 31 , 2015 : f-12 replace_table_token_13_th _ ( 1 ) we have determined alot trade name should be amortized over five years and the trade names related to our web properties have an indefinite life and as such are not amortized . ( 2 ) on may 8 , 2015 , we purchased two domain websites with a fair value of $ 715,874 . we determined they should be amortized over 5 years ( see note 8 ) . on may 8 , 2016 , the carrying value was adjusted by approximately $ 46,000 to reflect the lower price paid as compared to the contingent liability recorded as a result of the change in the price of inuvo stock from the date of acquisition to the first contingent release of shares . our amortization expense over the next five years and thereafter is as follows : replace_table_token_14_th note 6 - notes payable on march 1 , 2012 we entered into a business financing agreement with bridge bank , which is now owned by western alliance bank . the agreement provided us with a $ 5 million term loan and access to a revolving credit line of up to $ 10 million which we use to help satisfy our working capital needs . we have provided western alliance with a first priority perfected security interest in all of our accounts and personal property as collateral for the credit facility . available funds under the revolving credit line are 80 % of eligible accounts receivable balances plus $ 1 million up to a limit of $ 10 million . eligible accounts receivable is generally defined as those from united states based customers that are not more than 90 days from the date of the invoice . we had approximately $ 6.0 million available under the credit line as of december 31 , 2016 . the term loan was paid in full at september 2015. in september 27 , 2016 , the company entered into the sixth business financing modification agreement with western alliance bank , the parent company of bridge bank , our original lender , that renewed the existing agreement and modified some terms . the modified terms require a monthly quick ratio of not less than .75 to 1.00 ; quarterly consolidated revenue shall not negatively deviate more than 20 % from projections ; and quarterly consolidated adjusted ebitda shall not negatively deviate f-13 more than $ 500,000 from projections . the renewed agreement extended the revolving line of credit to september 2018. while we periodically utilize our line of credit for operating needs , as of december 31 , 2016 , the balance of the revolving line of credit was zero . we were in compliance with all bank covenants as of december 31 , 2016 . note 7 – accrued expenses and other current liabilities the accrued expenses and other current liabilities consist of the following at december 31 , 2016 and 2015 : replace_table_token_15_th note 8 – other long-term liabilities other long-term liabilities consist of the following at december 31 , 2016 and 2015 : replace_table_token_16_th on may 8 , 2015 , we purchased two domain websites with a fair value of $ 715,874 ( see note 5 ) . the purchase consideration is our common stock and is contingent upon the seller attaining specific performance targets over three years . story_separator_special_tag this is interest expense on the bank credit facility where average outstanding loan balances were significantly lower in 2016 compared to 2015. income tax benefit in 2016 , we recognized an income tax benefit of $ 29,260 . in 2015 , we recognized a tax benefit of approximately $ 300,000 due to settling a disputed income tax claim with the state of new jersey . the claim related to the 2007-2009 tax years and was settled for $ 100,000. as a result , the remaining long-term taxes payable liability was adjusted and resulted in a one-time $ 406,000 income tax benefit . the tax benefit in 2015 is partially offset by expense of approximately $ 106,000 for state income tax . 15 income ( loss ) from discontinued operations certain of our subsidiaries previously operated in the european union ( `` eu '' ) . though operations ceased in 2009 , statutory requirements required a continued presence in the eu for varying terms until november 2015. profits and losses generated from the remaining assets and liabilities are accounted for as discontinued operations . in the third quarter of 2016 , our petition with the uk ( united kingdom ) companies house to strike off and dissolve the remaining subsidiary in the eu was approved . as a result , for the twelve months ended december 31 , 2016 and december 31 , 2015 , we recognized income from discontinued operations of $ 155,287 and $ 33,969 , respectively , due primarily to the adjustment of certain accrued liabilities originating in 2009 and earlier . liquidity and capital resources on september 27 , 2016 , we renewed our business financing agreement with western alliance bank , the parent company of bridge bank , our original lender ( see note 6 , `` notes payable '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2018. as of december 31 , 2016 , the balance of the revolving line of credit was zero and had approximately $ 6.0 million in availability . in may 2015 , we acquired websites from a publisher that had previously been a client on our validclick network . the purchase was structured as an earn-out payable in up to 500,000 shares of our common stock over a three-year period dependent upon achieving certain minimum levels of volume . the fair value of the transaction was determined to be $ 715,874. the transaction was recorded as an intangible asset on our balance sheet offset by a contingent liability of the same amount . on may 8 , 2016 , the seller achieved the specific performance target for the first year and as a result , we distributed 166,667 shares of our common stock . the accrued contingent liability and the related intangible asset , domain websites were adjusted by approximately $ 46 thousand to reflect the lower price paid as compared to the contingent liability recorded as a result of the change in the price of inuvo stock from the date of acquisition to the first contingent release of shares . during the first quarter of 2014 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace the existing , expiring s-3 `` shelf '' registration statement , which permits us to offer and sell up to $ 15 million of our securities from time to time in one or more offerings . to date , we have not taken down any sales from this shelf registration statement . though we believe the revolving line of credit and cash generated by operations will provide sufficient cash for operations over the next twelve months , we may still elect to sell securities to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments in order to fund the development of our technologies , make acquisitions , pursue new business opportunities or grow existing businesses . during december 2016 , 15,833 shares of our common stock were repurchased at an average price of $ 1.42 per shares under the company 's current share repurchase program , which was announced on december 9 , 2016 and authorizes the repurchase of the company 's common stock totaling $ 500,000 . under the authorization , the company may purchase shares from time to time in the open market or in privately negotiated transactions in compliance with the applicable rules and regulations of the sec . cash flows - operating net cash provided by operating activities was $ 1,053,019 during 2016 . we reported a net loss of $ 772,584 , which included the non-cash expenses of depreciation and amortization of $ 2,209,738 and stock-based compensation of $ 1,264,266 . the change in operating assets and liabilities was a net use of cash of $ 1,441,713 primarily due to a decrease in the accounts payable balance by $ 623,000 and an increase to the accounts receivable balance by $ 583,000. our terms are such that we generally collect receivables prior to paying trade payables . the increase in the accounts receivable balance was due to greater revenue in 2016 over 2015. the decrease in the accounts payable balance in 2016 over 2015 was due to lower traffic acquisition costs in the fourth quarter of 2016. during 2015 , we generated cash from operating activities of $ 6,106,272 and a net income of $ 2,339,774 , which included the non-cash expenses of depreciation and amortization of $ 1,807,350 and stock-based compensation expenses of $ 707,544 , partially offset by a reduction of an accrued state income tax liability of $ 406,453 . the change in operating assets and liabilities was a net provision of $ 1,470,560 . cash flows - investing net cash used in investing activities was $ 1,116,371 and $ 1,525,888 for 2016 and 2015 , respectively . cash used
| results of operations net revenue replace_table_token_3_th net revenue for the year ended december 31 , 2016 was $ 71.5 million compared to $ 70.4 million for the year ended december 31 , 2015 . partner network decreased 14 % to $ 26.0 million and the owned and operated network increased 13.4 % to $ 45.5 million . the partner network , which represents 36 % of our total net revenue , delivers advertisements to our partners ' websites and applications . revenue in this segment is both a function of the total number of transactions processed through the validclick platform and the revenue we receive per transaction . at the end of the first quarter , we experienced fluctuations in demand from advertisers , which translated into a reduction in revenue received for ads we delivered . the result was both a lower number of transactions and a lower average rpc ( `` revenue per click '' ) . this fluctuation persisted into the third quarter 2016 and by the middle of the third quarter , both volume of transactions and rpcs improved . despite this fluctuation , the partner network grew 58 % in the fourth quarter over the same quarter last year ; and grew sequentially 59 % in the fourth quarter over the third quarter of the same year . the owned and operated network generates revenue through our consumer-facing alot branded websites and applications and through acquired websites . our alot web properties include alot health , alot finance , alot careers , alot local , alot travel , alot living , alot education , and alot auto . these websites are content-rich and optimized for mobile and desktop devices , and are designed to capitalize on a growing consumer demand for content , delivered both on the desktop and on mobile devices .
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in addition , the company elected to combine the lease and non-lease components into a single lease component for its leases and is making an accounting policy election to exclude from balance sheet reporting those leases with initial terms of 12 months or less . the company estimates that adoption of the standard will result in recognition of operating lease rou assets and lease liabilities of approximately $ 4.0 million and $ 4.1 million , respectively , with the difference due to deferred rent that will be reclassified to the rou asset value . we do not expect adoption of the standard to materially affect our results of operations or cash flows . in january 2017 , the fasb issued asu no . 2017-04 , intangibles—goodwill and other ( asc 350 ) , simplifying the test for goodwill impairment . the guidance removes step 2 of the goodwill impairment test and eliminates the need to determine the fair value of individual assets and liabilities to measure goodwill impairment . a goodwill impairment will now be the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying amount of goodwill . entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary . the guidance will be applied prospectively and is effective for annual and interim goodwill impairment tests in fiscal years beginning after december 15 , 2019. early adoption is permitted for any impairment tests performed on testing dates after january 1 , 2017. the company does not believe adoption will have a material impact on its financial condition or results of operations . revisions certain revisions have been made to the december 31 , 2017 condensed consolidated balance sheet to conform to the current year presentation relating to a reclassification of deferred revenue . the reclassification resulted in an increase in deferred revenue and a decrease in accrued expenses in the amount of approximately $ 297,000 . in addition , certain revisions have been made to the condensed consolidated statements of cash flows for the years ended december 31 , 2017 and story_separator_special_tag overview the company is an innovative designer and custom manufacturer of components , subassemblies , products and packaging utilizing highly specialized foams , films , and plastics primarily for the medical market . the company manufactures its products by converting raw materials using laminating , molding , radio frequency and impulse welding and fabricating manufacturing techniques . the company is diversified by also providing highly engineered products and components to customers in the aerospace and defense , automotive , consumer , electronics and industrial markets . the company consists of a single operating and reportable segment . as previously disclosed , on february 1 , 2018 , the company acquired dielectrics , inc. pursuant to a stock purchase agreement and related agreements for an aggregate purchase price of $ 77 million net of dielectrics ' cash . sales for the company for the year ended december 31 , 2018 grew 28.8 % to $ 190.5 million from $ 147.8 million for the year ended december 31 , 2017 largely due to sales of approximately $ 36.2 million from dielectrics . dielectrics contributed significantly to earnings . the company absorbed $ 1.1 million in transaction costs during the year ended december 31 , 2018 , approximately $ 760,000 in losses associated with the closure of its manufacturing plant in georgia and an increase of approximately $ 700,000 in health care costs . despite these costs , for the year ended december 31 , 2018 , the company generated increases of 67.7 % and 52.6 % in operating income and net income , respectively . the company 's current strategy includes further organic growth and growth through strategic acquisitions . story_separator_special_tag on march 18 , 2015 , the company committed to move forward with a plan to cease operations at its raritan , new jersey , plant and consolidate operations into its newburyport , massachusetts , facility and other ufp facilities . the company 's decision was in response to a continued decline in business at the raritan facility and the purchase of the facility in newburyport . the activities related to this consolidation are complete . the company also relocated all operations in its haverhill , massachusetts , and byfield , massachusetts facilities and certain operations in its georgetown , massachusetts facility to newburyport . the haverhill and byfield relocations were complete at december 31 , 2015 and the partial georgetown relocation was complete at june 30 , 2017. the company incurred approximately $ 2.1 million in one-time expenses in connection with the massachusetts consolidations . included in this amount are approximately $ 180,000 relating to employee severance payments and relocation costs , approximately $ 1.6 million in moving expenses and expenses associated with vacating the raritan , haverhill and byfield properties , and approximately $ 360,000 in lease termination costs . total cash charges were approximately $ 2.0 million . the company recorded the following restructuring costs associated with the massachusetts consolidations discussed above for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_5_th the 2017 and 2016 costs were reclassified in the consolidated statement of income as “ restructuring costs ” from cost of sales . 19 material overcharge settlement the company was a participant in a class action lawsuit against a number of polyurethane foam suppliers ( “ defendants ” ) that was settled during the second quarter of 2016. the suit was filed to recover damages and obtain injunctive relief for defendants ' alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from january 1 , 1999 through august 2010. for the years ended december 31 , 2017 and 2016 , the company recorded gains of approximately $ 0.1 million and $ 2.1 million ,respectively . story_separator_special_tag under the amended and restated credit agreement , the company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to ebitda financial covenant . the amended and restated credit agreement contains other covenants customary for transactions of this type , including restrictions on certain payments , permitted indebtedness and permitted investments . included in the amended and restated credit facilities are approximately $ 0.6 million in standby letters of credit as a financial guarantee on worker 's compensation insurance policies . as of december 31 , 2018 , the company was in compliance with all covenants under the credit facility . long-term debt consists of the following ( in thousands ) : december 31 , 2018 revolving credit facility $ 8,000 term loan 17,143 total long-term debt 25,143 current portion ( 2,857 ) long-term debt , excluding current portion $ 22,286 future liquidity the company requires cash to pay its operating expenses , purchase capital equipment , and to service its contractual obligations . the company 's principal sources of funds are its operations and its amended and restated credit facility . the company generated cash of approximately $ 21.3 million in operations during the year ended december 31 , 2018 ; however , the company can not guarantee that its operations will generate cash in future periods . the company 's longer-term liquidity is contingent upon future operating performance . throughout fiscal 2019 , the company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants . the company may consider additional acquisitions of companies , technologies , or products that are complementary to its business . the company believes that its existing resources , including its revolving credit facility , together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings , will be sufficient to fund its cash flow requirements , including capital asset acquisitions , through the next twelve months . 21 the company may also require additional capital in the future to fund capital expenditures , acquisitions or other investments . these capital requirements could be substantial . the company anticipates that any future expansion of its business will be financed through existing resources , cash flow from operations , the company 's revolving credit facility , or other new financing . the company can not guarantee that it will be able to meet existing financial covenants or obtain other new financing on favorable terms , if at all . the company 's liquidity will be impacted to the extent additional stock repurchases are made under the company 's stock repurchase program . stock repurchase program the company accounts for treasury stock under the cost method , using the first-in , first-out flow assumption , and includes treasury stock as a component of stockholders ' equity . on june 16 , 2015 , the company announced that its board of directors authorized the repurchase of up to $ 10.0 million of the company 's outstanding common stock . under the program , the company is authorized to repurchase shares through rule 10b5-1 plans , open market purchases , privately negotiated transactions , block purchases or otherwise in accordance with applicable federal securities laws , including rule 10b-18 of the securities exchange act of 1934. the stock repurchase program will end upon the earlier of the date on which the plan is terminated by the board or when all authorized repurchases are completed . the timing and amount of stock repurchases , if any , will be determined based upon our evaluation of market conditions and other factors . the stock repurchase program may be suspended , modified or discontinued at any time , and the company has no obligation to repurchase any amount of its common stock under the program . there were no share repurchases during the years ended december 31 , 2018 , 2017 and 2016. during the year ended december 31 , 2015 , the company repurchased 29,559 shares of common stock at a cost of approximately $ 587,000. at december 31 , 2018 , approximately $ 9.4 million was available for future repurchases of the company 's common stock under this authorization . contractual obligations the following table summarizes the company 's contractual obligations at december 31 , 2018 : replace_table_token_6_th ( 1 ) the amounts set forth in the “ less than 1 year ” column represents amounts to be paid in 2019 , the “ 1-3 years ” column represents amounts to be paid in 2020 and 2021 , the “ 3-5 years ” column represents amounts to be paid in 2022 and 2023 and the “ more than 5 years ” column represents amounts to be paid after 2023 . ( 2 ) represents scheduled payments of principal and interest on the term loan , including the interest effects of the related interest rate swap agreement . see note 8 to the accompanying consolidated financial statements . ( 3 ) represents scheduled payments of principal and interest on the revolving credit facility . see note 8 to the accompanying consolidated financial statements . ( 4 ) represents scheduled payments for non-cancelable building lease commitments . see note 15 to the accompanying consolidated financial statements . ( 5 ) represents scheduled payments for supplemental retirements benefits . see note 14 to the accompanying consolidated financial statements . the company requires cash to pay its operating expenses , purchase capital equipment , and to service the obligations listed above . the company 's principal sources of funds are its operations and its revolving credit facility . although the company generated cash from operations in the year ended december 31 , 2018 , it can not guarantee that its operations will generate cash in future periods .
| results of operations the following table sets forth , for the years indicated , the percentage of revenues represented by the items as shown in the company 's consolidated statements of income : replace_table_token_4_th 2018 compared to 2017 sales net sales increased 28.8 % to $ 190.5 million for the year ended december 31 , 2018 from net sales of $ 147.8 million in 2017. the increase in sales was primarily due to dielectric 's sales of approximately $ 36.2 million , which were all in the medical market . on a market basis , sales to customers in the medical , aerospace and defense and consumer markets grew 57.3 % , 14.0 % and 17.2 % , respectively , while sales to customers in the automotive market declined 13.4 % . the increase in sales to customers in the medical market was primarily due to sales by dielectrics as well as a 5.8 % increase in demand from the company 's legacy medical customers . the increase in sales to customers in the aerospace and defense market was largely due to a general uptick in government contract-based orders . the increase in sales to customers in the consumer market was primarily due to sales of molded fiber protective packaging to a new customer . the decline in sales to customers in the automotive market was primarily due to the phase-out of the automotive door panel program for mercedes-benz . 17 gross profit gross profit as a percentage of sales ( “ gross margin ” ) increased to 25.4 % for the year ended december 31 , 2018 , from 24.0 % in 2017. as a percentage of sales , material and direct labor costs collectively decreased approximately 0.6 % , while overhead decreased approximately 0.8 % . the decrease in material and direct labor costs as a percentage of sales was primarily due to increased manufacturing efficiencies resulting from continuous improvement initiatives as well as strategic price increases .
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the amendments should be applied using a modified retrospective basis through story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements provided under part ii , item 8 of this annual report on form 10-k. overview we are a leading north american animal healthcare company . we provide veterinary services and diagnostic testing services to support veterinary care and we sell diagnostic imaging equipment and other medical technology products and related services to veterinarians . additionally , we franchise a premier provider of pet services including dog day care , overnight boarding , grooming and other ancillary services at specially designed pet care facilities . our reportable segments are as follows : our animal hospital segment operates the largest network of freestanding , full-service animal hospitals in the nation . our animal hospitals offer a full range of general medical and surgical services for companion animals . we treat diseases and injuries , offer pharmaceutical and retail products and perform a variety of pet wellness programs , including health examinations , diagnostic testing , routine vaccinations , spaying , neutering and dental care . at december 31 , 2016 , our animal hospital network consisted of 795 animal hospitals in 43 states and in five canadian provinces . our laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation . our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection , diagnosis , evaluation , monitoring , treatment and prevention of diseases and other conditions affecting animals . at december 31 , 2016 , our laboratory network consisted of 61 laboratories serving all 50 states and certain areas in canada . for the year ended december 31 , 2016 , our “ all other ” category includes the results of our medical technology and camp bow wow operating segments . for the comparable prior periods in 2015 and 2014 , our `` all other '' category included the results of our vetstreet operating segment , which we sold in december of 2015. each of these segments did not meet the materiality thresholds to be reported individually as segments . the practice of veterinary medicine is subject to seasonal fluctuation . in particular , demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites . in addition , use of veterinary services may be affected by levels of flea infestation , heartworms and ticks , and the number of daylight hours . use of supplemental non-gaap financial measures in this management 's discussion and analysis , we use supplemental measures of our performance , which are derived from our consolidated financial information , but which are not presented in our consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . these financial measures , which are considered “ non-gaap financial measures ” under sec rules , include our non-gaap gross profit and our non-gaap gross margin on a consolidated basis for our animal hospital segment , and the same measures expressed on a same-store basis . additionally , our non-gaap financial measures include our non-gaap sg & a , our non-gaap operating income and non-gaap operating margin on a consolidated basis . lastly , our non-gaap financial measures also include our non-gaap consolidated interest expense , non-gaap consolidated net income and non-gaap diluted earnings per share . see consolidated results of operations - non-gaap financial measures below for information about our use of these non-gaap financial measures , including our reasons for including the measures , material limitations with respect to the usefulness of the measures , and a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure . executive overview during the year ended december 31 , 2016 , we continued to experience increases in both consolidated revenue and gross profit . the increases were primarily driven by revenue from our acquisitions , as well as organic growth in our animal hospital and laboratory segments . our revenue from acquisitions increased over 200 % during the year . our animal hospital same-store revenue increased 6.1 % in both 2016 and 2015 . our laboratory internal revenue increased 6.3 % in 2016 and 6.9 % in 2015 . our consolidated operating income increased 17.2 % in 2016 and increased 33.4 % in 2015 . our consolidated operating margin 26 decreased 20 basis points in 2016 and increased 260 basis points in 2015 . excluding the impact of the adjustments detailed below under the caption , operating income , our non-gaap consolidated operating income increased 22.8 % and 18.1 % in 2016 and 2015 , respectively , and our non-gaap consolidated operating margin increased 70 basis points and 90 basis points in 2016 and 2015 , respectively . the increase in non-gaap consolidated operating income was primarily due to improved results from our animal hospital and laboratory business segments . merger agreement on january 7 , 2017 , we entered into the merger agreement with mmi holdings , inc. ( “ acquiror ” ) , venice merger sub inc. , a wholly owned subsidiary of acquiror ( `` merger sub '' ) , and , solely for purposes of section 9.15 of the merger agreement , mars , incorporated ( “ mars ” ) , pursuant to which , among other things , at the closing of the merger , we will become a wholly-owned subsidiary of acquiror . the merger is subject to satisfaction of a number of customary closing conditions contained in the merger agreement , including the approval of our stockholders and receipt of the remaining outstanding required regulatory approvals . story_separator_special_tag in the two-step test , as mentioned above , first we identify potential impairment by comparing the estimated fair value of our reporting units with the carrying value defined as the reporting unit 's net assets , including goodwill . if the estimated fair value of our reporting units is greater than our carrying value , there is no impairment and the second step is not needed . if we identify a potential impairment in the first step , we then measure the amount of impairment . the amount of the impairment is determined by allocating the estimated fair value of the reporting unit as determined in step one to the reporting unit 's net assets based on fair value as would be done in an acquisition . in this hypothetical purchase price allocation , the residual estimated fair value after allocation to the reporting units ' identifiable net assets is the implied current fair value of goodwill . if the implied current fair value of goodwill is less than the carrying amount of goodwill , goodwill is considered impaired and written down to the implied current fair value with a corresponding charge to earnings . however , if the implied current fair value of goodwill is greater than the carrying amount of goodwill , goodwill is not considered impaired and is not adjusted to the implied current fair value . determining the fair value of the net assets of our reporting units under this step requires significant estimates . our estimated fair values are calculated in accordance with generally accepted accounting principles related to fair value and utilize generally accepted valuation techniques consisting primarily of discounted cash flow techniques and market comparables , where applicable . these valuation methods involve the use of significant assumptions and estimates such as forecasted growth rates , valuation multiples , the weighted-average cost of capital , and risk premiums , which are based upon the best available market information and are consistent with our long-term strategic plans . negative changes in our projected cash flows related to variables such as revenue growth rates , margins , or the discount rate could result in a decrease in the estimated fair value of our reporting units and could ultimately result in a substantial goodwill impairment charge . the performance of our reporting units , and in turn the risk of goodwill impairment , is subject to a number of risks and uncertainties , some of which are outside of our control . 2016 qualitative assessment as of october 31 , 2016 , we evaluated our goodwill for impairment using the qualitative method . based upon this analysis , we determined that it was more likely than not that the fair values of each of our reporting units were greater than their net carrying values at that date . as such , we concluded that goodwill was not impaired for any of our reporting units . in making this determination , we considered several factors , including the following : ( 1 ) favorable macroeconomic conditions ; ( 2 ) relative year over year stability in our overall cost structure ; ( 3 ) the carrying values of our reporting units as of october 31 , 2016 compared favorably to the previously calculated fair values as of october 31 , 2015 ; and ( 4 ) favorable conditions in the overall pet care industry . 2015 impairment test as of october 31 , 2015 , we evaluated our goodwill for impairment using the two-step test . based upon this analysis , we concluded that goodwill was not impaired for any of our reporting units . in addition , our animal hospital , laboratory , medical technology and camp bow wow reporting units were not at risk of failing step one of the goodwill impairment test . our laboratory reporting unit exceeded its carrying value by a substantial margin . we applied a hypothetical ten percent decrease to the fair values of all of our reporting units which did not trigger additional impairment testing and analysis . 2014 interim impairment review as a result of an interim impairment review , we determined that goodwill related to our vetstreet reporting unit was impaired . we determined that a write-down of goodwill and long-lived assets was necessary as vetstreet 's fiscal 2014 actual operating results , cash flow , and projections of future operating results and cash flow , were significantly lower than previously forecasted . accordingly , we recorded a goodwill impairment charge in our vetstreet reporting unit of $ 9.2 million , $ 6.2 million net of tax , for the quarter ended september 30 , 2014 . 29 2014 qualitative assessment as of october 31 , 2014 , we evaluated our goodwill for impairment using the qualitative method . based on this analysis , we determined that it was more likely than not that the fair values of each of our reporting units were greater than their net carrying values at that date . as such , we concluded that goodwill was not impaired for any of our reporting units . in making this determination , we considered several factors , including the following : ( 1 ) the amount by which the fair value of the laboratory reporting segment exceeded its carrying value as of october 31 , 2013 , indicated that there would need to be a substantial deterioration of the business in order for there to be a potential impairment ; ( 2 ) during the latter half of 2014 , two large third-party animal hospital chain transactions occurred at high valuation multiples ; ( 3 ) the carrying values of our reporting units as of october 31 , 2014 compared favorably to the previously calculated fair values as of october 31 , 2013 ; and ( 4 ) favorable conditions in the overall pet care industry . long-lived assets in addition to goodwill , we acquire other identifiable intangible assets in our acquisitions , including but not limited to covenants-not-to-compete , client lists , lease related assets and customer relationships .
| segment results animal hospital segment revenue animal hospital revenue increased $ 393.9 million in 2016 , as compared to 2015 and $ 183.0 million in 2015 , as compared to 2014 . the components of the increases are summarized in the following table ( in thousands , except percentages and average price per order ) : replace_table_token_12_th ( 1 ) same-store revenue and orders were calculated using animal hospital operating results , adjusted to exclude the operating results for newly acquired animal hospitals that we did not own , as of the beginning of the comparable period in the prior year . same-store revenue also includes revenue generated by customers referred from our relocated or combined animal hospitals , including those merged upon acquisition . ( 2 ) computed by dividing same-store revenue by same-store orders . the average revenue per order may not calculate exactly due to rounding . ( 3 ) net acquired revenue represents the revenue from those animal hospitals acquired , net of revenue from animal hospitals sold or closed , on or after the beginning of the comparable period in the prior year . fluctuations in net acquired revenue occur due to the volume , size and timing of acquisitions and dispositions . ( 4 ) the 2016 business-day adjustment reflects the impact of the one additional day in 2016 as compared to 2015. during the year ended december 31 , 2016 , as compared to the same period in the prior year , our volume of same-store orders increased primarily due to the combination of an overall improvement in the economy during the year and the impact of certain previously implemented initiatives in our animal hospitals . our business strategy is to place a greater emphasis on comprehensive wellness visits and advanced medical procedures , which typically generate higher priced orders .
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in december 2010 , we entered into a commercial lease agreement with bmr-gateway boulevard llc ( bmr ) , as landlord , for approximately 43,000 square feet of office story_separator_special_tag this report contains forward looking statements that involve substantial risks and uncertainties . such statements include , without limitation , all statements as to expectation or belief and statements as to our future results of operations ; the progress of our research , product development and clinical programs ; the need for , and timing of , additional capital and capital expenditures ; partnering prospects ; costs of manufacture of products ; the protection of , and the need for , additional intellectual property rights ; effects of regulations ; the need for additional facilities ; and potential market opportunities . our actual results may vary materially from those contained in such forward-looking statements because of risks to which we are subject , including the fact that additional trials will be required to confirm the safety and demonstrate the efficacy of our hucns-sc cells for the treatment of any disease or disorder ; uncertainty as to whether the u.s. food and drug administration ( fda ) , swissmedic , or other regulatory authorities will permit us to proceed with clinical testing of proposed products despite the novel and unproven nature of our technologies ; the risk that our clinical trials or studies could be substantially delayed beyond their expected dates or cause us to incur substantial unanticipated costs ; uncertainties in our ability to obtain the capital resources needed to continue our current research and development operations and to conduct the research , preclinical development and clinical trials necessary for regulatory approvals ; the uncertainty regarding our ability to obtain a corporate partner or partners , if needed , to support the development and commercialization of our potential cell-based therapeutics products ; the uncertainty regarding the outcome of our clinical trials or studies we may conduct in the future ; the uncertainty regarding the validity and enforceability of our issued patents ; the risk that we may not be able to manufacture additional master and working cell banks when needed ; the uncertainty whether any products that may be generated in our cell-based therapeutics programs will prove clinically safe and effective ; the uncertainty whether we will achieve significant revenue from product sales or become profitable ; uncertainties regarding our obligations with respect to our former facilities in rhode island ; obsolescence of our technologies ; competition from third parties ; intellectual property rights of third parties ; litigation risks ; and other risks to which we are subject . forward-looking statements speak only as of the date of this report . we do not undertake any obligation to publicly update any forward-looking statements . all forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in risk factors in part i , item 1a of this form 10-k. overview the company we are engaged in researching , developing , and commercializing cell-based therapeutics and enabling tools and technologies for stem cell-based research and drug discovery and development . our research and development ( r & d ) programs are primarily focused on identifying and developing potential cell-based therapeutics which can either restore or support organ function . in particular , since we relocated our corporate headquarters to california in 1999 , our r & d efforts have been directed at refining our methods for identifying , isolating , culturing , and purifying the human neural stem cell and developing this cell as potential cell-based therapeutics for the central nervous system ( cns ) . our hucns-sc ® product candidate ( purified human neural stem cells ) is currently in clinical development for several indications chronic spinal cord injury , dry age-related macular degeneration ( amd ) and pelizeaus-merzbacher disease ( pmd ) , which is a myelination disorder in the brain . in october 2012 , we published in science translational medicine , a peer-reviewed journal , the data from our four-patient phase i clinical trial in pmd , which showed preliminary evidence of durable and progressive donor-derived myelination in all four patients . in addition , there were measurable gains in neurological function in three of the four patients , with the fourth patient clinically stable . we are conducting a phase i/ii clinical trial for the treatment of chronic spinal cord injury . this trial is being conducted in switzerland under authorization from swissmedic , and represents the first time that neural stem cells have been transplanted as a potential therapeutic agent for spinal cord injury . in february 2013 , we announced that the first patient cohort , all of whom had complete spinal cord injuries , had completed the trial . in addition , data from this first cohort continued to demonstrate a favorable safety profile and showed that the considerable gains in sensory function observed at the six month assessment in two of the three patients compared to pre-transplant 42 baselines had persisted at the 12 month assessment ; the third patient remained stable . also , in september 2012 , the first patient with an incomplete spinal cord injury was enrolled and dosed with our hucns-sc cells . in june 2012 , we initiated a phase i/ii clinical trial in dry amd , and in october 2012 , the first patient in this trial was enrolled and dosed . we previously completed a phase i clinical trial in infantile and late infantile neuronal ceroid lipofuscinosis ( ncl ) , and the data from that trial showed that our hucns-sc cells were well tolerated and non-tumorigenic , and that there was evidence of engraftment and long-term survival of the transplanted hucns-sc cells . story_separator_special_tag we compete mainly by focusing on specialty media and antibody reagent products and human cell lines where we believe our expertise , intellectual property and reputation give us competitive advantage . we believe that , in this particular market niche , our products and technologies offer customers specific advantages over those offered by our competitors . we compete by offering innovative , quality-controlled products , consistently made and designed to produce reproducible results . we continue to make investments in research and development , quality management , quality improvement , and product innovation . we can not assure you that we will have sufficient resources to continue to make such investments . for the year ended december 31 , 2012 , we generated revenues from the sale of specialty cell culture products of approximately $ 856,000. we can give no assurances that we will be able to continue to generate such revenues in the future . significant events therapeutic product development in january 2012 , we published preclinical data demonstrating that our proprietary hucns-sc cells protect host photoreceptors and preserve vision in a well-established animal model of retinal disease . moreover , the number of cone photoreceptors , which are responsible for central vision , remained constant over an extended period . in humans , degeneration of the core photoreceptors accounts for the unique pattern of vision loss in dry amd . the data was featured as the cover article in the peer-reviewed european journal of neuroscience . also in january 2012 , the fda authorized the initiation of a phase i/ii clinical trial of our proprietary hucns-sc cells in dry amd , the most common form of amd . amd is the leading cause of vision loss and blindness in people over 55 years of age , and approximately 30 million people worldwide are afflicted with the disease . there are no approved treatments for dry amd . in february 2012 , the fourth and final patient in our phase i pmd trial completed the twelve-month follow up and evaluations required by the trial protocol , and the trial was completed . in april 2012 , we presented preliminary evidence of progressive and durable donor-cell derived myelination in all four patients who were transplanted with our proprietary hucns-sc cells in our phase i clinical trial for pmd , a rare hypomyelination disorder in children . in addition , clinical assessment revealed small but measureable gains in motor and or cognitive function in three of the four patients ; the fourth patient remained clinically stable . the study was conducted by researchers at the university of california , san francisco ( ucsf ) . a summary of the trial results were presented at the 2012 european leukodystrophy association ( ela ) families/scientists meeting in paris , france . in may 2012 , we presented data from the first interim safety review of our phase i/ii spinal cord injury clinical trial , which indicated that the surgery , immunosuppression and the hucns-sc cell transplants have been well tolerated . the trial , which was designed to evaluate the safety and preliminary efficacy of our proprietary 44 hucns-sc cells , represents the first time that neural stem cells have been transplanted as a potential therapeutic agent for spinal cord injury . a summary of the data was presented at the interdependence 2012 global sci conference in vancouver , canada . in june 2012 , we initiated our phase i/ii clinical trial of our proprietary hucns-sc cells in dry amd . the trial is being conducted at the retina foundation of the southwest 's ( rfsw ) in dallas , texas . we are currently exploring additional potential clinical trial sites for this study . in july 2012 , we presented preclinical data demonstrating that our proprietary human neural stem cells restored memory and enhanced synaptic function in two animal models relevant to alzheimer 's disease . importantly , these results did not require reduction in beta amyloid or tau , substances that accumulate in the brains of patients with alzheimer 's disease and account for the pathological hallmarks of the disease . the data was presented at the alzheimer 's association international conference 2012 in vancouver , canada . in july 2012 , the governing board of cirm approved an award to us for up to a $ 20 million under the disease team therapy development award program ( rfa 10-05 ) to fund preclinical development of our hucns-sc cells in cervical spinal cord . under rfa 10-05 , funding would have been in the form of a forgivable loan . however , in march 2013 , we elected not to borrow these funds from cirm . also in july 2012 , the japan patent office granted us patent number 5007003 which broadly covers the prospective isolation and enrichment of neural stem and progenitor cells using antibody selection , as well as the use of these cells to treat disorders of the central nervous system . some of the more noteworthy claims in this patent include methods for isolating human neural stem cells , as well as compositions of matter comprising enriched neural stem cells , such as our proprietary hucns-sc cells , and the use of enriched neural stem cells as a medicament for the treatment of neurodegenerative diseases , acute brain injury and dysfunction of the central nervous system . the term of this patent extends into 2020. in september 2012 , we presented interim six-month data from the first patient cohort in our phase i/ii clinical trial of our hucns-sc cells for chronic spinal cord injury . the first patient cohort all have no sensory or motor function below the level of injury and are considered to have complete spinal cord injuries . the interim data continues to demonstrate a favorable safety profile , and showed considerable gains in sensory function in two of the three patients compared to pre-transplant baselines ; the third patient remained stable . the data was presented at the 51st annual scientific meeting of the international spinal cord society in london , england .
| results of operations our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future due to the occurrence of material recurring and nonrecurring events , including without limitation the receipt and payment of recurring and nonrecurring licensing payments , the initiation or termination of research collaborations , the on-going expenses to lease and maintain our rhode island facilities , other than temporary impairment of our financial assets , changes in estimated fair value of our warrant liability , and increasing operating costs . revenue revenue totaled approximately $ 1,368,000 in 2012 , $ 1,221,000 in 2011 , and $ 1,427,000 in 2010. replace_table_token_4_th total revenue in 2012 was approximately $ 1,368,000 , which was 12 % higher than total revenue in 2011. in 2012 , revenue from product sales increased 29 % , or approximately $ 194,000 , compared to 2011. this increase was primarily attributable to increased unit volumes in our sc proven line of media and reagents . in 2012 , approximately 70 % of our product sales were in europe , 13 % were in the united states , and 17 % were in asia . aggregate licensing , grant and other revenue in 2012 were relatively flat in 2012 as compared to 2011. grant revenue in 2012 was not significant and licensing fees in 2012 was primarily from a license agreement with genoway , under which we granted genoway a worldwide exclusive license to our ires technology for use in the development and commercialization of genetically engineered mice . 50 total revenue in 2011 was approximately $ 1,221,000 , which was 14 % lower than total revenue in 2010. in 2011 , revenue from product sales increased 33 % , or approximately $ 164,000 , compared to 2010. this increase was primarily attributable to both increased unit volumes and new product launches in our sc proven line of media and reagents .
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, if we cease to own the hotel or we lease the hotel to a third party ) , the thresholds used to calculate the incentive fee in the pooling agreement will be adjusted , and the incentive fee for the non-pooled hotel will be based on such hotel 's performance . the management agreements and pooling agreement also contain certain restrictions on our incurring indebtedness that encumber our gaylord hotels properties on an individual or aggregate basis . the management agreements may be terminated earlier than the stated term if certain events occur , including the failure of marriott to satisfy certain performance standards . the management agreements prohibit us from selling the gaylord hotels properties to certain persons , including any person who does not , in marriott 's reasonable judgment , have sufficient financial resources and liquidity to fulfill our obligations under the management agreement , or any person who owns a controlling interest in a hotel brand ( e.g . hilton , hyatt ) totaling at least ten full-service hotels or twenty-five select-service hotels , or in a group of hotels totaling at least ten full-service hotels or twenty-five select-service hotels that are not affiliated with a brand but that are marketed and operated as a collective group , if such brand or group of hotels compete with marriott . in addition , we may not sell a gaylord hotels property if we are then in breach of the applicable management agreement . in addition to the marriott sale transaction , our trss entered into additional management agreements with marriott pursuant to which marriott assumed responsibility for managing the day-to-day operations of the general jackson showboat , gaylord springs and the wildhorse saloon beginning october 1 , 2012 , and the inn at opryland beginning december 1 , 2012. internal reorganization . in connection with our reit conversion , we transferred to marriott approximately 8,400 employees who worked at our various properties . in addition , we began and continue to implement a reorganization within , and a reduction in the number of members of , our current executive management team and the other employees currently within the corporate and other segment . in connection with the reorganization , we anticipate that our corporate overhead expenses within the corporate and other segment will be reduced . we anticipate that we have or will terminate the employment of approximately 305 employees within our corporate and other segment of whom approximately 35 % transitioned their employment to marriott . the severance cost associated with these terminations , of which approximately $ 24 million was accrued in 2012 , is included within our $ 31 million estimate of severance and retention cost related to the reit conversion discussed further below . costs related to reit conversion . we have segregated all costs related to the foregoing transactions from normal operations and reported these amounts as reit conversion costs in the accompanying consolidated statements of operations . during 2012 , we incurred $ 102.0 million of reit conversion costs , which includes $ 33.3 million of non-cash impairment charges . excluding non-cash impairment charges , we currently estimate that we will incur an aggregate of $ 85 million in one-time costs related to the reit conversion . these costs would include approximately $ 10 million in investment banking fees , $ 14 million in other professional fees , $ 31 million in employment , severance costs and retention costs , and $ 30 million in various other transition costs . we also estimate that we have incurred federal income taxes , including those associated with the receipt of the purchase price in the marriott sale transaction and other transactions related to the reit conversion , net of remaining net operating losses and credit carryforwards , of approximately $ 4 million to $ 7 million . in addition , we anticipate stabilized future annualized costs synergies , net of management fees , of approximately $ 38 million to $ 45 million . distribution of accumulated earnings and profits . a reit is not permitted to retain earnings and profits accumulated during years when the company or its predecessor was taxed as a c corporation . to qualify for taxation as a reit for the taxable year ending december 31 , 2013 , we are required to distribute to our stockholders on or before december 31 , 2013 , our undistributed accumulated earnings and profits attributable to taxable periods ending prior to january 1 , 2013. to satisfy this requirement , on november 2 , 2012 , our board of directors declared a special dividend in the amount of $ 6.84 per share of common stock , or an aggregate of approximately $ 309.8 million to stockholders of record as of the close of business on november 13 , 2012 , payable on december 21 , 2012. stockholders had the option to elect to receive the special dividend in cash or shares of common stock , with the total amount of cash payable to stockholders limited to 20 % of the total value of the special dividend , or approximately $ 62.0 million . cash elections exceeded the amount of cash available for distribution , and , therefore , the available cash was prorated among those stockholders that elected to receive cash , and the remainder of the special dividend was paid in shares of common stock . on december 21 , 2012 , we paid an aggregate of approximately $ 62.0 million in cash and issued approximately 6.7 million shares of common stock with a fair value of $ 247.8 million in connection with the special dividend . story_separator_special_tag we believe that the total value of the special dividend was sufficient to fully distribute our accumulated earnings and profits , and that a portion of the special dividend exceeded our accumulated earnings and profits . we have received a ruling from the internal revenue service that the special dividend was a taxable distribution to our stockholders for federal income tax purposes , without regard to the form of payment . pursuant to customary anti-dilution provisions in 37 the indentures governing our 3.75 % convertible senior notes and in our call and warrant agreements , the dividend caused an adjustment to the conversion rate that was taxable to the holders of the convertible notes as of november 8 , 2012 , as well as an adjustment to the call and warrant exercise prices . trt repurchase and public offerings on august 6 , 2012 , we entered into a repurchase agreement with our largest stockholder , trt holdings , inc. ( trt holdings ) , pursuant to which we repurchased and retired 5.0 million shares of our common stock from trt holdings in a privately negotiated transaction for an aggregate purchase price of $ 185.4 million , or $ 37.00 per share , which we funded with borrowings under the revolving credit line of our $ 925 million credit facility . on august 16 , 2012 , trt holdings sold the remainder of its shares of our common stock , or 5,643,129 shares , in an underwritten secondary public offering to deutsche bank securities inc. to be offered by the underwriter at a public offering price of $ 40.00 per share . as a result of its sale , trt holdings ceased to hold shares of our common stock . we reimbursed 50 % of the underwriting discounts and commissions paid by trt holdings with respect to shares it sold in the secondary offering , or an aggregate of approximately $ 2.8 million , and also paid all costs of effecting the registration for the secondary offering , other than the legal fees of trt holdings . we did not receive any proceeds from the secondary offering . however , in connection therewith , we granted deutsche bank securities inc. the option to purchase up to an additional 846,469 shares of our common stock to be offered to the public at a price of $ 40.00 per share . deutsche bank securities inc. exercised its option , and on august 23 , 2012 , we sold 846,469 shares of our common stock for net proceeds of approximately $ 32.7 million after the underwriter 's discounts . the repurchase agreement also contains several post-closing obligations of the parties . under a standstill provision in the repurchase agreement , trt holdings and affiliated parties of trt holdings have agreed not to take certain actions for a period of three years ending august 6 , 2015 , including acquiring beneficial ownership of any of our securities , indebtedness , or assets , making any take-over bid , merger or tender offer involving us , seeking to influence or control management , our board of directors , or our policies , and participating in any proxy solicitation with respect to us . in addition , under the repurchase agreement , we , trt holdings , and affiliated parties of trt holdings have agreed to a mutual non-disparagement provision for the same period ending august 6 , 2015. we , trt holdings , and affiliates of trt holdings have agreed to a general release of any or all past , existing , or future claims relating to matters , causes or things occurring or existing on or prior to august 6 , 2012 , subject to certain conditions contained in the repurchase agreement . dividend policy , share repurchase program and 6.75 % senior note redemption on december 17 , 2012 , we announced that our board of directors approved our dividend policy , a share repurchase program and the redemption of our outstanding 6.75 % senior notes . pursuant to our current dividend policy , we plan to pay a quarterly cash dividend to shareholders in an amount equal to an annualized payment of at least 50 % of adjusted funds from operations ( as defined by ryman ) or 100 % of reit taxable income on an annual basis , whichever is greater . the declaration , timing and amount of dividends will be determined by future action of our board of directors . our dividend policy may be altered at any time by our board of directors . on february 14 , 2013 , our board of directors declared our first quarterly cash dividend in the amount of $ 0.50 per share of common stock , or an aggregate of approximately $ 26.4 million , payable on april 12 , 2013 to stockholders of record as of the close of business on march 28 , 2013. we currently plan to pay a quarterly cash dividend of $ 0.50 per share in july 2013 , october 2013 and january 2014. we also announced on december 17 , 2012 that our board of directors authorized a share repurchase program for up to $ 100 million of our common stock using cash on hand and borrowings under the revolving credit line of our $ 925 million credit facility . the repurchases are intended to be implemented through open market transactions on u.s. exchanges or in privately negotiated transactions , in accordance with applicable securities laws , and any market purchases will be made during open trading window periods or pursuant to any applicable rule 10b5-1 trading plans . the timing , prices , and sizes of repurchases will depend upon prevailing market prices , general economic and market conditions and other considerations . the repurchase program does not obligate us to acquire any particular amount of stock . on january 17 , 2013 , we redeemed our remaining 6.75 % senior notes at par at
| operating results casualty loss during the years ended december 31 , 2012 and 2011 , we recognized $ 0.9 million and $ 1.2 million , respectively , of casualty loss expense related to the nashville flood , which primarily represents non-capitalized repairs within our opry and attractions segment . casualty loss in the accompanying consolidated statements of operations for the year ended december 31 , 2010 was comprised of the following ( in thousands ) : replace_table_token_17_th lost profits from the interruption of the various businesses are not reflected in the above table . see note 3 to our consolidated financial statements included herein for a further discussion of the components of these costs . insurance proceeds at may 3 , 2010 , we had in effect a policy of insurance with a per occurrence flood limit of $ 50.0 million at the affected properties . during 2010 , we received $ 50.0 million in insurance proceeds and recorded these insurance proceeds as an offset to the net casualty loss in the accompanying consolidated statements of operations . at december 31 , 2012 , our per occurrence flood insurance is $ 150.0 million . operating results preopening costs we expense the costs associated with start-up activities and organization costs as incurred . our preopening costs for 2012 primarily relate to our new sports bar entertainment facility at gaylord palms that opened in the first quarter 2012. our preopening costs for 2011 primarily relate to a new restaurant concept at the inn at opryland that opened in the third quarter of 2011. in 2010 , as a result of the extensive damage to gaylord opryland and the grand ole opry house and the extended period in which these properties were closed , we incurred costs associated with the reopening of these facilities through the date of reopening .
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page 16 operating expenses decreased $ 518,521 , or 7.8 % , to $ 6,138,551 in fiscal 2014 from $ 6,657,072 in fiscal 2013. general , administrative and sales expenses decreased $ 420,490 , or 6.9 % , in fiscal 2014 to $ 5,663,121 as compared to $ 6,083,611 in the prior fiscal year . research and development expenses decreased $ 98,031 , or 17.1 % , to $ 475,430 in fiscal 2014 from $ 573,461 in fiscal 2013. net loss was $ 539,624 , or $ 0.18 per fully diluted share , for the year ended may 31 , 2014 as compared to net loss of $ 539,882 , or $ 0.18 per fully diluted share , for the year ended may 31 , 2013. critical accounting policies revenue recognition the company recognizes revenue for sales and billing for freight charges upon delivery of the product to the customer at a fixed or determinable price with a reasonable assurance of collection , passage of title to the customer as indicated by shipping terms and fulfillment of all significant obligations , pursuant to the guidance provided by accounting standards codification topic 605. for sales to all customers , including manufacturer representatives , distributors or their third-party customers , these criteria are met at the time product is shipped . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . the company estimates customer product returns based on historical return patterns and reduces sales and cost of sales accordingly . allowance for doubtful accounts the company maintains credit limits for all customers based upon several factors , including but not limited to financial condition and stability , payment history , published credit reports and use of credit references . management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value . this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventories are valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . recently issued accounting pronouncements refer to note 2 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . page 17 story_separator_special_tag decreased due primarily to lower sales and related gross profit , higher research and development expenses and higher general , administrative and selling expenses , offset by higher gross margin percentage during fiscal 2013. liquidity and capital resources the company 's working capital decreased $ 123,877 to $ 7,478,073 as of may 31 , 2014 compared to $ 7,601,950 as of may 31 , 2013. cash and cash equivalents decreased $ 398,506 from $ 1,909,071 as of may 31 , 2013 to $ 1,510,565 as of may 31 , 2014. cash used in operating activities was $ 392,376 in fiscal 2014 as compared to cash used in operations of $ 679,112 in fiscal 2013. the decrease in the amount of cash used for operating activities was primarily due to the reduction in inventories , offset by the decrease in accounts payable and accrued liabilities and the increase in accounts receivable . at may 31 , 2014 , accounts receivable increased $ 254,509 to $ 2,235,194 compared to $ 1,980,685 as of may 31 , 2013. the increase in accounts receivable was due to the timing of receipts . inventories decreased $ 264,265 to $ 4,789,822 as of may 31 , 2014 compared to $ 5,054,087 at may 31 , 2013 as a result of our targeted inventory purchase program page 19 which was focused story_separator_special_tag page 16 operating expenses decreased $ 518,521 , or 7.8 % , to $ 6,138,551 in fiscal 2014 from $ 6,657,072 in fiscal 2013. general , administrative and sales expenses decreased $ 420,490 , or 6.9 % , in fiscal 2014 to $ 5,663,121 as compared to $ 6,083,611 in the prior fiscal year . research and development expenses decreased $ 98,031 , or 17.1 % , to $ 475,430 in fiscal 2014 from $ 573,461 in fiscal 2013. net loss was $ 539,624 , or $ 0.18 per fully diluted share , for the year ended may 31 , 2014 as compared to net loss of $ 539,882 , or $ 0.18 per fully diluted share , for the year ended may 31 , 2013. critical accounting policies revenue recognition the company recognizes revenue for sales and billing for freight charges upon delivery of the product to the customer at a fixed or determinable price with a reasonable assurance of collection , passage of title to the customer as indicated by shipping terms and fulfillment of all significant obligations , pursuant to the guidance provided by accounting standards codification topic 605. for sales to all customers , including manufacturer representatives , distributors or their third-party customers , these criteria are met at the time product is shipped . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . the company estimates customer product returns based on historical return patterns and reduces sales and cost of sales accordingly . allowance for doubtful accounts the company maintains credit limits for all customers based upon several factors , including but not limited to financial condition and stability , payment history , published credit reports and use of credit references . management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value . this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventories are valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . recently issued accounting pronouncements refer to note 2 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . page 17 story_separator_special_tag decreased due primarily to lower sales and related gross profit , higher research and development expenses and higher general , administrative and selling expenses , offset by higher gross margin percentage during fiscal 2013. liquidity and capital resources the company 's working capital decreased $ 123,877 to $ 7,478,073 as of may 31 , 2014 compared to $ 7,601,950 as of may 31 , 2013. cash and cash equivalents decreased $ 398,506 from $ 1,909,071 as of may 31 , 2013 to $ 1,510,565 as of may 31 , 2014. cash used in operating activities was $ 392,376 in fiscal 2014 as compared to cash used in operations of $ 679,112 in fiscal 2013. the decrease in the amount of cash used for operating activities was primarily due to the reduction in inventories , offset by the decrease in accounts payable and accrued liabilities and the increase in accounts receivable . at may 31 , 2014 , accounts receivable increased $ 254,509 to $ 2,235,194 compared to $ 1,980,685 as of may 31 , 2013. the increase in accounts receivable was due to the timing of receipts . inventories decreased $ 264,265 to $ 4,789,822 as of may 31 , 2014 compared to $ 5,054,087 at may 31 , 2013 as a result of our targeted inventory purchase program page 19 which was focused
| discussion of operating results replace_table_token_4_th sales sales in the balancer segment increased $ 7,089 , or 0.1 % , to $ 7,721,211 for fiscal 2014 compared to $ 7,714,122 for fiscal 2013. this increase was primarily due to increased sales into europe and asia , offset by lower shipments into north america and other regions of the world . sales into europe increased $ 199,287 , or 21.5 % , in fiscal 2014 compared to fiscal 2013. sales into asia increased $ 145,137 , or 6.4 % , in fiscal 2014 compared to the prior year . north american sales decreased $ 218,349 , or 5.1 % , in fiscal 2014 compared to fiscal 2013. sales in other regions of the world decreased $ 118,986 , or 52.4 % , during fiscal 2014 as compared to the prior year . the increases in sales in europe and asia were due to a gradual increase in demand for the company 's sbs products , while the decline in sales in north america and other regions of the world reflected fluctuations in demand due to uncertainties about the pace of economic recovery in the markets we serve . the levels of demand for our balancer products in any of these geographic markets can not be forecasted with any certainty given current economic trends and the historical volatility experienced in this market . sales in the measurement segment decreased $ 324,835 , or 6.9 % , to $ 4,413,295 in fiscal 2014 compared to $ 4,738,130 in fiscal 2013. sales of laser-based distance measurement and dimensional-sizing products decreased $ 626,701 , or 20.1 % , primarily due to a reduction in orders as the uncertainty and inconsistency in the u.s. economic recovery continues to have a negative impact in the markets we serve . sales of laser-based surface measurement products increased $ 196,281 , or 37.5 % , primarily due to an increase in demand for these products .
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on april 30 , 2014 , village opened a 59,000 sq . ft. store in union , new jersey and closed our existing 40,000 sq . ft. store . the remodel and expansion of the stirling , new jersey store to 68,000 sq . ft. is expected to be completed in the first quarter of fiscal 2016. village is the second largest member of wakefern food corporation ( “ wakefern ” ) , the nation 's largest retailer-owned food cooperative and owner of the shoprite name . this ownership interest in wakefern provides village many of the economies of scale in purchasing , distribution , advanced retail technology , marketing and advertising associated with larger chains . the company 's stores , six of which are owned , average 59,000 total square feet . these larger store sizes enable the company 's stores to provide a “ one-stop ” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery , an expanded delicatessen , a variety of natural and organic foods , ethnic and international foods , prepared foods and pharmacies . during fiscal 2015 , sales per store were $ 54,613 and sales per average square foot of selling space were $ 1,177 . management believes these figures are among the highest in the supermarket industry . 11 the supermarket industry is highly competitive and characterized by narrow profit margins . the company competes directly with multiple retail formats , including national , regional and local supermarket chains as well as warehouse clubs , supercenters , drug stores , discount general merchandise stores , fast food chains , restaurants , dollar stores and convenience stores . village competes by using low pricing , superior customer service , and a broad range of consistently available quality products ( including shoprite private labeled products ) . the shoprite price plus card also strengthens customer loyalty . many of our stores emphasize a power alley , which features high margin , fresh , convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today 's lunch or dinner . the greater morristown , union and stirling stores include the village food garden concept previously introduced in our remodeled livingston store . village food garden features a restaurant style kitchen , and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining . village also has on-site registered dieticians in fifteen stores that provide customers with free , private consultations on healthy meals and proper nutrition , as well as leading health related events both in store and in the community as part of the live right with shoprite program . wakefern and village have responded to customers ' increased use of the internet by creating a smart phone app and shoprite.com to provide weekly advertising and other shopping information . in addition , on-line shopping is available in thirteen stores with store pick-up and delivery options servicing our current market . we consider a variety of indicators to evaluate our performance , such as same store sales ; percentage of total sales by department ( mix ) ; shrink ; departmental gross profit percentage ; sales per labor hour ; and hourly labor rates . the company utilizes a 52 - 53 week fiscal year , ending on the last saturday in the month of july . fiscal 2015 , 2014 and 2013 contain 52 weeks . story_separator_special_tag fiscal year included a charge from the settlement of a dispute with a landlord ( .04 % ) and income from settlement of the national credit card lawsuit ( .08 % ) . depreciation and amortization depreciation and amortization expense was $ 23,330 , $ 22,274 and $ 20,354 in fiscal 2015 , 2014 and 2013 , respectively . depreciation and amortization expense increased in fiscal 2015 and 2014 compared to the prior years due to depreciation related to fixed asset additions . income from partnerships income from partnerships of $ 1,450 in fiscal 2013 are distributions received from two partnerships that exceeded the invested amounts . the company 's partnership interests resulted from its leasing of supermarkets in two shopping centers . the company remains a tenant in one of these shopping centers . interest expense interest expense was $ 4,535 , $ 3,602 and $ 3,771 , in fiscal 2015 , 2014 and 2013 , respectively . interest expense increased in fiscal 2015 compared to fiscal 2014 and 2013 primarily due to interest costs capitalized of $ 600 and $ 560 in fiscal 2014 and 2013 , respectively . interest income interest income was $ 2,399 , $ 2,622 and $ 2,783 in fiscal 2015 , 2014 and 2013 , respectively . interest income decreased due primarily to lower interest rates earned on investments and less amounts invested . income taxes the company 's effective income tax rate was 26.0 % , 82.5 % and 42.2 % in fiscal 2015 , 2014 and 2013 , respectively . income taxes in fiscal 2015 includes a tax benefit of $ 6,452 related to the settlement with the new jersey division of taxation , net of $ 841 of interest and penalties accrued prior to settlement . income taxes in fiscal 2014 included a $ 10,052 charge related to tax positions taken in prior years as a result of the unfavorable ruling by the new jersey tax court and a higher tax rate due to 13 $ 1,557 of interest and penalties related to the new jersey tax dispute . excluding these items from both fiscal years , the effective income tax rate was 41.6 % in fiscal 2015 as compared to 42.2 % in fiscal 2014 . the dispute and related settlement with the new jersey division of taxation is described in note 5 to the consolidated financial statements . net income net income was $ 30,620 in fiscal 2015 compared to $ 5,045 in fiscal 2014 . story_separator_special_tag actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , generally affect recognized expense in future periods . while management believes that its assumptions are appropriate , significant differences in actual experience or significant changes in the company 's assumptions may materially affect cash flows , pension obligations and future expense . the objective of the discount rate assumption is to reflect the rate at which the company 's pension obligations could be effectively settled based on the expected timing and amounts of benefits payable to participants under the plans . our methodology for selecting the discount rate as of july 25 , 2015 was to match the plans ' cash flows to that of a yield curve on high-quality fixed-income investments . based on this method , we utilized a weighted-average discount rate of 4.02 % at july 25 , 2015 compared to 3.95 % at july 26 , 2014 . approximately $ 7,779 of the projected benefit obligation increase at july 25 , 2015 is due primarily to changes in the discount rate and the mortality table utilized . village evaluated the expected long-term rate of return on plan assets of 7.5 % and the expected increase in compensation costs of 4 to 4.5 % and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense . sensitivity to changes in the major assumptions used in the calculation of the company 's pension plans is as follows : replace_table_token_6_th village contributed $ 6,203 and $ 3,320 in fiscal 2015 and 2014 , respectively , to these company-sponsored pension plans . village expects to contribute $ 3,000 in fiscal 2016 to these plans . the 2015 contributions include $ 3,113 in benefit payments related to the unfunded , non-qualified supplemental benefit plan . substantially all other contributions in 2015 and 2014 are voluntary contributions . the company also contributes to several multi-employer pension plans based on obligations arising from collective bargaining agreements . these plans provide retirement benefits to participants based on their service to contributing employers . we recognize expense in connection with these plans as contributions are funded . uncertain tax positions the company is subject to periodic audits by various taxing authorities . these audits may challenge certain of the company 's tax positions such as the timing and amount of deductions and the allocation of income to various tax jurisdictions . accounting for these uncertain tax positions requires significant management judgment . actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years . 15 on february 27 , 2015 , the company reached an agreement with the new jersey division of taxation to settle the disputes related to nexus and the deductibility of certain payments between subsidiaries for fiscal years 2000 through 2014. see note 5 to the consolidated financial statements for further information . recently issued accounting standards in may 2014 , the financial accounting standards board issued accounting standards update ( `` asu '' ) no . 2014-09 , “ revenue from contracts with customers , ” which provides guidance for revenue recognition . the standard 's core principle is that a company will 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 or services . the new guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017. the company is currently assessing the potential impact of asu no . 2014-09 on its financial statements . in february 2015 , the financial accounting standards board issued asu 2015-02 , `` consolidation ( topic 810 ) : amendments to the consolidations analysis '' , which changes the guidance for evaluating whether to consolidate certain legal entities . specifically , the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ( `` vies '' ) or voting interest entities . further , the amendments eliminate the presumption that a general partner should consolidate a limited partnership , as well as affect the consolidation analysis of reporting entities that are involved with vies , particularly those that have fee arrangements and related party relationships . the updated guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2015. early adoption is permitted . companies have an option of using either a full retrospective or modified retrospective adoption approach . the company is evaluating the effect that asu 2015-02 will have on its consolidated financial statements and related disclosures . liquidity and capital resources cash flows net cash provided by operating activities was $ 17,468 in fiscal 2015 compared to $ 52,447 in the corresponding period of the prior year . the decrease compared to the prior year is primarily attributable to the $ 33,000 settlement with the new jersey division of taxation and changes in the timing of payables . during fiscal 2015 , village used cash to fund capital expenditures of $ 23,517 and dividends of $ 12,577 . capital expenditures primarily includes costs associated with the major remodel and expansion of the stirling , new jersey store and smaller remodels of other existing stores . net cash provided by operating activities was $ 52,447 in fiscal 2014 compared to $ 51,273 in the corresponding period of the prior year . during fiscal 2014 , village used cash to fund capital expenditures of $ 50,322 , dividends of $ 12,432 and invested an additional $ 18,177 in notes receivable from wakefern . capital expenditures include the construction of the greater morristown and union replacement stores . liquidity and debt working capital was $ 39,747 , $ 16,782 , and $ 94,299 at july 25 , 2015 , july 26 , 2014 and july 27 , 2013 , respectively . working capital ratios at the same dates were 1.41 , 1.11 , and 1.85
| results of operations the following table sets forth the components of the consolidated statements of operations of the company as a percentage of sales : replace_table_token_5_th sales sales were $ 1,583,789 in fiscal 2015 , an increase of $ 65,153 , or 4.3 % from the prior year . sales increased due to the opening of the greater morristown replacement store on november 6 , 2013 and union replacement store on april 30 , 2014. same store sales increased 2.1 % due to improved sales in the greater morristown replacement store in its second year of operations , higher average transaction size and increased customer counts . new stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters . store renovations are included in same store sales immediately . sales were $ 1,518,636 in fiscal 2014 , an increase of $ 42,179 , or 2.9 % from the prior year . sales increased due to the opening of the greater morristown replacement store on november 6 , 2013 and union replacement store on april 30 , 2014. same store sales increased .2 % due to increased sales in both maryland stores and in stores that were closed for periods of up to eight days in the prior year due to superstorm sandy , partially offset by lower sales due to three store openings by competitors , very high sales in the prior year as customers prepared for superstorm sandy , and reduced sales in stores that reopened quickly after the storm . 12 gross profit gross profit as a percentage of sales increased .45 % in fiscal 2015 compared to the prior year primarily due to lower promotional spending ( .23 % ) , increased departmental gross margin percentages ( .23 % ) and decreased warehouse assessment charges from wakefern ( .06 % ) . these increases were partially offset by lower patronage dividends ( .06 % ) .
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10. research agreements abaloparatide-sc phase 3 clinical trial — the company contracted with nordic bioscience clinical development vii a/s ( `` nordic `` ) to conduct the company 's story_separator_special_tag you should read the following discussions in conjunction with our consolidated financial statements and related notes included in this report . this discussion includes forward-looking statements that involve risk and uncertainties . as a result of many factors , such as those set forth under `` risk factors , '' actual results may differ materially from those anticipated in these forward-looking statements . executive overview we are a science-driven biopharmaceutical company that is committed to developing innovative therapeutics in the areas of osteoporosis , oncology and endocrine diseases . our lead investigational product candidate , abaloparatide for subcutaneous injection , or abaloparatide-sc , has completed phase 3 development for potential use in the treatment of women with postmenopausal osteoporosis . our new drug application , or nda , for abaloparatide-sc is under regulatory review by the u.s. food and drug administration , or fda , with a prescription drug user fee act , or pdufa , date of march 30 , 2017. our european marketing authorisation application for abaloparatide-sc is under review by the committee for medicinal products for human use , or chmp , of the european medicines agency , or ema . we intend to commercialize abaloparatide-sc in the united states and our experienced commercial leaders are rapidly expanding the breadth of our capabilities and sales organization with highly skilled and tenured individuals . our clinical pipeline also includes an abaloparatide transdermal patch , or abaloparatide-td , for potential use in the treatment of women with postmenopausal osteoporosis . we are focused on completing the manufacturing scale-up , production , and other activities required for the initiation of a pivotal bioequivalence study for abaloparatide-td . in addition , we are evaluating our investigational product candidate , rad1901 , a selective estrogen receptor down-regulator/degrader , for potential use in the treatment of hormone-driven and or hormone-resistant breast cancer , as well as for potential use in the treatment of vasomotor symptoms in postmenopausal women . we plan to complete our ongoing phase 1 studies of rad1901 in advanced metastatic breast cancer and our ongoing phase 2b study of rad1901 in postmenopausal vasomotor symptoms . in the first half of 2017 , we intend to engage with regulatory agencies to gain alignment on defining the next steps for our rad1901 breast cancer program , which would include the design of a phase 2 trial . in the first half of 2017 , we also expect to complete and report results from our rad1901 phase 2b vasomotor trial . our clinical pipeline also includes our internally developed investigational product candidate , rad140 , a non-steroidal selective androgen receptor modulator , or sarm , for potential use in the treatment of breast cancer . in december 2016 , we submitted an investigational new drug application , or ind , to the fda and expect to initiate a first-in-human phase 1 study of rad140 in women with hormone receptor positive breast cancer in 2017. abaloparatide abaloparatide is an investigational therapy for the potential treatment of women with postmenopausal osteoporosis who are at an increased risk for a fracture . abaloparatide is a novel synthetic peptide analog that engages the parathyroid hormone receptor , or pth1 receptor , and was selected for clinical development based on its potential for favorable bone building activity . abaloparatide was designed to have a unique mechanism of action with the goal of stimulating enhanced bone building activity including bone formation , increasing bone mineral density , restoring bone microarchitecture and augmenting bone strength . we are developing two formulations of abaloparatide : 59 abaloparatide-sc— abaloparatide-sc has completed phase 3 development for potential use as a daily self-administered injection . we hold worldwide commercialization rights to abaloparatide-sc , except for japan . in december 2014 , we announced positive 18-month top-line data from our phase 3 active clinical trial of abaloparatide-sc . these results were published in the journal of the american medical association , or jama , in august 2016. in june 2015 , we announced the positive top-line data from the first six months of our 24-month activextend clinical trial of abaloparatide-sc and the 25-month combined fracture data from the active and activextend clinical trials . these data were published in the mayo clinic proceedings in february 2017. the combined 25-month fracture data from our phase 3 clinical trial program for abaloparatide-sc formed the basis of our regulatory submissions in the united states and europe . in november 2015 , we submitted an maa to the european medicines agency , or ema , which was validated and is currently undergoing active regulatory assessment by the chmp . we anticipate that the chmp may adopt an opinion regarding the maa in 2017. in march 2016 , we submitted an nda to the fda , which has been accepted for filing by the fda with a pdufa date of march 30 , 2017. we intend to enter into one or more collaborations for the potential commercialization of abaloparatide-sc prior to a commercial launch . subject to regulatory review and a favorable regulatory outcome , we anticipate the first commercial sales of abaloparatide-sc will take place in 2017. we intend to commercialize abaloparatide-sc in the united states ourselves and our experienced commercial leaders are rapidly expanding the breadth of our capabilities and sales organization with highly skilled and tenured individuals . we expect to report the top-line results from our recently completed 24-month activextend trial in the second quarter of 2017. abaloparatide-td— we are also developing abaloparatide-transdermal , which we refer to as abaloparatide-td , based on 3m 's patented microstructured transdermal system technology for potential use as a short wear-time transdermal patch . we hold worldwide commercialization rights to the abaloparatide-td technology . we are developing abaloparatide-td toward future global regulatory submissions to build upon the potential success of our investigational product candidate , abaloparatide-sc , if approved . story_separator_special_tag the patients enrolled in this study are heavily pretreated er-positive , her2-negative advanced breast cancer patients who have received a median of 3 prior lines of therapy including fulvestrant and cdk4/6 inhibitors , and more than 50 % of the patients had esr1 mutations . in december 2016 , we reported positive results from this ongoing phase 1 dose-escalation and expansion study . these results reflected that rad1901 was well-tolerated with the most commonly reported adverse events being low grade nausea and dyspepsia . the part c tablet dosage form cohort was initiated thereafter and enrollment was completed in november 2016. phase 1 - fes-pet study in december 2015 , we commenced a phase 1 18-f fluoroestradiol positron emission tomography , or fes-pet , study in patients with metastatic breast cancer in the european union which includes the use of fes-pet imaging to assess estrogen receptor occupancy in tumor lesions following rad1901 treatment . we continue to enroll patients in the eu phase i fes-pet study . in december 2016 , we reported positive results from the ongoing phase 1 fes-pet study . the first three enrolled patients dosed at the 400-mg cohort had a tumor fes-pet signal intensity reduction ranging from 79 % to 91 % at day 14 compared to baseline . the most commonly reported adverse events reported to date have been grade 1 and 2 nausea and dyspepsia . this study will enroll 5 additional patients in the 400-mg daily oral cohort , followed by 8 patients in the 200-mg daily oral cohort . phase 1 - recent progress to date , no dose limiting toxicities have been reported in the rad1901 program . we plan to complete both of our ongoing rad1901 phase 1 breast cancer trials . in the first half of 2017 , we intend to engage with regulatory agencies to gain alignment on defining the next steps for the program , which would include the design of a phase 2 trial . 61 collaborations in july 2015 , we announced that early but promising preclinical data showed that our investigational drug rad1901 , in combination with pfizer 's palbociclib , a cyclin-dependent kinase , or cdk 4/6 inhibitor , or novartis ' everolimus , an mtor inhibitor , was effective in shrinking tumors . in preclinical patient-derived xenograft breast cancer models with either wild type or mutant esr1 , treatment with rad1901 resulted in marked tumor growth inhibition , and the combination of rad1901 with either agent , palbociclib or everolimus , showed anti-tumor activity that was significantly greater than either agent alone . we believe that this preclinical data suggest that rad1901 has the potential to overcome endocrine resistance , is well-tolerated , and has a profile that is well suited for use in combination therapy . in july 2016 , we entered into a pre-clinical collaboration with takeda pharmaceutical company limited to evaluate the combination of rad1901 with takeda 's investigational drug tak-228 , an oral mtorc 1/2 inhibitor in phase 2b development for the treatment of breast , endometrial and renal cancer , with the goal of potentially exploring such combination in a clinical study . we and takeda have each agreed to contribute resources and supply compound material necessary for studies to be conducted under the collaboration and will share third party out-of-pocket research and development expenses . activities under this collaboration are ongoing . upon completion , both parties will agree upon the appropriate communication of the results . in january 2016 , we entered into a worldwide clinical collaboration with novartis pharmaceuticals to evaluate the safety and efficacy of combining rad1901 with novartis ' investigational agent lee011 ( ribociclib ) , a cdk 4/6 inhibitor , and byl719 ( alpelisib ) , an investigational phosphoinositide 3-kinase inhibitor . phase 2b - vasomotor symptoms study rad1901 is also being evaluated at low doses as an estrogen receptor ligand for the potential relief of the frequency and severity of moderate to severe hot flashes in postmenopausal women with vasomotor symptoms . we expect to report results from our phase 2b clinical study of rad1901 for the potential treatment of postmenopausal vasomotor symptoms in the first half of 2017. rad140 rad140 is a nonsteroidal selective androgen receptor modulator , or sarm . the androgen receptor , or ar , is highly expressed in many er-positive , er-negative , and triple-negative receptor breast cancers . due to its receptor and tissue selectivity , potent activity , oral bioavailability , and long half-life , we believe rad140 could have clinical potential in the treatment of breast cancer . we hold worldwide commercialization rights to rad140 , which resulted from an internal discovery program . in july 2016 , we reported that rad140 in preclinical xenograft models of breast cancer demonstrated potent tumor growth inhibition when administered alone or in combinations with cdk4/6 inhibitors . it is estimated that 77 % of breast cancers show expression of the androgen receptor . our data suggest that rad140 activity at the androgen receptor stimulates up-regulation of a tumor suppression pathway . we submitted an ind to the fda for rad140 in december 2016 and plan to initiate a first-in-human phase 1 study of rad140 in women with hormone receptor positive breast cancer in 2017. financial overview research and development expenses research and development expenses consist primarily of clinical testing costs , including payments made to contract research organizations , or cros , salaries and related personnel costs , fees paid to consultants and outside service providers for regulatory and quality assurance support , licensing of drug compounds and other expenses relating to the manufacture , development , testing , and enhancement of our investigational product candidates . we expense our research and development costs as they are incurred . none of the research and development expenses , in relation to our investigational product candidates , are currently borne by third parties . our lead investigational product candidate is abaloparatide and it currently represents the largest portion of our research and development expenses for our investigational product candidates .
| results of operations the following discussion summarizes the key factors our management team believes are necessary for an understanding of our consolidated financial statements . years ended december 31 , 2016 and december 31 , 2015 65 replace_table_token_6_th research and development expenses —for the year ended december 31 , 2016 , research and development expense was $ 107.4 million , as compared to $ 68.3 million for the year ended december 31 , 2015 , an increase of $ 39.1 million , or 57 % . this increase was primarily a result of increased compensation expense , including an increase of $ 3.3 million of non-cash stock-based compensation expense , due to growth in headcount from 48 research and development employees as of december 31 , 2015 , to 107 research and development employees as of december 31 , 2016 . this increase in spend was also driven by higher contract service costs associated with the development of our investigational product candidate rad1901 as a result of the increased clinical and manufacturing activities in 2016 , as compared to 2015. these amounts were partially offset by a decrease in the total professional contract service costs associated with the development of abaloparatide-sc as more patients completed study protocol activities associated with the 24-month activextend clinical trial in 2016 , as compared to 2015. general and administrative expenses —for the year ended december 31 , 2016 , general and administrative expense was $ 77.5 million , as compared to $ 30.8 million for the year ended december 31 , 2015 , an increase of $ 46.7 million , or 152 % .
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2009-17 ) , which we adopted on the first day of the 2010 fiscal year , as the new consolidation standard. all significant transactions between us and marriott international have been included in these financial statements . the total net effect of the settlement of these intercompany transactions prior to the spin-off is reflected in the cash flows as a financing activity . in connection with the spin-off , we completed certain transactions with marriott international related to our separation from marriott international , which resulted in a net reduction to our equity of approximately $ 500 million . these transactions primarily consisted of the reversal of our deferred tax assets , which were retained by marriott international following the spin-off , and establishment of deferred tax liabilities . retained earnings represents the results of operations subsequent to november 20 , 2011. through the date of the spin-off , our financial story_separator_special_tag you should read the following discussion of our results of operations and financial condition together with our audited historical consolidated financial statements and accompanying notes that we have included elsewhere in this annual report as well as the discussion in the section of this annual report entitled business. this discussion contains forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on our current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those we discuss in the sections of this annual report entitled risk factors and special note about forward-looking statements. our consolidated financial statements , which we discuss below , reflect our historical financial condition , results of operations and cash flows . the financial information discussed below and included in this annual report , however , may not necessarily reflect what our financial condition , results of operations or cash flows would have been had we been operated as a separate , independent entity during all of the periods presented , or what our financial condition , results of operations and cash flows may be in the future . business overview we are the exclusive worldwide developer , marketer , seller and manager of vacation ownership and related products under the marriott vacation club and grand residences by marriott brands . we are also the exclusive global developer , marketer and seller of vacation ownership and related products under the ritz-carlton destination club brand , and we have the non-exclusive right to develop , market and sell whole ownership residential products under the ritz-carlton residences brand . the ritz-carlton hotel company , l.l.c . generally provides on-site management for ritz-carlton branded properties . our business is grouped into four reportable segments : north america , luxury , europe and asia pacific . we operate 64 properties in the united states and nine other countries and territories . we generate most of our revenues from four primary sources : selling vacation ownership products ; managing our resorts ; financing consumer purchases of vacation ownership products ; and renting vacation ownership inventory . see the section of this annual report entitled businesssegments for further details regarding our individual properties by segment . as described in footnote no . 1 , summary of significant accounting policies , in the notes to our financial statements included in this annual report , through the date of the spin-off , the financial statements discussed below were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting records of marriott international . these financial statements have been prepared as if the spin-off had taken place as of the earliest period presented and include an allocation of certain marriott international expenses as discussed in the section of this annual report entitled selected financial data. the financial statements reflect our historical financial position , results of operations and cash flows as we have historically operated , in conformity with gaap . all significant intracompany transactions and accounts within these financial statements have been eliminated . beginning november 22 , 2011 , for periods following completion of the spin-off , our financial results also include the impact of the royalty fee payable under our license agreements and the dividend payable on the mandatorily redeemable preferred stock of our consolidated subsidiary , mvw us holdings ( included in interest expense ) . conditions for our vacation ownership business were strong throughout 2012 compared to 2011. in 2012 : we generated $ 1.6 billion of total revenues , including $ 627 million from the sale of vacation ownership products , and $ 163 million of cash flows from operating activities . north america contract sales increased 12 percent to $ 578 million ; volume per guest ( vpg ) increased 18 percent year-over-year to $ 2,963. below is a summary of significant accounting policies used in our business that will be used in describing our results of operations . sale of vacation ownership products we recognize revenues from the sale of vacation ownership products when all of the following conditions exist : a binding sales contract has been executed ; the statutory rescission period has expired ; the receivable is deemed collectible ; the criteria for percentage of completion accounting are met ; and the remainder of our obligations are substantially completed . 31 sales of vacation ownership products may be made for cash or we may provide financing . for sales where we provide financing , we defer revenue recognition until we receive a minimum down payment equal to ten percent of the purchase price plus the fair value of certain sales incentives provided to the purchaser . these sales incentives typically include marriott rewards points or an alternative sales incentive that we refer to as plus points . these plus points are redeemable for stays at our resorts , generally within one to two years from the date of issuance . story_separator_special_tag due to weakened economic conditions and our elimination of financing incentive programs , the number of customers choosing to finance their vacation ownership purchase with us ( which we refer to as financing propensity ) declined significantly through 2009 and has leveled out since then . as a result , we expect that interest income will continue to decline over the next few years until new originations outpace the decline in principal amount of the existing vacation ownership note portfolio . in the event of a default , we generally have the right to foreclose on or revoke the mortgaged vacation ownership interest . we typically return vacation ownership interests that we reacquire through foreclosure or revocation back to real estate inventory . as discussed above , we record a vacation ownership notes receivable reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products in our statements of operations . historical default rates , which represent annual defaults as a percentage of each year 's beginning gross vacation ownership notes receivable balance , were as follows : replace_table_token_8_th rental we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory . we obtain rental inventory from : unsold inventory ; and inventory we control because owners have elected alternative usage options . rental revenues are primarily the revenues we earn from renting this inventory . we also recognize rental revenue from the utilization of plus points under the mvcd program when those points are redeemed for rental stays at one of our resorts or upon expiration of the points . rental expenses include : maintenance fees on unsold inventory ; costs to provide alternative usage rights , including marriott rewards points , for owners who elect to exchange their inventory ; subsidy payments to property owners ' associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the resort ; marketing costs and direct operating and related expenses in connection with the rental business ( such as housekeeping , credit card expenses and reservation services ) ; and costs associated with the banking and borrowing usage option that is available under our mvcd program . rental metrics , including the average daily transient rate or the number of transient keys rented , may not be comparable between periods given fluctuation in available occupancy by location , unit size ( such as two bedroom , one bedroom or studio unit ) , and owner use and exchange behavior . further , as our ability to rent certain inventory in our luxury and asia pacific segments is often limited on a site-by-site basis , rental operations may not generate adequate rental revenues to cover associated costs . our vacation units are either 33 full villas or lock-off villas . lock-off villas are units that can be separated into a master unit and a guest room . full villas are non-lock-off villas because they can not be separated . a key night is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas . lock-off villas represent two keys and non-lock-off villas represent one key . the transient keys metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system . other we also record other revenues and expenses which are primarily comprised of fees received from our external exchange company and settlement fees and expenses from the sale of vacation ownership products . cost reimbursements cost reimbursements revenues includes direct and indirect costs that property owners ' associations and joint ventures in which we participate reimburse to us . in accordance with the accounting guidance for gross versus net presentation , we record these revenues on a gross basis . we recognize cost reimbursements revenue when we incur the related reimbursable costs . these costs primarily consist of payroll and payroll related expenses for management of the property owners ' associations and other services we provide where we are the employer , and for development and marketing and sales services that joint ventures contract with us to perform . cost reimbursements are based upon actual expenses with no added margin . interest expense we refer to interest expense associated with the debt from our non-recourse warehouse credit facility and from the securitization of our vacation ownership notes receivable in the abs market as consumer financing interest expense . we distinguish consumer financing interest expense from all other interest expense ( referred to as non-consumer financing interest expense ) because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us . other items we measure operating performance using the following key metrics : contract sales from the sale of vacation ownership products ; development margin percentage ; and vpg , which we calculate by dividing contract sales , excluding telesales and other sales that are not attributed to a tour at a sales location , by the number of sales tours in a given period . we believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase . rounding percentage changes presented in our public filings are calculated using whole dollars . 34 story_separator_special_tag estate inventory being sold , and a 5 percentage point increase from efficiencies in marketing and sales spending . these increases were partially offset by a 3 percentage point decline due to lower revenue reportability and a 1 percentage point decline related to higher vacation ownership notes receivable reserve activity in 2012 .
| consolidated results the following discussion presents an analysis of results of our operations for 2012 , 2011 and 2010. replace_table_token_9_th contract sales 2012 compared to 2011 replace_table_token_10_th nm = not meaningful 35 the $ 30 million increase in total company-owned gross contract sales ( before cancellation reversals ) was driven by $ 64 million ( 12 percent ) of higher contract sales in our key north america segment , partially offset by an aggregate of $ 21 million of lower contract sales in our europe and luxury segments as we continued to sell through existing inventory , and $ 13 million of lower contract sales in our asia pacific segment . the lower sales in our asia pacific segment were driven mainly by the closure of off-site sales locations in hong kong and japan late in 2012 in accordance with our strategy of using more efficient on-site sales locations rather than off-site sales locations . the increase in contract sales in our north america segment reflected an 18 percent increase in vpg to $ 2,963 in 2012 from $ 2,504 in the prior year . this increase in vpg in 2012 was due to a 2 percentage point increase in closing efficiency , resulting from improved marketing and sales execution , and a 2 percent price increase .
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the commitment fee was subject to change in increments of 0.05 % depending on our net story_separator_special_tag story_separator_special_tag style= '' line-height:120 % ; padding-top:11px ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > during the year ended december 31 , 2013 , we completed 20 acquisitions , including our may 2013 acquisition of sator , a vehicle mechanical aftermarket parts distribution company based in the netherlands , with operations in the netherlands , belgium and northern france . with the acquisition of sator , we expanded our geographic presence in the european vehicle mechanical aftermarket products market into continental europe to complement our existing u.k. operations . in addition to our acquisition of sator , we acquired 10 wholesale businesses in north america , 7 wholesale businesses in europe and 2 self service operations . our european acquisitions included five automotive paint distribution businesses in the u.k. , which enabled us to expand our collision product offerings . the other acquisitions completed during 2013 enabled us to expand into new product lines and enter new markets . in august 2013 , we entered into an agreement with suncorp group , a leading general insurance group in australia and new zealand , to develop an alternative vehicle replacement parts business , acm parts pty ltd ( `` acm parts '' ) , in those countries . as of december 31 , 2015 , this investment was classified as held for sale and included within other current assets on the consolidated balance sheets . the sale of this investment was completed in february 2016. refer to note 2 , `` summary of significant accounting policies '' within the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for more information related to this investment . sources of revenue we report our revenue in two categories : ( i ) parts and services and ( ii ) other . our parts and services revenue is generated from the sale of vehicle products and related services including ( i ) aftermarket , other new and refurbished products and ( ii ) recycled , remanufactured and related products and services . our service revenue is generated primarily from the sale of extended warranties , fees for admission to our self service yards , and processing fees related to the secure disposal of vehicles . for the year ended december 31 , 2015 , parts and services revenue represented approximately 93 % of our consolidated revenue . the majority of our parts and services revenue is generated from the sale of vehicle replacement products to collision and mechanical repair shops . in north america , our vehicle replacement products include sheet metal crash parts such as doors , hoods , and fenders ; bumper covers ; mirrors and grills ; head and tail lamps ; wheels ; and large mechanical items such as engines and transmissions . in europe , our products include a wide variety of small mechanical products such as filters , belts and hoses , spark plugs , alternators and water pumps , batteries , suspension and brake parts , clutches , and oil and lubricants . the demand for these products is influenced by several factors , including the number of vehicles in operation , the number of miles being driven , the frequency and severity of vehicle accidents , the age profile of vehicles in accidents , seasonal weather patterns and local weather conditions and the availability and pricing of new oem parts . with respect to collision related products , automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process . accordingly , we consider automobile insurers to be key demand drivers of our vehicle replacement products . while they are not our direct customers , we do provide insurance carriers services in an effort to promote the increased usage of alternative replacement products in the repair process . such services include the review of vehicle repair order estimates , direct quotation services to insurance company adjusters and an aftermarket parts quality and service assurance program . we neither charge a fee to the insurance carriers for these services nor adjust our pricing of products for our customers when we perform these services for insurance carriers . there is no standard price for many of our vehicle replacement products , but rather a pricing structure that varies from day to day based upon such factors as product availability , quality , demand , new oem product prices , the age and mileage of the vehicle from which the part was obtained , competitor pricing and our product cost . our revenue from aftermarket , other new and refurbished products also includes revenue generated from the sale of specialty aftermarket vehicle equipment and accessories . these products are primarily sold to a large customer base of specialty vehicle retailers and equipment installers , including mostly independent , single-site operators . specialty vehicle aftermarket products are typically installed on vehicles within the first year of ownership to enhance functionality , performance or aesthetics . as a result , the demand for these products is influenced by new and used vehicle sales and the overall economic health of vehicle owners , which may be affected by general business conditions , interest rates , inflation , consumer debt levels 36 and other matters that influence consumer confidence and spending . the prices for our specialty vehicle products are based on manufacturers ' suggested retail prices , with discounts applied based on prevailing market conditions , customer volumes and promotions that we may offer from time to time . for the year ended december 31 , 2015 , revenue from other sources represented approximately 7 % of our consolidated sales . these other sources include scrap sales and sales of aluminum ingots and sows . story_separator_special_tag seasonality our operating results are subject to quarterly variations based on a variety of factors , influenced primarily by seasonal changes in weather patterns . during the winter months , we tend to have higher demand for our vehicle replacement products because there are more weather related accidents , which generate repairs . we expect our specialty vehicle operations to generate greater revenue and earnings in the first half of the year , when vehicle owners tend to install specialty products . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates , assumptions , and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , assumptions , and judgments , including those related to revenue recognition , inventory valuation , business combinations , and goodwill impairment . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue . actual results may differ from these estimates . revenue recognition we recognize and report revenue from the sale of vehicle products when they are shipped to or picked up by the customers and title has transferred , subject to an allowance for estimated returns , discounts and allowances that management estimates based upon historical information . in instances where a product is returned by a customer , the product would ordinarily be returned within a few days of shipment . our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment . allowances are normally given within a few days following product shipment . we analyze historical returns and allowances activity by comparing the items to the original invoice amounts and dates . we use this information to project future returns and allowances on products sold . if actual returns and allowances are higher than our historical experience , there would be an adverse impact on our operating results in the period of occurrence . we recognize revenue from the sale of scrap metal , other metals , and cores when title has transferred , which typically occurs upon delivery to the customer . inventory accounting salvage and remanufactured inventory . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , towing and storage fees , as well as expenditures for buying and dismantling vehicles . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices , the assessment of which incorporates the sales probability based on a part 's days in stock and historical demand . the average cost to sales percentage is derived from each facility 's historical profitability for salvage vehicles . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead related to our remanufacturing operations . for all inventory , carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions under the acquisition method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . such estimates and valuations require us to make significant assumptions , including projections of future events and operating performance . 38 goodwill impairment we are required to test our goodwill for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we are organized into four operating segments : wholesale-north america ; europe ; specialty ; and self service . we have also concluded that these four operating segments are reporting units for purposes of goodwill impairment testing in 2015 . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value . the fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation .
| overview we are a global distributor of vehicle products , including replacement parts , components and systems used in the repair and maintenance of vehicles , as well as specialty vehicle products and accessories . buyers of vehicle replacement products have the option to purchase from primarily five sources : new products produced by original equipment manufacturers ( `` oems '' ) ; new products produced by companies other than the oems , which are sometimes referred to as aftermarket products ; recycled products obtained from salvage vehicles ; used products that have been refurbished ; and used products that have been remanufactured . we distribute a variety of products to collision and mechanical repair shops , including aftermarket collision and mechanical products , recycled collision and mechanical products , refurbished collision products such as wheels , bumper covers and lights , and remanufactured engines . collectively , we refer to these products as alternative parts because they are not new oem products . we are the nation 's largest provider of alternative vehicle collision replacement products and a leading provider of alternative vehicle mechanical replacement products , with our sales , processing , and distribution facilities reaching most major markets in the united states and canada . we are also a leading provider of alternative vehicle replacement and maintenance products in the united kingdom and the benelux region ( belgium , netherlands , & luxembourg ) of continental europe . in addition to our wholesale operations , we operate heavy duty truck facilities and self service retail facilities across the u.s. that sell recycled automotive products from end-of-life-vehicles . in 2014 , we expanded our product offering to include specialty vehicle aftermarket equipment and accessories through the acquisition of keystone specialty . we are organized into four operating segments : wholesale - north america ; europe ; specialty ; and self service .
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story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements for the years ended september 30 , 2016 , 2015 and 2014 . as ashland global holdings inc. is the successor to ashland inc. , the information set forth refers to ashland inc. for the periods prior to september 30 , 2016 and to ashland global holdings inc. on and after september 30 , 2016. business overview ashland profile ashland is a premier global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets , including adhesives , architectural coatings , automotive , construction , energy , food and beverage , personal care and pharmaceutical . ashland also maintains a controlling interest in valvoline inc. , a premium consumer-branded lubricant supplier . with approximately 11,000 employees worldwide ( including approximately 5,000 employees of valvoline ) , ashland serves customers in more than 100 countries . ashland 's sales generated outside of north america were 47 % in 2016 , 2015 and 2014 . sales by region expressed as a percentage of total consolidated sales were as follows : replace_table_token_92_th ( a ) ashland includes only u.s. and canada in its north american designation . reportable segments ashland 's reporting structure is composed of three reportable segments : ashland specialty ingredients ( specialty ingredients ) , ashland performance materials ( performance materials ) and valvoline . the term valvoline as used herein , depending on context , refers to either valvoline inc. or valvoline as a reportable segment of ashland . for further descriptions of each reportable segment , see “ results of operations – reportable segment review ” beginning on page m-14 . sales by each reportable segment expressed as a percentage of total consolidated sales were as follows : replace_table_token_93_th key developments during 2016 , the following operational decisions and economic developments had an impact on ashland 's current and future cash flows , results of operations and financial position . business results ashland 's overall financial performance decreased by 4 % during 2016 compared to 2015 as adjusted ebitda results decreased to $ 1,074 million ( see u.s. gaap reconciliation on page m-8 ) . the decrease in adjusted ebitda was primarily attributable to declines in the specialty ingredients and performance materials reportable segments , partially offset by improved adjusted ebitda within the valvoline reportable segment . compared to 2015 , valvoline 's adjusted ebitda results increased $ 30 million , or 7 % , primarily due to improvements in volume , product mix , and lower raw material costs , specifically relating to the price of base oil , which resulted in increased gross profit . specialty ingredients ' adjusted ebitda results decreased $ 51 m-1 million , or 10 % , primarily as a result of decreased gross profit from lower volume levels and pricing driven by results within the energy market . performance materials ' adjusted ebitda results decreased by $ 30 million , or 21 % , as lower pricing , primarily within intermediates/solvents , was only partially offset by lower production costs , resulting in decreased gross profit . the following discussion outlines significant transactions announced or executed during 2016 . ashland separation of valvoline on september 22 , 2015 , ashland announced that the board of directors approved proceeding with a plan to separate ashland into two independent , publicly traded companies comprising of the new ashland ( now known as ashland global holdings inc. ) and valvoline inc. the initial step of the separation , the initial public offering of valvoline inc. , closed on september 28 , 2016. the new ashland is a premier global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets . these markets are currently served by specialty ingredients and performance materials . key markets and applications include pharmaceutical , personal care , food and beverage , architectural coatings , adhesives , automotive , construction and energy . valvoline inc. , a controlled subsidiary , operates on a stand-alone basis as a premium consumer-branded lubricant supplier . the following transactions occurred in order to facilitate and as a result of the separation : ashland global holdings inc. replaced ashland inc. as the publicly held corporation and that , through its subsidiaries , conducts all of the operations previously operated by ashland inc. each outstanding share of ashland inc. common stock was converted into the right to receive one share of ashland global holdings inc. common stock . the exchange of ashland inc. common stock for shares of ashland global holdings inc. common stock was a tax-free transaction for ashland shareholders . on september 22 , 2016 , ashland and valvoline inc. announced the pricing of an initial public offering ( ipo ) of 30 million shares of valvoline inc. 's common stock at a price to the public of $ 22.00 per share and closed the ipo on september 28 , 2016. the underwriters exercised an option to purchase an additional 4.5 million shares of valvoline inc. 's common stock to cover over-allotments . after completing the ipo , ashland now owns 170 million shares of valvoline inc. 's common stock , representing approximately 83 % of the total outstanding shares of valvoline inc. 's common stock . valvoline inc. 's common stock is listed on the new york stock exchange under the symbol “ vvv ” . the total net proceeds after deducting underwriters ' discount and other offering expenses received from the ipo were $ 712 million . these net proceeds were used primarily to repay debt incurred prior to the ipo and retained for valvoline inc. 's cash on hand . ashland presently intends to distribute the remaining valvoline inc. shares in 2017 following the release of march-quarter earnings results by both ashland and valvoline inc. during 2016 , ashland recognized separation costs of $ 88 million , which are primarily related to transaction and legal fees . story_separator_special_tag loans bear interest at libor plus 2.375 % per annum , in the case of libor borrowings , or at the alternate base rate plus 1.375 % , in the alternative , through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between libor plus 1.500 % per annum and libor plus 2.500 % per annum ( or between the alternate base rate plus 0.500 % per annum and the alternate base rate plus 1.500 % per annum ) , based upon valvoline inc. 's corporate credit ratings or the consolidated first lien net leverage ratio ( as defined in the valvoline credit agreement ) ( whichever yields a lower applicable interest rate margin ) at such time . in addition , valvoline inc. is required to pay fees of 0.375 % per annum on the daily unused amount of the 2016 revolving credit facility through and including the date of delivery of a compliance certificate , and thereafter the fee rate will fluctuate between 0.200 % and 0.500 % per annum , based upon the valvoline inc. 's corporate credit ratings or the consolidated first lien net leverage ratio ( whichever yields a lower applicable rate ) . during september 2016 , valvoline inc. borrowed $ 875 million of principal on the 2016 term loan facility and $ 137 million on the 2016 revolving credit facility . the net proceeds of these borrowings of $ 865 million ( after deducting fees and expenses ) for the 2016 term loan facility and $ 137 million for the 2016 revolving credit facility were transferred to ashland . with these m-3 proceeds , ashland repaid $ 785 million of its 2015 term loan facility , $ 150 million of the 2015 revolving credit facility and $ 45 million of its accounts receivable securitization . valvoline inc. used $ 637 million of the net proceeds of its september 2016 ipo to repay $ 500 million of the outstanding balance under its 2016 term loan facility and all of the $ 137 million outstanding balance of its 2016 revolving credit facility . see note b of notes to consolidated financial statements for more information on the ipo of valvoline inc. common stock . valvoline inc. incurred $ 10 million of new debt issuance costs in connection with the valvoline credit agreement . these debt issuance costs were capitalized and will be amortized over the term of the valvoline credit agreement using the effective interest method . additionally , as a result of the $ 500 million repayment of the valvoline 2016 term loan facility , valvoline inc. recognized a $ 4 million charge for the accelerated amortization of previously capitalized debt issuance costs , which is included in the net interest and other financing expense caption of the statements of consolidated comprehensive income . valvoline senior notes during july 2016 , valvoline completed its issuance of 5.500 % senior unsecured notes due 2024 ( 2024 notes ) with an aggregate principal amount of $ 375 million . valvoline incurred $ 6 million of new debt issuance costs in connection with the issuance of the 2024 notes . these debt issuance costs were capitalized and will be amortized over the term of the 2024 notes using the effective interest method . during july 2016 , the net proceeds of the offering of $ 370 million ( after deducting initial purchasers ' discounts ) were transferred to ashland . ashland used these proceeds to repay $ 110 million of the outstanding balance under ashland 's 2015 revolving credit facility and $ 260 million of 2015 term loan facility . valvoline credit ratings in connection with the valvoline financing activities discussed above , valvoline inc. was assigned a preliminary rating by standard & poor 's of bb- , while moody 's investor services rated valvoline finco two as ba2 . upon completing the ipo , standard & poor 's upgraded the rating to bb . standard & poor 's also updated the outlook to stable , while moody 's investor services ' outlook was stable . subsequent changes to these ratings are possible and may have an effect on valvoline 's borrowing rate or ability to access capital markets in the future . stock repurchase programs in april 2015 , ashland 's board of directors approved a $ 1 billion share repurchase authorization ( the 2015 stock repurchase program ) , which expires on december 31 , 2017 , and replaced the march 2014 repurchase program . in november 2015 , under this new share repurchase program , ashland announced that it entered into an accelerated share repurchase agreement ( 2016 asr agreement ) with goldman , sachs & co. under the 2016 asr agreement , ashland paid an initial purchase price of $ 500 million and received an initial delivery of approximately 3.9 million shares of common stock during november 2015. in february 2016 , goldman , sachs & co. exercised their early termination option under the 2016 asr agreement and the pricing period was closed . the settlement price , which represents the weighted average price of ashland 's common stock over the pricing period less a discount , was $ 99.01 per share . based on this settlement price , the final number of shares repurchased by ashland that were delivered by goldman , sachs & co. under the 2016 asr agreement was 5.1 million shares . ashland received the additional 1.2 million shares during 2016 to settle the difference between the initial share delivery and the total number of shares repurchased . after the 2016 asr agreement , $ 500 million of share repurchase authorization remains under the 2015 stock repurchase program . pension and other postretirement benefit plans amendments and remeasurements during march 2016 , ashland announced plans to amend the majority of its u.s. pension plans , with the exception of certain union plans , to freeze the accrual of pension benefits for participants .
| consolidated review net income ( loss ) ashland 's net income ( loss ) is primarily affected by results within operating income , net interest and other financing expense , income taxes , discontinued operations and other significant events or transactions that are unusual or nonrecurring . operating income includes ashland 's adjustment for the immediate recognition of the change in the fair value of the plan assets and net actuarial gains and losses for defined benefit pension plans and other postretirement benefit plans each fiscal year . see “ critical accounting policies ” for additional details regarding ashland 's accounting policies for benefit plan obligations . key financial results for 2016 , 2015 and 2014 included the following : ashland 's net income attributable to ashland amounted to a loss of $ 29 million in 2016 , and income of $ 309 million in 2015 and $ 233 million in 2014 , or $ ( 0.46 ) , $ 4.48 and $ 3.00 diluted earnings ( loss ) per share , respectively . ashland 's net income attributable to noncontrolling interest amounted to $ 1 million in 2016 and reflects the noncontrolling interest of valvoline inc. for the three days between ipo close ( september 28 , 2016 ) and ashland 's fiscal year end . discontinued operations , which are reported net of taxes , resulted in a loss of $ 31 million during 2016 , and income of $ 118 million and $ 161 million during 2015 and 2014 , respectively . income from continuing operations , which excludes results from discontinued operations , amounted to $ 3 million in 2016 , $ 191 million in 2015 and $ 72 million in 2014 . the effective income tax expense rate of 98 % for 2016 , income tax benefit rate of 13 % for 2015 , and income tax benefit rate of 162 % for 2014 , were significantly affected by a number of discrete items .
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certain statements in this annual report on form 10-k that are not historical facts , but rather reflect the company 's current expectations concerning future results and events , constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. the words believes , expects , intends , plans , anticipates , hopes , likely , will , and similar expressions identify such forward-looking statements . such forward-looking statements involve known and unknown risks , uncertainties and other important factors that could cause the actual results , performance or achievements of the company , or industry results , to differ materially from future results , performance or achievements expressed or implied by such forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's view only as of the date of this form 10-k. the company undertakes no obligation to update the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events , conditions or circumstances . overview the company is a leading manufacturer of flexible metal hose , and is currently engaged in a number of different markets , including construction , manufacturing , transportation , petrochemical , pharmaceutical and other industries . the company 's business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose and accessories . the company 's products are concentrated in residential and commercial construction , and general industrial markets . the company 's primary product , flexible gas piping , is used for gas piping within residential and commercial buildings . through its flexibility and ease of use with patented fittings distributed under the trademark autoflare ® , tracpipe ® and tracpipe ® counterstrike ® flexible gas piping allows users to substantially cut the time required to install gas piping , as compared to traditional methods . most of the company 's products are manufactured at the company 's exton , pennsylvania facility with a minor amount of manufacturing performed in the united kingdom . a majority of the company 's sales across all industries are generated through independent outside sales organizations such as sales representatives , wholesalers and distributors , or a combination of both . the company has a broad distribution network in north america and to a lesser extent in other global markets . changes in financial condition cash and cash equivalents were $ 939,000 at december 31 , 2012 , compared to $ 3,476,000 at december 31 , 2011. the change is essentially a function of solid earnings from operations , plus insurance legal recovery funds , less a dividend payment . as stated in the company 's statement of operations , the company had net income during 2012 of $ 6,876,000 , which resulted in higher cash . a good portion of the company 's income was generated from ongoing operations . as disclosed in march 2012 , the company also received a $ 4,700,000 insurance legal recovery , which after considering its auxiliary costs such as taxes , served to increase the year 's income and cash by approximately $ 2,530,000. as a result of the strong cash position of the company as of september 2012 , which had a balance of $ 9,206,000 , as well as other factors , the board elected to pay a cash dividend to shareholders during december 2012 , which amounted to $ 10,092,000. it should also be mentioned that the board elected to allow the company to pay the bulk of the year 's earned incentive compensation during december 2012. accounts receivable was $ 12,134,000 at december 31 , 2012 , compared to $ 9,052,000 at december 31 , 2011 , increasing $ 3,082,000 , or 34.0 % . the majority of this increase is the result of higher sales during fourth quarter of 2012 , particularly in december , compared to the fourth quarter and december of 2011. the aging of the company 's receivables appears stable and consistent , and the company is not aware of any deterioration in the viability of its customer base which is regularly monitored . inventory has increased $ 663,000 or 10.3 % from december 31 , 2011. this was largely due to a ramp up in emerging product inventory , such as doubletrac® , to meet the increasing market demand in a timely manner . -12- accounts payable has increased $ 1,718,000 ( 168.6 % ) , ending at $ 2,737,000 at december 31 , 2012 , from a balance of $ 1,019,000 at december 31 , 2011. the company acquired a sizable amount of raw materials during the latter part of december 2012 , and those obligations , as well as a few other large invoices were still unpaid as of the end of the period , but all were still within normal payments terms . the change was therefore largely timing related , as the company typically pays all vendors within discount terms to ensure priority relationships . the line of credit had a balance of $ 324,000 at the end of december 2012 , but had no borrowings against it at the same point in 2011. as noted above , the company paid a significant dividend payment and also incentive compensation at the end of 2012 , which reduced cash and required the company to draw against the line . accrued compensation was $ 349,000 at december 31 , 2012 , decreasing $ 1,121,000 or 76.3 % from its balance of $ 1,470,000 at december 31 , 2011. the majority of this change relates to the incentive compensation payment discussed above , which was made during december 2012 , and was higher than the prior year in general as it changes in correlation with profits . accrued commissions and sales incentives were $ 3,671,000 and $ 2,098,000 at december 31 , 2012 and 2011 , respectively , increasing $ 1,573,000 or 75.0 % . story_separator_special_tag however , any significant decrease in residential construction activity may materially adversely affect the company 's financial condition . technological changes although the hvac industry has historically been impacted by technology changes in a relatively incremental manner , it can not be discounted that radical changessuch as might be suggested by fuel cell technology , burner technology and or other developing technologies which might impact the use of natural gascould materially adversely affect the company 's results of operations and or financial position in the future . weather conditions the company 's flagship tracpipe ® and counterstrike ® products are used in residential and commercial heating applications . as such , the demand for its products is impacted by weather as it affects the level of construction . furthermore , severe climatic changes , such as those suggested by the global climate change phenomenon , could over time adversely affect the demand for fossil fuel heating products and adversely affect the company 's results of operations and financial position . purchasing practices it has been the company 's policy in recent years to aggregate purchase volumes for high value commodities with fewer vendors to achieve maximum cost reductions while maintaining quality and service . this policy has been effective in reducing costs , but has introduced additional risk which could potentially result in short-term supply disruptions or cost increases from time to time in the future . -16- legal costs the company is subject to lawsuits mostly relating to claims of product liability . the company has in place insurance policies to cover the defense of most of these cases , and any amounts payable with respect thereto , are typically subject to deductibles or self-insured retention amounts that vary depending on the policy year . the company is vigorously defending these cases and is confident of prevailing in one or more lawsuits in the near term . however , continued litigation and the defense costs associated therewith , in addition to any other payments made , could affect the company 's results of operations , perhaps materially . supply disruptions and commodity risks the company uses a variety of materials in the manufacture of its products , including stainless steel , polyethylene and brass for its autoflare ® connectors . in connection with the purchase of commodities , principally stainless steel for manufacturing requirements , the company occasionally enters into one-year purchase commitments which include a designated fixed price or range of prices . these agreements typically require the company to accept delivery of the commodity in the quantities committed , at the agreed upon prices . transactions required for these commodities in excess of the one year commitments are conducted at current market prices at the company 's discretion . currently , the company does not have any fixed purchase commitment contracts , but may enter into such transactions in the future . in addition to the raw material cost strategy described above , the company enters into fixed pricing agreements for the fabrication charges necessary to convert these commodities into useable product . it is possible that prices may decrease below the fixed prices agreed upon and therefore require the company to pay more than market price , potentially materially . management believes at present that it has adequate sources of supply for its raw materials and components ( subject to the risks described above under purchasing practices ) and has historically not had significant difficulty in obtaining the raw materials , component parts or finished goods from its suppliers . the company is not dependent for any commodity on a single supplier , the loss of which would have a material adverse effect on its business . interest rate sensitivity - the company currently has access to a $ 10,000,000 line of credit ( loc ) with sovereign bank , na ( sovereign ) , and as of december 31 , 2012 , has drawn $ 324,000 on the line . when the company borrows against the loc , all amounts must be paid back with interest , using an interest rate range of libor plus 1.75 % to libor plus 2.75 % or prime less 0.50 % to prime plus 0.50 % , depending upon the company 's then existing financial ratios . the company may elect to use either the libor or prime rates . as of december 31 , 2012 , the actual rate to borrow was at 2.75 % . interest rates are also significant to the company as a participant in the residential construction industry , since interest rates can be a determinant factor on whether or not borrowing funds for building will be affordable to our customers . ( see construction activity , above ) . currently , interest rates are at historic lows , but any dramatic change to interest rates could have a detrimental effect on the business . retention of qualified personnel the company does not operate with multiple levels of management . it is relatively flat organizationally , which does subject the company to the risks associated with the loss of critical managers . from time to time , there may be a shortage of skilled labor , which may make it more difficult and expensive for the company to attract and retain qualified employees . the company is dependent upon the relatively unique talents and managerial skills of a small number of key executives . critical accounting policies and use of estimates financial reporting release no . 60 , released by the securities and exchange commission , requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements . note 2 in the notes to the consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements . the following is a brief discussion of the company 's more significant accounting policies .
| results of operations three-months ended december 31 , 2012 vs. december 31 , 2011 the company reported comparative results from continuing operations for the three-month period ended december 31 , 2012 and 2011 as follows : replace_table_token_1_th net sales . the company 's 2012 fourth quarter sales dollars increased $ 2,808,000 ( 18.0 % ) over the same period in 2011 , ending at $ 18,426,000 , compared to $ 15,618,000 for the same three months in 2011. volume , or units sold , increased approximately 24 % compared to the prior year quarter . pricing related decreases were however required due to the competitive nature of the market place , which lessened the impact of the surge in volume . during the fourth quarter of 2012 , the company had experienced sales growth simultaneously from various product lines . domestically , the company 's gas piping product , tracpipe® counterstrike® , had benefited from the improving construction environment , as everything from single homes to high-rises and hospitals look to install gas piping to keep energy costs down . additionally , the company 's emerging doubletrac® and def-trac® double-containment piping systems have thrived , as the world moves towards more environmentally friendly solutions . internationally , despite the soft economy , the company 's long standing gas piping product tracpipe® also showed signs of growth . gross profit . the company 's gross profit margins increased between the two periods , being 52.6 % and 51.2 % for the three-months ended december 31 , 2012 and 2011 , respectively . selling expenses . selling expenses consist primarily of employee salaries and associated overhead costs , commissions , and the cost of marketing programs such as advertising , trade shows and related communication costs , and freight .
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for service agreements , the company generally invoices customers at the beginning of the coverage period and record revenue related to the billed amounts over time , equivalent to the coverage period of the maintenance and support contract . deferred revenue is comprised mainly of unearned revenue related to extended support and maintenance contracts ( ekso care ) but also includes other offerings for which the company has been paid in advance and earns revenue when the company transfers control of the product or service . deferred revenues consisted of the following : 62 ekso bionics holdings , inc. notes to consolidated financial statements ( in thousands , except per share amounts ) replace_table_token_18_th deferred revenue activity consisted of the following : december 31 , 2018 beginning balance $ 1,919 deferral of revenue 2,230 recognition of deferred revenue ( 1,552 ) ending balance $ 2,597 at december 31 , 2018 , the company 's deferred revenue , was $ 2,597 . excluding customer deposits , the company expects to recognize approximately story_separator_special_tag the following discussion contains forward-looking statements . actual results may differ significantly from those projected in the forward-looking statements . factors that might cause future results to differ materially from those projected in the forward-looking statements include , but are not limited to , those discussed in `` risk factors '' and elsewhere in this report . see also `` cautionary note regarding forward-looking statements . '' overview the following discussion highlights the results of our operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described , and provides information that management believes is relevant for an assessment and understanding of our financial condition and results of operations presented herein . the following discussion and analysis is based on our audited consolidated financial statements contained in this annual report on form 10-k , which have been prepared in accordance with generally accepted accounting principles in the united states . you should read the discussion and analysis together with such financial statements and the related notes thereto . story_separator_special_tag increase adoption . all rentals or sales also include customer training , comprised of both on-line and in-person training of our customers ' physical therapists , to get our customers comfortable using our product and understanding its functionality . we have continued to progress toward our goal with the roll out of our latest breakthrough innovation , smartassist . smartassist can aid in promoting early mobility by training patients ( pregait ) to walk in an exoskeleton , which should expand access to care to more patients . smartassist also includes next generation variableassist technology that provides more freedom for healthcare providers to allow patients to power themselves ( freegait ) in the most appropriate ways possible . additionally , we have strengthened our competitive position as an exoskeleton manufacturer in medical rehabilitation by introducing a cloud-based software platform named eksopulse analytics , which gathers and transmits statistics and device information in real time during ekso gt walking sessions . this feature enables more thorough patient care while reducing manual data entry . it also enables us to provide a higher level of service through early identification and thorough reporting of device errors , saving customers the time and expense of unnecessary on-site visits . most recently , we also integrated fes interface capability with our ekso gt for use by clinicians in emea . in parallel to the development and early commercialization of medical exoskeletons , we have commercialized exoskeletons for able-bodied users , specifically for industrial and construction applications . according to a bureau of labor statistics report ( 2012 ) , the u.s. spends over $ 21 billion per year on workplace related injuries . our long-term goal is to build industrial products to significantly improve workforce productivity while dramatically reducing workplace related injuries and keeping workers healthy , strong , and safe . we took our first step toward this goal in 2016 with the introduction of the eksozerog , and in 2017 , built upon that experience with the commercial rollout of the eksovest , an upper body exoskeleton that elevates and supports a worker 's arms to assist them with tasks ranging from chest height to overhead while enabling freedom of motion . in 2018 , we continued to improve our industrial products while working to increase the rate of commercial adoption . in order to build the exoskeleton industry and solidify our position as the industry leader , we will continue to act quickly and decisively with strong conviction and resolve . our long-term goals of leadership in rehabilitation and industrial will require rapid innovation in areas where we already have strong experience , as well as parallel technologies that will enhance or accelerate our business . critical accounting policies , estimates , and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we continually evaluate our estimates and judgments . we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known . besides the estimates identified below that are considered critical , we make many other accounting estimates in preparing our financial statements and related disclosures . all estimates , whether or not deemed critical , affect reported amounts of assets , liabilities , revenues and expenses , as well as disclosures of contingent liabilities . these estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances . story_separator_special_tag business combinations 39 we account for business combinations under the acquisition method of accounting in accordance with accounting standards codification , or asc , 805 , business combinations , where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values . the purchase price is allocated using the information currently available , and may be adjusted , up to one-year from the acquisition date , after obtaining more information regarding , among other things , asset valuations , liabilities assumed and revisions to preliminary estimates . contingent consideration , if any , is recorded at the acquisition date based upon the estimated fair value of the contingent payments . the fair value of the contingent consideration is re-measured each reporting period with any adjustments in fair value being recognized in our consolidated statement of operations and comprehensive loss . the purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill . going concern we assess our ability to continue as a going concern at every interim and annual period in accordance with asc 205-40 , presentation of financial statements – going concern . the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern . 40 comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 ( dollars in thousands ) : replace_table_token_3_th revenue revenue increased $ 4.0 million , or 54 % , for the year ended december 31 , 2018 , compared to the same period of 2017 . this increase was made up of a $ 3.0 million increase in medical device revenue and $ 1.0 million increase in industrial device revenue , primarily due to a higher volume of industrial device sales and medical device rentals . gross profit gross profit increased $ 2.2 million , or 108 % , for the year ended december 31 , 2018 compared to the same period of 2017 , primarily due to higher sales volume and average selling price of medical devices . operating expenses sales and marketing expenses increased $ 0.7 million , or 5 % , for the year ended december 31 , 2018 , compared to the same period of 2017 . this was primarily due to $ 0.4 million of severance costs related to the departures of the president of our eksoworks business unit , our chief marketing officer and other marketing employees , and a $ 0.3 million increase in clinical research activity . research and development expenses decreased $ 3.6 million , or 38 % , for the year ended december 31 , 2018 , compared to the same period of 2017 , primarily due to lower employment costs as a result of the company-wide reduction in workforce in may 2017. general and administrative expenses increased $ 1.0 million , or 9 % , for the year ended december 31 , 2018 , compared to the same period of 2017 . this increase was primarily due to severance expense of $ 0.7 million and additional stock-based compensation expense from the modification of equity awards of $ 0.7 million related to the departure of the chief executive officer and chief financial officer and higher legal expense , partially offset by lower employment and consulting expenses as a result of the company-wide reduction in workforce in may 2017 . 41 restructuring expense of $ 0.7 million for the year ended december 31 , 2017 included employee severance payments of $ 0.4 million , stock compensation expense of $ 0.2 million related to restricted stock units issued to terminated employees , and $ 0.1 million of other related severance related benefits . there was no comparable amount during the same period in 2018 . change in fair value , contingent liabilities decreased $ 0.3 million , or 89 % , for the year ended december 31 , 2018 compared to the same period of 2017 . this was due to the decrease in the fair value of the contingent consideration liability related to equipois sales earn-outs as the obligation was no longer contingent as of december 31 , 2018 and fair value of contingent success fee related to the outstanding debt with our lender in conformance with the decrease in our stock price . other income , net gain on revaluation of warrant liabilities of $ 1.1 million for the year ended december 31 , 2018 , related to warrants issued in 2015. gain on revaluation of warrant liabilities of $ 3.9 million for the year ended december 31 , 2017 , related to warrants issued in 2015 and 2017. gains and losses on revaluation of warrants are primarily driven by changes in our stock price . loss on repurchase of warrants of $ 1.1 million for the year ended december 31 , 2017 , was associated with the difference in the fair value of the april 2017 warrants on the date of repurchase and the repurchase price . there was no comparable amount during the same period in 2018 . other ( expense ) income , net decreased $ 0.7 million , or 244 % , for the year ended december 31 , 2018 , compared to the same period of 2017 , due to unrealized gains and losses on foreign currency revaluations of monetary assets and liabilities . financial condition , liquidity and capital resources since our inception , we have devoted our efforts toward the development of exoskeletons for the medical and industrial markets , toward the commercialization of our medical exoskeletons to rehabilitation centers and toward raising capital . we have financed our operations primarily through the issuance and sale of equity securities for cash consideration and through bank debt . cash and working capital cash on hand at december 31 , 2018 was $ 7.7 million , compared to $ 27.8 million at december 31 , 2017 .
| financial highlights in april 2017 , we sold 3,732,356 shares of our common stock and warrants to purchase 1,866,178 shares of common stock with an exercise price of $ 4.10 per share , or the april 2017 warrants for aggregate net proceeds of $ 10.9 million . in august 2017 , we sold an aggregate of 34.0 million shares of our common stock for net proceeds of $ 33.7 million . in connection with this offering , we repurchased the april 2017 warrants . in august 2018 , we announced additional purchase orders by ford motor company for the eksovest as part of an expanded initiative to help reduce the physical toll of repeated overhead tasks among ford assembly line workers , in which eksovest was supplied to 15 ford assembly plants in seven countries . in august 2018 , we entered into a controlled equity offering sm sales agreement , or the atm agreement , under which we may issue and sell shares of our common stock , having an aggregate offering price of up to $ 25.0 million . in the year ended december 31 , 2018 , we sold 2.0 million shares of our common stock under the atm agreement at an average price of $ 2.39 per share , for aggregate proceeds of $ 4.4 million , net of commission and issuance costs , to us . in december 2018 , we secured purchase orders for the eksovest from two global aerospace manufacturers to create and expand pilot programs , respectively . the assistive devices will be piloted by workers on the assembly production lines of commercial and defense airplanes to enhance safety , reduce fatigue and risk of injury . in january 2019 , we entered into the china jv to develop and serve the exoskeleton market in china and other asian markets and to create a global exoskeleton manufacturing center .
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discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this annual report on form 10-k may be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on march 15 , 2019. the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document . overview we design , develop , manufacture and ship control and sensor technology solutions and a broad line of pre-programmed and universal control products , audio-video ( `` av '' ) accessories , and intelligent wireless security and smart home products that are used by the world 's leading brands in the consumer electronics , subscription broadcasting , home entertainment , automation , security , hospitality and climate control markets . our offerings include : easy-to-use , pre-programmed universal infrared ( `` ir '' ) and radio frequency ( `` rf '' ) remote controls that are sold primarily to subscription broadcasting providers ( cable , satellite and internet protocol television ( `` iptv '' ) and over the top services ) , original equipment manufacturers ( `` oems '' ) , retailers , and private label customers ; integrated circuits , on which our software and universal device control database is embedded , sold primarily to oems , subscription broadcasting providers , and private label customers ; software , firmware and technology solutions that can enable devices such as tvs , set-top boxes , audio systems , smartphones , tablets , game controllers and other consumer electronic devices to wirelessly connect and interact with home networks and interactive services to control and deliver digital entertainment and information ; intellectual property which we license primarily to oems , software development companies , private label customers , and subscription broadcasting providers ; proprietary and standards-based rf sensors designed for residential security , safety and automation applications ; wall-mount and handheld thermostat controllers and connected accessories for intelligent energy management systems , primarily to oem customers as well as hospitality system integrators ; and av accessories sold , directly and indirectly , to consumers . since our beginning in 1986 , we have compiled an extensive device control knowledge library that includes nearly 9,000 brands comprising over 800,000 device models across av and smart home platforms , supported by many common smart home protocols , including ir , hdmi-cec , zigbee , and home network or cloud control . this device knowledge graph is backed by our unique device fingerprinting technology which includes over 700,000 unique device fingerprints across both av and smart home devices . our technology also includes other remote controlled home entertainment devices and home automation control modules , as well as wired consumer electronics control ( `` cec '' ) and wireless internet protocol ( `` ip '' ) control protocols commonly found on many of the latest hdmi and internet connected devices . our proprietary software automatically detects , identifies and enables the appropriate control commands for any given home entertainment , automation and air conditioning device in the home . our libraries are continuously updated with device control codes used in newly introduced av and internet of things ( `` iot '' ) devices . these control codes are captured directly from original remote control devices or from the manufacturer 's written specifications to ensure the accuracy and integrity of the library . our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than similarly priced products of our competitors . we operate as one business segment . we have 2 domestic subsidiaries and 24 international subsidiaries located in argentina , brazil , british virgin islands , cayman islands , france , germany , hong kong ( 3 ) , india , italy , japan , korea , mexico , the netherlands , people 's republic of china ( the `` prc '' ) ( 6 ) , singapore , spain and the united kingdom . to recap our results for 2019 : net sales increased 10.8 % to $ 753.5 million in 2019 from $ 680.2 million in 2018 . our gross profit percentage increased to 22.6 % in 2019 from 20.8 % in 2018 . operating expenses , as a percent of sales , decreased to 20.6 % in 2019 from 21.1 % in 2018 . operating income increased to $ 15.3 million in 2019 from an operating loss of $ 1.7 million in 2018 , and our operating margin percentage increased to 2.0 % in 2019 , compared to an operating deficit of 0.2 % in 2018 . 29 our effective tax rate increased to 65.1 % in 2019 from 54.4 % in 2018 . our strategic business objectives for 2020 include the following : continue to develop and market the advanced remote control products and technologies our customer base is adopting ; continue to broaden our home control and home automation product offerings ; further penetrate international subscription broadcasting markets ; acquire new customers in historically strong regions ; increase our share with existing customers ; and continue to seek acquisitions or strategic partners that complement and strengthen our existing business . we intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those financial statements from period to period , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . story_separator_special_tag sales allowances are recognized as reductions of gross accounts receivable to arrive at accounts receivable , net if the sales allowances are distributed in customer account credits . we present all non-income government-assessed taxes ( sales , use and value added taxes ) collected from our customers and remitted to governmental agencies on a net basis ( excluded from revenue ) in our financial statements . the government-assessed taxes are recorded in our consolidated balance sheets until they are remitted to the government agency . adoption of revenue recognition standard - on january 1 , 2018 , we adopted accounting standards update ( `` asu '' ) 2014-09 , `` revenue from contracts with customers , '' and all related amendments . the guidance provides a single , comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance . the primary impact to our revenue recognition policies resulting from this standard relates to the timing of revenue recognition for products which are customized for a specific customer . results for reporting periods beginning after january 1 , 2018 are presented under the new standard while prior periods have not been adjusted . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments for products sold or services rendered . the allowance for doubtful accounts is estimated based on a variety of factors , including credit reviews , historical experience , length of time receivables are past due , current economic trends and changes in customer payment behavior . we also record specific provisions for individual accounts when we become aware of a customer 's inability to meet its financial obligations to us , such as in the case of bankruptcy filings or deterioration in the customer 's operating results or financial position . our historical reserves have been sufficient to cover losses from uncollectible accounts . however , because we can not predict future changes in the financial stability of our customers , actual future losses from uncollectible accounts may differ from our estimates and may have a material effect on our consolidated financial position , results of operations and cash flows . inventories our finished good , component part , and raw material inventories are valued at the lower of cost or net realizable value . cost is determined using the first-in , first-out method . we write down our inventory for the estimated difference between cost and estimated net realizable value based upon our best estimates of future demand and market conditions . we carry inventory in amounts necessary to satisfy our customers ' inventory requirements on a timely basis . we continually monitor our inventory status to control inventory levels and write down any excess or obsolete inventories on hand . if actual market conditions become less favorable than those projected by management , additional inventory write-downs may be required , which may have a material impact on our financial statements . such circumstances may include , but are not limited to , the development of new competing technology that impedes the marketability of our products or the occurrence of significant price decreases in our raw material or component parts , such as integrated circuits . each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $ 1.6 million . 31 valuation of long-lived assets and intangible assets we assess long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable . factors considered important which may trigger an impairment review , if significant , include the following : underperformance relative to historical or projected future operating results ; changes in the manner of use of the assets ; changes in the strategy of our overall business ; negative industry or economic trends ; a decline in our stock price for a sustained period ; and a variance between our market capitalization relative to net book value . if the carrying value of the asset is larger than its projected undiscounted future cash flows , the asset is impaired . the impairment is measured as the difference between the net book value of the asset and the asset 's estimated fair value . fair value is estimated utilizing the asset 's projected discounted future cash flows . in assessing fair value , we must make assumptions regarding estimated future cash flows , the discount rate and other factors . goodwill we evaluate the carrying value of goodwill on december 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount . such circumstances may include , but are not limited to : ( 1 ) a significant adverse change in legal factors or in business climate , ( 2 ) unanticipated competition or ( 3 ) an adverse action or assessment by a regulator . effective in the year ended december 31 , 2019 , we perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors . based on the qualitative assessment performed , considering the aggregation of the relevant factors , we concluded that it is not more likely than not that the fair value of our single reporting unit is less than the carrying value . therefore , performing a quantitative impairment test was unnecessary . certain future events and circumstances , including adverse changes in general business and economic conditions in the united states and worldwide and changes in consumer behavior could result in changes to our assumptions and judgments used in the goodwill impairment tests . a downward revision of these assumptions could cause the fair value of the reporting unit to fall below its respective carrying values and a noncash impairment charge would be required .
| results of operations the following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated . replace_table_token_4_th year ended december 31 , 2019 ( `` 2019 `` ) compared to year ended december 31 , 2018 ( `` 2018 `` ) net sales . net sales for 2019 were $ 753.5 million , an increase of 10.8 % compared to $ 680.2 million in 2018 . the increase in net sales was primarily due to the recent launches of higher end platforms by existing customers in the subscription broadcasting channel , a newly acquired customer and continued strength in home automation . gross profit . gross profit in 2019 was $ 170.2 million compared to $ 141.8 million in 2018 . gross profit as a percent of sales increased to 22.6 % in 2019 from 20.8 % in 2018 . the gross profit percentage was favorably impacted by product mix as small- to medium-sized subscription broadcasters launched advanced platforms ; an increase in royalty revenue as certain consumer electronic companies are embedding our technology in their devices ; lower raw material costs during 2019 ; and foreign currency as the u.s. dollar strengthened by approximately 400 basis points versus the chinese yuan renminbi . the gross profit percentage was unfavorably impacted by higher u.s. tariffs on many of our products that are manufactured in the prc and imported into the u.s. in an effort to mitigate the effect of the increased tariffs , we transitioned the production of many of our goods destined for the u.s. market from our prc factories to our factory in mexico . in connection with this transition , which began in the fourth quarter of 2018 , we incurred costs related to the movement of materials , duplicative labor efforts and indirect costs including unabsorbed duplicative overhead . 34 research and development ( `` r & d '' ) expenses .
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