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the following table shows the company 's commercial loan portfolio as of december 31 , 2012 and 2011 , by the risk ratings discussed above ( in thousands ) : replace_table_token_43_th replace_table_token_44_th this table does not include consumer or residential loans or leases because they are evaluated on their performing status . -71- allowance for loan and lease losses the following table details activity in the allowance for loan and lease losses by portfolio segment and the related recorded investment in loans and leases for the year ended december 31 , 2012 , 2011 and 2010 : replace_table_token_45_th ( story_separator_special_tag this section presents a review of lakeland bancorp , inc. 's consolidated results of operations and financial condition . you should read this section in conjunction with the selected consolidated financial data that is presented on the preceding page as well as the accompanying consolidated financial statements and notes to financial statements . as used in the following discussion , the term company refers to lakeland bancorp , inc. and lakeland refers to the company 's wholly owned banking subsidiarylakeland bank . statements regarding forward-looking information the information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the private securities litigation reform act of 1995 with respect to credit quality ( including delinquency trends and the allowance for loan and lease losses ) , corporate objectives , and other financial and business matters . the words anticipates , projects , intends , estimates , expects , believes , plans , may , will , should , could , and other similar expressions are intended to identify such forward-looking statements . the company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made , and are subject to numerous assumptions , risks and uncertainties , all of which may change over time . actual results could differ materially from such forward-looking statements . in addition to the risk factors disclosed elsewhere in this document , the following factors , among others , could cause the company 's actual results to differ materially and adversely from such forward-looking statements : changes in the financial services industry and the u.s. and global capital markets , changes in economic conditions nationally , regionally and in the company 's markets , the nature and timing of actions of the federal reserve board and other regulators , the nature and timing of legislation affecting the financial services industry including but not limited to the dodd-frank wall street reform and consumer protection act of 2010 , government intervention in the u.s. financial system , changes in levels of market interest rates , pricing pressures on loan and deposit products , credit risks of the company 's lending and leasing activities , customers ' acceptance of the company 's products and services and competition . the above-listed risk factors are not necessarily exhaustive , particularly as to possible future events , and new risk factors may emerge from time to time . certain events may occur that could cause the company 's actual results to be materially different than those described in the company 's periodic filings with the securities and exchange commission . any statements made by the company that are not historical facts should be considered to be forward-looking statements . the company is not obligated to update and does not undertake to update any of its forward-looking statements made herein . critical accounting policies , judgments and estimates the accounting and reporting policies of the company and lakeland conform with accounting principles generally accepted in the united states of america ( u.s . gaap ) and predominant practices within the banking industry . the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements . these estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period . actual results could differ from these estimates . significant estimates implicit in these financial statements are as follows . for additional accounting policies and detail , refer to note 1 to the consolidated financial statements included in item 8 of this report . allowance for loan and lease losses . the allowance for loan and lease losses is established through a provision for loan and lease losses charged to expense . loan principal considered to be uncollectible by management is charged against the allowance for loan and lease losses . the allowance is an amount that management believes will be adequate to absorb losses on existing loans and leases that may become -26- uncollectible based upon an evaluation of known and inherent risks in the loan and lease portfolio . the evaluation takes into consideration such factors as changes in the nature and size of the loan and lease portfolio , overall portfolio quality , specific problem loans and leases , and current economic conditions which may affect the borrowers ' ability to pay . the evaluation also analyzes historical losses by loan and lease category , and considers the resulting loss rates when determining the reserves on current loan and lease total amounts . loss estimates for specified problem loans and leases are also detailed . all of the factors considered in the analysis of the adequacy of the allowance for loan and lease losses may be subject to change . to the extent actual outcomes differ from management estimates , additional provisions for loan and lease losses may be required that would adversely impact earnings in future periods . loans and leases are considered impaired when , based on current information and events , it is probable that lakeland will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . story_separator_special_tag therefore , no step one test was required . story_separator_special_tag size= '' 2 '' style= '' font-family : times new roman '' > the following table reflects the components of the company 's net interest income , setting forth for the years presented , ( 1 ) average assets , liabilities and stockholders ' equity , ( 2 ) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities , ( 3 ) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities , ( 4 ) the company 's net interest spread ( i.e. , the average yield on interest-earning assets less the average cost of interest-bearing liabilities ) and ( 5 ) the company 's net interest margin . rates are computed on a tax equivalent basis assuming a 35 % tax rate . consolidated statistics on a tax equivalent basis replace_table_token_6_th ( a ) includes non-accrual loans , the effect of which is to reduce the yield earned on loans , and deferred loan fees . ( b ) includes interest-bearing cash accounts . ( c ) net interest income on a tax equivalent basis divided by interest-earning assets . interest income on a tax equivalent basis decreased from $ 118.6 million in 2011 to $ 111.9 million in 2012 , a decrease of $ 6.7 million , or 6 % . the decrease in interest income was due to a 34 basis point decrease in the average yield on interest-earning assets , as a result of loans being refinanced at lower rates and lower yields on new loans and investments . the yield on average loans and leases at 4.85 % in 2012 was 39 basis points lower than 2011. the yield on average taxable and tax-exempt investment securities decreased by 39 basis points to 1.97 % and 40 basis points to 3.98 % , respectively , in 2012 . -30- interest income on a tax equivalent basis decreased from $ 126.7 million in 2010 to $ 118.6 million in 2011 , a decrease of $ 8.1 million , or 6 % . the decrease in interest income was due to a 34 basis point decrease in the average yield on interest-earning assets , as a result of loans being refinanced at lower rates and lower yields on new loans and investments . the yield on average loans and leases at 5.24 % in 2011 was 35 basis points lower than 2010. the yield on average taxable and tax-exempt investment securities decreased by 36 basis points to 2.36 % and 52 basis points to 4.38 % , respectively , in 2011. total interest expense decreased from $ 20.1 million in 2011 to $ 15.4 million in 2012 , a decrease of $ 4.7 million , or 23 % . average interest-bearing liabilities decreased $ 6.3 million while the cost of those liabilities decreased from 0.96 % in 2011 to 0.74 % in 2012. the decrease in yield was due primarily to the continuing low rate environment and a $ 71.1 million reduction in higher yielding time deposits as customers preferred to keep their deposits in short-term transaction accounts . additionally , higher yielding average borrowings decreased $ 34.9 million to $ 237.8 million in 2012. contributing to the decrease in borrowings was a payment early in the fourth quarter of 2012 of a $ 25.8 million subordinated debenture with a yield of 7.535 % . the decrease in time deposits and borrowings was offset by increases in savings accounts , interest-bearing transaction accounts , and non-interest bearing deposits of $ 17.1 million , $ 82.6 million , and $ 52.0 million , respectively . total interest expense decreased from $ 25.9 million in 2010 to $ 20.1 million in 2011 , a decrease of $ 5.8 million , or 22 % . average interest-bearing liabilities decreased $ 42.6 million and the cost of those liabilities decreased from 1.21 % in 2010 to 0.96 % in 2011. the decrease in yield was due primarily to the continuing low rate environment and a $ 56.3 million reduction in higher yielding time deposits as customers preferred to keep their deposits in short-term transaction accounts . the decrease in time deposits was offset by increases in savings accounts , interest-bearing transaction accounts , and non-interest bearing deposits of $ 13.0 million , $ 6.7 million , and $ 62.7 million , respectively . net interest margin net interest margin is calculated by dividing net interest income on a fully taxable equivalent basis by average interest-earning assets . the company 's net interest margin was 3.70 % , 3.85 % and 3.95 % for 2012 , 2011 and 2010 , respectively . the decrease in net interest margin from 2011 to 2012 and from 2010 to 2011 was primarily a result of the decrease in yield on interest-earning assets . the net interest margins for 2012 , 2011 and 2010 would have been 3.78 % , 3.94 % and 4.02 % , respectively , had all of the non-accrual loans performed in accordance with their terms . provision for loan and lease losses in determining the provision for loan and lease losses , management considers national and local economic conditions ; trends in the portfolio including orientation to specific loan types or industries ; experience , ability and depth of lending management in relation to the complexity of the portfolio ; adequacy and adherence to policies , procedures and practices ; levels and trends in delinquencies , impaired loans and leases and net charge-offs and the results of independent third party loan review .
| financial overview the year ended december 31 , 2012 represented a year of continued growth for the company . as discussed in this management 's discussion and analysis : net income available to common shareholders increased $ 3.4 million or 19 % to $ 21.1 million in 2012. total loans increased $ 105.9 million , or 5 % , from 2011 to 2012. core deposits increased $ 177.1 million , or 9 % , to $ 2.07 billion at year end 2012 and represented 87 % of total deposits at december 31 , 2012 compared to 84 % at december 31 , 2011. total noninterest-bearing deposits of $ 498.1 million increased $ 48.5 million , or 11 % , from 2011. the company redeemed its remaining 19,000 shares of its fixed rate cumulative preferred stock , series a originally issued to the u.s. department of the treasury under the troubled asset relief program capital purchase program ( cpp ) . as a result of cpp repayments , dividends on preferred stock and accretion of the preferred stock discount declined from $ 2.2 million in 2011 to $ 620,000 in 2012. in 2012 , the company also repurchased the outstanding common stock warrant previously issued to the treasury for a price of $ 2.8 million , completing the company 's participation in the treasury 's cpp . in september 2012 , the company received $ 25.0 million in net proceeds from common stock offerings which allowed the company to increase its tangible equity . on october 7 , 2012 the company redeemed $ 25.8 million in subordinated debentures that had a coupon rate of 7.535 % . non-performing assets declined $ 21.7 million , or 43 % , to $ 28.5 million at december 31 , 2012 compared to december 31 , 2011. the allowance for loan and lease losses at december 31 , 2012 was 103 % of non-performing loans compared to 58 % at december 31 , 2011 .
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when a hardware client device and licenses to host software are sold in a contract , they are treated as a single performance obligation because the software license is deemed to be a component of the hardware that is integral to the functionality of the hardware that is used by our customers for identity f-12 onespan inc. notes to consolidated financial statements – ( continued ) ( amounts in thousands , except per share data ) authentication . when a software client device is sold in a contract with host software , the licenses are considered a single performance obligation to deliver the authentication solution to the customer . in either of these types of arrangements , maintenance and support story_separator_special_tag ( in thousands , except head count , ratios , time periods and percentages ) the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1a and elsewhere in this form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . please see “ cautionary statement for purposes of the safe harbor provisions of the private securities litigation reform act of 1995 ” at the beginning of this form 10-k. the company has excluded discussion of the comparison of the years ended december 31 , 2018 and 2017 from this form 10-k. , which can be found in the annual report on form 10-k for the period ended december 31 , 2018 , filed on march 15 , 2019. overview we design , develop and market digital solutions for identity , security , and business productivity that protect and facilitate electronic transactions via mobile and connected devices . we are a global leader in providing anti-fraud and digital transaction management solutions to financial institutions and other businesses . our solutions secure access to online accounts , data , assets , and applications for global enterprises ; provide tools for application developers to easily integrate security functions into their web-based and mobile applications ; and facilitate end-to-end financial agreement automation including digital identity verification , customer due diligence , electronic signature , secure storage , and document management . our trusted identity platform technologies including intelligent adaptive authentication , risk analytics and secure agreement automation , along with our various multi-factor authentication , mobile app security and transaction signing technologies , enhance the ability of companies to prevent hacking attacks against online and mobile transactions and to safely transact business with remote customers . we offer cloud based and on-premises solutions using both open standards and proprietary technologies . some of our proprietary technologies are patented . our products and services are used for authentication , fraud mitigation , e-signing transactions and documents , and identity management in business-to-business ( “ b2b ” ) , business-to-employee ( “ b2e ” ) and business-to-consumer ( “ b2c ” ) environments . our target market is business processes using an electronic 27 interface , particularly the internet , where there is risk of account takeover or new account fraud . our products can increase security associated with accessing business processes , reduce losses from unauthorized access , and reduce the cost of the process by automating activities previously performed manually . online and mobile application owners and publishers benefit from our expertise in multi-factor authentication , document signing , transaction signing , application security , and in mitigating hacking attacks . our convenient and proven security solutions enable low friction and trusted interactions between businesses , employees , and consumers across a variety of online and mobile platforms . our primary growth strategy is to make digital banking more accessible , secure , easy and valuable . our key growth objectives include : · expanding our portfolio of services that enable institutions to mitigate fraud , comply with regulations , easily on-board customers , and adaptively authenticate transactions ; · automating and securing digital customer journeys with secure agreement automation to remotely verify identities , mitigate application fraud and secure account opening and transactions ; · increasing sales to existing customers and acquiring new customers ; · driving increased demand for our products in new applications , new markets , and new territories ; · expanding our channel partner ecosystem ; and · strategically acquiring companies that expand our technology portfolio or customer base and increase our recurring revenue . our business model we offer our products through a product sales and licensing model or through our services platform , which includes our cloud-based service offering . our solutions are sold worldwide through our direct sales force , as well as through distributors , resellers , systems integrators , and original equipment manufacturers . our sales force is able to offer customers a choice of an on-site implementation using our traditional on-premises model or a cloud implementation for some solutions using our services platform . economic conditions our revenue may vary significantly with changes in the economic conditions in the countries in which we currently sell products . with our current concentration of revenue in europe and specifically in the banking and finance vertical market , significant changes in the economic outlook for the european banking market may have a significant effect on our revenue . story_separator_special_tag components of operating results revenue we generate revenue from the sale of our hardware products , software licenses , subscriptions , and services . we believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments reflecting the transactional nature of our business . · product and license revenue . product and license revenue includes hardware products and software licenses . · service and other revenue . service and other revenue includes software as a service ( “ saas ” ) solutions , maintenance and support , and professional services . cost of goods sold our total cost of goods sold consists of cost of product and license revenue and cost of service and other revenue . we expect our cost of goods sold to increase in absolute dollars as our business grows , although it may fluctuate as a percentage of total revenue from period to period . · cost of product and license revenue . cost of product and license revenue primarily consists of direct product costs . · cost of service and other revenue . cost of service and other revenue primarily consists of costs related to saas solutions , including personnel and equipment costs , and personnel costs of employees providing professional services and maintenance and support . gross profit gross profit as a percentage of total revenue , or gross margin , has been and will continue to be affected by a variety of factors , including our average selling price , manufacturing costs , the mix of products sold , and the mix of revenue among products , subscriptions and services . we expect our gross margins to fluctuate over time depending on these factors . operating expenses our operating expenses are generally based on anticipated revenue levels and fixed over short periods of time . as a result , small variations in revenue may cause significant variations in the period-to-period comparisons of operating income or operating income as a percentage of revenue . 30 generally , the most significant factor driving our operating expenses is headcount . direct compensation and benefit plan expenses generally represent between 55 % and 65 % of our operating expenses . in addition , a number of other expense categories are directly related to headcount . we attempt to manage our headcount within the context of the economic environments in which we operate and the investments we believe we need to make for our infrastructure to support future growth and for our products to remain competitive . historically , operating expenses have been impacted by changes in foreign exchange rates . we estimate the change in currency rates in 2019 compared to 2018 resulted in a decrease in operating expenses of approximately $ 3.1 million in 2019. the comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans . for full-year 2019 , 2018 , and 2017 , operating expenses included $ 5.3 million , $ 6.1 million , and $ 5.4 million , respectively , related to stock-based and long-term incentive plans . long-term incentive plan compensation expense includes both cash and stock-based incentives . · sales and marketing . sales and marketing expenses consist primarily of personnel costs , commissions and bonuses , trade shows , marketing programs and other marketing activities , travel , outside consulting costs , and long-term incentive compensation . we expect sales and marketing expenses to increase in absolute dollars as we continue to invest in sales resources in key focus areas , although our sales and marketing expenses may fluctuate as a percentage of total revenue . · research and development . research and development expenses consist primarily of personnel costs and long-term incentive compensation . we expect research and development expenses to increase in absolute dollars as we continue to invest in our future solutions , although our research and development expenses may fluctuate as a percentage of total revenue . · general and administrative . general and administrative expenses consist primarily of personnel costs , legal and other professional fees , and long-term incentive compensation . we expect general and administrative expenses to increase in absolute dollars although our general and administrative expenses may fluctuate as a percentage of total revenue . · amortization/impairment of intangible assets . acquired intangible assets are amortized over their respective amortization periods . interest income , net interest income consists of income earned on our cash equivalents and short term investments . our cash equivalents and short term investments are invested in short-term instruments at current market rates . other income , net other income , net primarily includes exchange gains ( losses ) on transactions that are denominated in currencies other than our subsidiaries ' functional currencies , subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses . income taxes our effective tax rate reflects our global structure related to the ownership of our intellectual property ( “ ip ” ) . all our ip in our traditional authentication business is owned by two subsidiaries , one in the u.s. and one in switzerland . these two subsidiaries have entered into agreements with most of the other onespan entities under which those other entities provide services to our u.s. and swiss subsidiaries on either a percentage of revenue or on a cost plus basis or both . under this structure , the earnings of our service provider subsidiaries are relatively constant . these service provider companies tend to be in jurisdictions with higher effective tax rates . fluctuations in earnings tend to flow to the u.s. company and swiss company . in 2019 , earnings flowing to the u.s. company are expected to be taxed at a rate of 21 % to 25 % , while earnings flowing to the swiss company are expected to be taxed at a rate ranging from 10 % to 21 % . our canadian subsidiary currently sells and services global customers directly , as does a uk subsidiary .
| results of operations the following tables summarize our consolidated results of operations for the periods presented . comparison of the years ended december 31 , 2019 and 2018 replace_table_token_3_th 32 total revenue increased $ 42.3 million or 20 % , during the year ended december 31 , 2019 compared to the year ended december 31 , 2018. product and license revenue increased by $ 31.2 million , or 20 % during the year ended december 31 , 2019. the increase in product and license revenue was due to an increase in both hardware and software licenses revenue . services and other revenue increased by $ 11.1 million , or 19 % during the year ended december 31 , 2019. the increase was due to an increase in saas and maintenance revenue . revenue generated in emea increased $ 43.7 million , or 42 % during the year ended december 31 , 2019. the increase in revenue was driven by an increase in hardware , software and maintenance revenue . revenue generated in the americas increased $ 6.6 million , or 12 % during the year ended december 31 , 2019. the increase in revenue was driven by higher subscription and maintenance revenue . revenue generated in the asia pacific region decreased $ 8.0 million , or 15 % during the year ended december 31 , 2019. the decrease in revenue was primarily due to a decrease in software license revenue . cost of goods sold and gross margin replace_table_token_4_th the cost of product and license revenue increased $ 12.7 million , or 25 % during the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase in cost of product and license revenue was primarily driven by higher token volume due to increased hardware sales . the cost of services and other revenue increased $ 4.5 million , or 32 % , during the year ended december 31 , 2019 compared to the year ended december 31 , 2018.
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additional information on the comparability of the periods presented is as follows : references herein to fiscal 2020 are to the fiscal year ending june 25 , 2020. references herein to fiscal 2019 , fiscal 2018 and fiscal 2017 are to the fiscal years ended june 27 , 2019 , june 28 , 2018 and june 29 , 2017 , respectively . as used herein , unless the context otherwise indicates , the terms we , us , our or company refer collectively to john b. sanfilippo & son , inc. and our wholly-owned subsidiary , jbss ventures , llc . our credit facility and mortgage facility , as defined below , are sometimes collectively referred to as our financing arrangements. we are one of the leading processors and distributors of peanuts , pecans , cashews , walnuts , almonds and other nuts in the united states . these nuts are sold under a variety of private brands and under the fisher , orchard valley harvest , squirrel brand , southern style nuts , and sunshine country brand names . we also market and distribute , and in most cases , manufacture or process , a diverse product line of food and snack products , including peanut butter , almond butter , cashew butter , candy and confections , snacks and trail mixes , snack bites , sunflower kernels , dried fruit , corn snacks , sesame sticks and other sesame snack products under private brands and brand names . we distribute our products in the consumer , commercial ingredients and contract packaging distribution channels . the company 's long-term objective is to drive profitable growth , as identified in our strategic plan . the strategic plan includes continuing to grow fisher , orchard valley harvest , squirrel brand and southern style nuts into leading nut brands by focusing on consumers demanding quality nuts in the snacking , recipe , trail and snack mix and produce categories , providing integrated nut solutions to grow non-branded business at existing key customers in each distribution channel and expanding our offerings into alternative distribution channels . we are executing on our strategic plan by growing our consumer distribution channel , which now accounts for almost 70 % of our total annual company sales volume , which we define as pounds sold to customers . this growth has been driven by an increase in sales of our branded products such as our orchard valley harvest and fisher snack nut and trail mix products to a variety of retailers as well as growth from private brand product sales . we have also made distribution gains for fisher recipe nuts at several new grocery customers during the 2019 fiscal year . we are also focusing on growing squirrel brand and southern style nuts brand awareness through expanded distribution and increased innovation and product offerings . we face a number of challenges in the future which include , among others , potential acquisition cost volatility for almonds and intensified competition for market share from both private brand and name brand nut products . we also face changing industry trends resulting in retail consolidation and internet price competition for nut and nut-related products . we will continue to focus on seeking profitable business opportunities to best utilize our production capacity at our elgin site and evaluate facility expansion to meet customer demand . we expect to maintain our current level of promotional and advertising activity for our orchard valley harvest and fisher snack brands . we continue to see domestic sales and volume growth in our orchard valley harvest brand and will continue to focus on this portion of our branded business as well as our squirrel brand and southern style nuts brands . we will continue to face the ongoing challenges specific to our business , such as food safety and regulatory issues and the maintenance and growth of our customer base for branded and private label products . see the information referenced in part i , item 1a risk factors of this report for additional information about our risks , challenges and uncertainties . 21 annual highlights our net sales for fiscal 2019 decreased by $ 12.7 million , or 1.4 % , to $ 876.2 million compared to fiscal 2018. gross profit increased by $ 19.4 million , and our gross profit margin , as a percentage of net sales , increased to 18.1 % in fiscal 2019 from 15.6 % in fiscal 2018. total operating expenses for fiscal 2019 increased by $ 17.0 million , and our operating expenses , as a percentage of net sales , were 11.4 % compared to 9.3 % of net sales in fiscal 2018. diluted earnings per share increased approximately 20.8 % compared to last fiscal year . our strong financial position allowed us to pay a cash dividend of $ 29.1 million in august 2018. the total value of inventories on hand at the end of fiscal 2019 decreased by $ 17.3 million , or 9.9 % , in comparison to the total value of inventories on hand at the end of fiscal 2018. we have seen acquisition costs for pecans and walnuts decline in the 2018 crop year ( which falls into our current 2019 fiscal year ) , as well as declining acquisition costs for cashews . while we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2019 , the total payments to our walnut growers were not determined until the third quarter of fiscal 2019 , which is typical . the final prices paid to the walnut growers were based upon prevailing market prices and other factors , such as crop size and export demand . at june 27 , 2019 there are no amounts due to walnut growers . story_separator_special_tag absent any material acquisitions or other significant investments , we believe that cash on hand , combined with cash provided by operations and borrowings available under the credit facility , will be sufficient to meet the cash requirements for capital expenditures . financing activities . cash used in financing activities was $ 68.7 million during fiscal 2019. we paid dividends totaling $ 29.1 million in fiscal 2019. we repaid $ 6.9 million of long-term debt during fiscal 2019 , $ 2.9 million of which was related to the mortgage facility ( as defined below ) . there was a net decrease in borrowings outstanding under our credit facility of $ 31.3 million during fiscal 2019 which occurred , in part , as a result of the decrease in inventory and increased profitability . cash used in financing activities was $ 31.7 million during fiscal 2018. we paid dividends totaling $ 28.4 million in fiscal 2018. we repaid $ 5.7 million of long-term debt during fiscal 2018 , $ 2.9 million of which was related to the mortgage facility ( as defined below ) . financing arrangements on february 7 , 2008 , we entered into the credit facility with a bank group ( the bank lenders ) providing a $ 117.5 million revolving loan commitment and letter of credit subfacility . also on february 7 , 2008 , we entered into a loan agreement with an insurance company ( the mortgage lender ) providing us with two term loans , one in the amount of $ 36.0 million ( tranche a ) and the other in the amount of $ 9.0 million ( tranche b ) , for an aggregate amount of $ 45.0 million ( the mortgage facility ) . credit facility the credit facility , as most recently amended in november 2017 , is secured by substantially all of our assets other than machinery and equipment , real property , and fixtures and matures on july 7 , 2021. the mortgage facility is secured by mortgages on essentially all of our owned real property located in elgin , illinois , gustine , california and garysburg , north carolina ( the encumbered properties ) . 25 on november 29 , 2017 , we entered into the consent and ninth amendment to our credit agreement which provided lender consent to incur unsecured debt in connection with our acquisition of the assets of the squirrel brand business , and for the acquisition of the squirrel brand business to constitute a permitted acquisition under the terms of the credit facility . the ninth amendment also modified our collateral reporting requirements . the terms of the credit facility contain covenants that , among other things , require us to restrict investments , indebtedness , acquisitions and certain sales of assets and limit annual cash dividends or distributions , transactions with affiliates , redemptions of capital stock and prepayment of indebtedness ( if such prepayment , among other things , is of a subordinate debt ) . if loan availability under the borrowing base calculation falls below $ 25.0 million , we will be required to maintain a specified fixed charge coverage ratio , tested on a monthly basis , until loan availability equals or exceeds $ 25.0 million for three consecutive months . all cash received from customers is required to be applied against the credit facility . the bank lenders have the option to accelerate and demand immediate repayment of our obligations under the credit facility in the event of default on the payments required under the credit facility , a change in control in the ownership of the company , non-compliance with the financial covenant or upon the occurrence of other defaults by us under the credit facility ( including a default under the mortgage facility ) . as of june 27 , 2019 , we were in compliance with all covenants under the credit facility , and we currently expect to be in compliance with the financial covenant in the credit facility for the foreseeable future . at june 27 , 2019 , we had $ 113.6 million of available credit under the credit facility . if this entire amount were borrowed at june 27 , 2019 , we would still be in compliance with all restrictive covenants under the credit facility . mortgage facility the mortgage facility matures on march 1 , 2023. on march 1 , 2018 the interest rate on the mortgage facility was fixed at 4.25 % per annum . prior to march 1 , 2018 , tranche a accrued interest at a fixed interest rate of 7.63 % per annum , payable monthly and tranche b accrued interest , as reset on march 1 , 2016 , at a floating rate of the greater of ( i ) one-month libor plus 3.50 % per annum or ( ii ) 4.25 % , payable monthly . monthly principal payments on tranche a in the amount of $ 0.2 million commenced on june 1 , 2008. monthly principal payments on tranche b in the amount of $ 0.1 million commenced on june 1 , 2008. the terms of the mortgage facility contain covenants that require us to maintain a specified net worth of $ 110.0 million and maintain the encumbered properties . the mortgage lender is entitled to require immediate repayment of our obligations under the mortgage facility in the event we default in the payments required under the mortgage facility , non-compliance with the covenants or upon the occurrence of certain other defaults by us under the mortgage facility . as of june 27 , 2019 , we were in compliance with all covenants under the mortgage facility . selma property in september 2006 , we sold our selma , texas properties ( the selma properties ) to two related party partnerships for $ 14.3 million and are leasing them back . the selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value .
| results of operations the following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2019 to fiscal 2018 and from fiscal 2018 to fiscal 2017. replace_table_token_2_th fiscal 2019 compared to fiscal 2018 net sales our net sales decreased 1.4 % to $ 876.2 million for fiscal 2019 from $ 888.9 million for fiscal 2018. sales volume increased by 1.4 % for fiscal 2019 in comparison to sales volume for fiscal 2018. the decline in net sales was driven by a 2.8 % decrease in the weighted average sales price per pound , which primarily occurred as a result of a shift in sales volume from higher priced tree nut products to lower priced peanut and trail mix products . lower selling prices for products containing cashews and pecans , driven by lower commodity acquisition costs , also contributed to the decrease in net sales . the decline in net sales from lower selling prices due to commodity deflation for certain tree nuts was partially offset by the increase in sales volume . the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_3_th 22 the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_4_th ( 1 ) sales of branded products were approximately 37 % and 38 % of total consumer channel sales during fiscal 2019 and 2018 , respectively . fisher branded products were approximately 69 % and 75 % of branded sales during fiscal 2019 and 2018 respectively , with branded produce products accounting for most of the remaining branded product sales .
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under the supervision and with the participation of our management , including our chief executive officer and chief financial officer , we evaluated the effectiveness of the design and operation of our disclosure controls and procedures ( as defined in rule 13a-15 ( e ) and rule 15d-15 ( e ) under the exchange act ) as of the end of the period covered by this report ( the “ evaluation date ” ) . based upon that evaluation , the chief executive officer and chief financial officer concluded that , as of the evaluation date , our disclosure controls and procedures were effective at the reasonable assurance level . disclosure controls are controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms . disclosure controls are also designed to ensure that such information is accumulated and communicated to our management , including the ceo and cfo , as appropriate to allow timely decisions regarding required disclosure . ( b ) management 's report on internal control over financial reporting . our management is responsible for establishing and maintaining adequate internal control over financial reporting . our internal control systems are designed to provide reasonable assurance to the company 's management and board of directors regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . internal control over financial reporting is defined in rule 13a-15 ( f ) promulgated under the exchange act and includes those policies and procedures that : ( i ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company ; ( ii ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( iii ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of the company 's assets that could have a material effect on the financial statements . all internal controls , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only reasonable assurance with respect to financial statements preparation and presentation . our management assessed the effectiveness of the company 's internal control over financial reporting as of december 31 , 2019. in making this assessment , we used the criteria set forth by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) in internal control – integrated framework ( 2013 ) . based on this assessment our chief executive officer and chief financial officer have concluded that , as of december 31 , 2019 , our internal control over financial reporting was effective . this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to the dodd-frank wall street reform and consumer protection act , which permanently exempts smaller reporting companies from complying with section 404 ( b ) of the sarbanes-oxley act of 2002 . ( c ) changes in internal controls . there were no changes made in our internal controls during the period covered by this report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting . item 9b._other information none . 49 part iii item 10. directors , executive officers and corporate governance information regarding the registrant 's directors is set forth under “ election of directors ” in our proxy statement relating to our annual meeting of shareholders to be held on may 18 , 2020 and is incorporated herein by reference . such proxy statement will be filed within 120 days of our year-end . information regarding the registrant 's executive officers is set forth in item 1 of part i herein under the caption “ executive officers of the registrant . ” code of ethics we have adopted a code of ethics that applies to all directors , officers and employees of data i/o , including the chief executive officer and chief financial officer . the key principles of the code of ethics are to act legally and with integrity in all work for data i/o . the code of ethics is posted on the corporate governance page of our website http : //www.dataio.com/company/investorrelations/corporategovernance.aspx . we will story_separator_special_tag forward-looking statements this annual report on form 10-k includes forward-looking statements within the meaning of the private securities litigation reform act of 1995. this act provides a “ safe harbor ” for forward-looking statements to encourage companies to provide prospective information about themselves as long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results . all statements other than statements of historical fact made in this annual report on form 10-k are forward-looking . story_separator_special_tag it generally provides for the recognition of revenue in an amount that reflects the consideration to which the company expects to be entitled , net of allowances for estimated returns , discounts or sales incentives , as well as taxes collected from customers when control over the promised goods or services are transferred to the customer . the adoption of topic 606 did not have a material impact on our 2018 financial statement line items , either individually or in the aggregate . we have elected the practical expedient to expense contract acquisition costs , primarily sales commissions , for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year . during 2019 , the impact of capitalization of incremental costs for obtaining contracts was immaterial . we have made a sales tax policy election to exclude sales , use , value added , some excise taxes and other similar taxes from the measurement of the transaction price . we recognize revenue upon transfer of control of the 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 have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be a separate performance obligation . these systems are standard products with published product specifications and are configurable with standard options . the evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units , results from batteries of tests of product performance to our published specifications , quality inspections and installation standardization , as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based . the revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers , which generally is at the time of shipment . installation that is considered perfunctory includes any installation that is expected to be performed by other parties , such as distributors , other vendors , or the customers themselves . this considers the complexity , skill and training needed as well as customer expectations regarding installation . we enter into arrangements with multiple performance obligations that arise during the sale of a system that includes an installation component , a service and support component and a software maintenance component . the transaction price is allocated to the separate performance obligations on relative standalone sales price . we allocate the transaction price of each element based on relative selling prices . relative selling price is based on the selling price of the standalone system . for the installation and service and support performance obligations , we use the value of the discount given to distributors who perform these components . for software maintenance performance obligations , we use what we charge for annual software maintenance renewals after the initial year the system is sold . revenue is recognized on the system sale based on shipping terms , installation revenue is recognized after the installation is performed , and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement , typically one year . deferred revenue includes service , support and maintenance contracts and represents the undelivered performance obligation of agreements that are typically for one year . when we sell software separately , we recognize revenue upon the transfer of control of the software , which is generally upon shipment , provided that only inconsequential performance obligations remain on our part and substantive acceptance conditions , if any , have been met . 22 we recognize revenue when there is an approved contract that both parties are committed to perform , both parties rights have been identified , the contract has substance , collection of substantially all the consideration is probable , the transaction price has been determined and allocated over the performance obligations , the performance obligations including substantive acceptance conditions , if any , in the contract have been met , the obligation is not contingent on resale of the product , the buyer 's obligation would not be changed in the event of theft , physical destruction or damage to the product , the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer . we establish a reserve for sales returns based on historical trends in product returns and estimates for new items . payment terms are generally 30 days from shipment . we transfer certain products out of service from their internal use and make them available for sale . the products transferred are typically our standard products in one of the following areas : service loaners , rental or test units ; engineering test units ; or sales demonstration equipment . once transferred , the equipment is sold by our regular sales channels as used equipment inventory . these product units often involve refurbishing and an equipment warranty , and are conducted as sales in our normal and ordinary course of business . the transfer amount is the product unit 's net book value and the sale transaction is accounted for as revenue and cost of goods sold . allowance for doubtful accounts : we base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable .
| results of operations : net sales replace_table_token_3_th replace_table_token_4_th replace_table_token_5_th net sales for the year ended december 31 , 2019 declined approximately 26 % to $ 21.6 million compared to 2018 primarily as a result of a cyclical downturn in capital spending resulting in lower demand in automotive electronics and programming centers during 2019. on a regional basis , net sales decreased approximately 6 % in the americas , 33 % in europe and 32 % in asia . order bookings were $ 22.5 million for 2019 , down approximately 17 % compared to $ 27.0 million in 2018. backlog at december 31 , 2019 and 2018 was $ 2.9 million and $ 1.9 million , respectively . tariffs impacted customer orders by creating uncertainty and delays and increased costs that could not be passed on to our customers . we believe that during the year the decline in bookings in the third quarter to $ 4.3 million , in addition to cyclicality , was largely the result of the tariff concerns with the demand being delayed . bookings recovered in the fourth quarter to $ 6.9 million . deferred revenue was $ 1.5 million on december 31 , 2019 compared to $ 1.6 million at december 31 , 2018. gross margin replace_table_token_6_th gross margin as a percentage of sales for the year ended december 31 , 2019 was 58.2 % , compared to 59.4 % in 2018. the decline was due to the impact of lower sales volumes relative to fixed production costs and increased us/china tariffs offset in part by a favorable sales channel mix . research and development replace_table_token_7_th 24 research and development ( “ r & d ” ) expense decreased $ 910,000 for the year ended december 31 , 2019 compared to 2018. the decrease was primarily related to lower employee related costs , reduced contract labor and lower incentive compensation . r & d as a percentage of sales increased primarily due to the decline in 2019 sales .
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” our actual results may differ materially from those contained in or implied by these forward-looking statements . overview we are dedicated to supporting local , independent businesses and franchises by providing innovativ e marketing solutions and cloud-based tools to th e entrepreneurs who run them . we are one of the largest domestic providers of saas end-to-end customer experience tools and digital marketing solutions to smbs . our solutions enable our smb clients to generate new business leads , manage their customer relationships and run their day-to-day business operations . we serve over 330,000 smb clients through two business segments : marketing services and saas . our marketing services segment provides both print and digital solutions and generated $ 979.6 million , $ 1,292.8 million and $ 1,659.8 million of consolidated total revenue for the years ended december 31 , 2020 , 2019 and 2018 , respectively . our marketing services offerings include our owned and operated pyp , which carry the “ the real yellow pages ” tagline , our proprietary iyp , known by the yellowpages.com , superpages.com , and dexknows.com urls , sem solutions and other digital media solutions , which include online display and social advertising , online presence , and video and seo tools . our saas segment generated $ 129.8 million , $ 128.6 million and $ 124.6 million of consolidated total revenue for the years ended december 31 , 2020 , 2019 and 2018 , respectively . our pri mary saas offerings include thryv , our flagship smb end-to-end customer experience platform , and thryv leads , an automated lead generation service that integrates with our thryv platform . our expertise in delivering solutions for our client base is rooted in our deep history of serving smbs . in 2020 , smb demand for integrated technology solutions continues to grow as smbs adapt their business and service model to facilitate remote working and virtual interactions . we have seen this trend accelerate following the outbreak of the covid-19 pandemic from march 2020 onwards . on october 1 , 2020 , the company completed a direct listing of the company 's common stock on the nasdaq capital market , under the symbol “ thry ” . on march 1 , 2021 , the company completed the acquisition of sensis holding limited ( the “ sensis acquisition ” ) , australia 's leading provider of marketing solutions serving smbs . the sensis acquisition brings more than 100,000 existing sensis clients under the thryv banner , many of which are ideal candidates for the thryv platform . see note 18 , subsequent events , to our audited consolidated financial statements included in this annual report , for more information . recent developments - covid-19 in march 2020 , the world health organization categorized covid-19 as a pandemic . the outbreak of covid-19 and public and private sector measures to reduce its transmission , such as the imposition of social distancing and orders to work-from-home , stay-at-home and shelter-in place , have significantly disrupted the global economy , resulting in an adverse effect to the business operations of certain smbs . however , many of our smb clients operate service-based businesses that can easily operate remotely , or are designated as “ essential ” by state and local authorities administering shelter-in-place orders , and have continued to operate without significant interruption during the covid-19 pandemic . therefore , the impact of covid-19 and the related regulatory and private sector response on our financial and operating results in the year ended december 31 , 2020 was somewhat mitigated as many of our clients continue to operate during this pandemic . in our marketing services segment , we began offering certain pandemic credit incentives to select clients , including free advertising or headings , and payment extensions of up to three months . additionally , some clients elected to pause their online advertising programs , which resulted in a $ 7.5 million reduction in revenue for the year ended december 31 , 2020. marketing 43 services segment revenue decreased by $ 313.2 million or 24.2 % during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily due to the continued trending decline in demand for print and digital services and increased competition . this trending decline in marketing services , which has experienced an annual decline in revenue in recent years , predated the covid-19 pandemic . while the ongoing impact of the covid-19 pandemic on our revenues depends upon the rate of continued spread of the virus as well as regulatory and private sector response , we expect marketing services revenues will continue to be impacted primarily by trends predating the covid-19 pandemic . in our saas segment , we have continued to experience an increase in demand as smbs seek integrated technology solutions to facilitate virtual interactions with their customers in lieu of in person interactions . because of this recent increase in demand , the number of new clients has increased by 2 % during the three months ended december 31 , 2020 , compared to the three months ended december 31 , 2019 . we have seen continued strength in demand during this period from many of our key categories such as home services and professional services . offsetting this growth is a decline in our legacy saas client base as a result of our continued focus on targeting higher spend , higher engaged clients in lieu of lower-spend , less engaged clients that tend to have a higher churn . additionally , we began offering certain pandemic credit incentives to select clients , including free digital and saas services for two to four months , and payment extensions of up to three months . we have taken steps to mitigate the overall potential impact of the covid-19 pandemic on our operating results by enhancing the capabilities of our inside and outside sales force while also actively managing costs . story_separator_special_tag we have selectively utilized a portion of the cash generated from our marketing services segment to support initiatives in our evolving saas segment , which has represented an increasing percentage of total revenue since launch . the saas segment became profitable during 2019. we intend to continue to improve our saas solutions by analyzing user behavior , expanding features , improving usability , enhancing our onboarding services and customer support and making version updates available to smbs . we believe these initiatives will ultimately drive revenue growth ; however , such improvements will also likely increase our operating expenses . ability to grow through acquisition our growth prospects depend upon our ability to successfully develop new markets . we currently serve the united states smb market and plan to leverage strategic acquisitions to expand our client base domestically and enter new markets internationally . identifying proper targets and executing strategic acquisitions may take substantial time and capital . in august 2020 , we launched our first international saas reseller pilot , a joint initiative with the leading yellow pages player in the caribbean , and we also signed a saas multi-location franchise client , a home services company with operations in the u.s. and canada . on march 1 , 2021 we completed the sensis acquisition . see note 18 , subsequent events , to our audited consolidated financial statements included in part ii , item 8 in this annual report for additional information related to the acquisition of sensis , australia 's leading provider of marketing solutions serving smbs . we believe that acquisitions of marketing services companies will expand our client base and provide additional opportunities to offer our saas solutions . our success largely depends on our ability to identify and execute acquisition opportunities and our ability to establish relationships with new smbs . key business metrics we review several operating metrics , including the following key business metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . we believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making , and they may be used by investors to help analyze the health of our business . total clients we define total clients as the number of smb accounts with one or more revenue-generating solutions in a particular period . for quarter- and year-ending periods , total clients from the last month in the period are reported . a single client may have separate revenue-generating accounts for multiple marketing services solutions or saas offerings , but we count these as one client when the accounts are managed by the same business entity or individual . although infrequent , where a single organization has multiple subsidiaries , divisions , or segments , each business entity that is invoiced by us is treated as a separate client . we believe that the number of total clients is an indicator of our market penetration and potential future business opportunities . we view the mix between marketing services clients and saas clients as an indicator of potential future opportunities to offer our saas solutions to our marketing services clients . 45 marketing services clients clients that purchase one or more of our marketing services solutions are included in this metric . these clients may or may not also purchase subscriptions to our saas offerings . saas clients clients that purchase subscriptions to our saas offerings are included in this metric . these clients may or may not also purchase one or more of our marketing services solutions . replace_table_token_1_th ( 1 ) marketing services clients plus saas clients are greater than total clients since clients that purchase both marketing services and saas are considered only one client in the total client count when the accounts are managed by the same business entity or individual . marketing services clients decreased by 69 thousand , or 18 % as of december 31 , 2020 compared to december 31 , 2019. marketing services clients decreased by 80 thousand , or 17 % , as of december 31 , 2019 compared to december 31 , 2018. the decrease in marketing services clients for all periods was related to a secular decline in the print media industry . the decline in the digital portion of our marketing services business was due to significant competition in the consumer search and display space , particularly from large , well-capitalized businesses such as google , yelp and facebook . saas clients decreased by 3 thousand , or 6 % as of december 31 , 2020 compared to december 31 , 2019. saas clients decreased by 7 thousand , or 13 % , as of december 31 , 2019 compared to december 31 , 2018. the decrease in saas clients in each period was the result of an intentional strategic move by us to target higher spend , higher retention clients in lieu of lower-spend , higher churn clients . as part of this strategy , we discontinued sale of lower priced tiers of our thryv platform , which led to higher monthly average revenue per unit ( “ arpu ” ) for the year ended december 31 , 2020. in making this strategic shift , our saas client count has decreased while saas arpu has increased , and we expect this trend to continue into fiscal year 2021. total clients decreased by 69 thousand , or 17 % as of december 31 , 2020 compared to december 31 , 2019. total clients decreased by 81 thousand , or 17 % , as of december 31 , 2019 compared to december 31 , 2018. the primary driver of the decrease in total clients was the secular decline in the print media business combined with increasing competition in the digital media space .
| key components of our results of operations revenue we generate revenue from our two business segments , marketing services and saas . our primary sources of revenue in our marketing services segment are print and digital services . our primary source of revenue in our saas segment is our thryv platform . operating expenses operating expenses consist of cost of services ( exclusive of depreciation and amortization ) , sales and marketing , general and administrative , and depreciation and amortization . 47 cost of services ( exclusive of depreciation and amortization ) cost of services ( exclusive of depreciation and amortization ) consists of expenses related to delivering our solutions , such as publishing , printing , and distribution of our print directories and fulfillment of our digital and saas offerings . additionally , it includes personnel-related expenses such as salaries paid to our information technology personnel , as well as internet operations and development personnel , stock-based compensation expense , and non-capitalizable software and hardware purchases . sales and marketing sales and marketing expense consists primarily of base salaries , stock-based compensation , sales commissions paid to our inside and outside sales force and other expenses incurred by personnel within the sales , marketing , sales training , and client care departments . additionally , sales and marketing expense includes advertising costs such as media , promotional material , branding , and online advertising . general and administrative general and administrative expense primarily consists of compensation expense incurred by corporate management and administrative functions such as finance and accounting , legal , internal audit , human resources , billing and receivables , and management personnel . in addition , general and administrative expense includes stock-based compensation expense , bad debt expense , restructuring and integration charges , and other corporate expenses such as professional fees , operating taxes , and insurance . depreciation and amortization expense depreciation and amortization expense consists of depreciation from fixed assets and amortization associated with capitalized software and intangible assets .
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words such as “ may ” , “ will ” , “ should ” , “ would ” , “ anticipates ” , “ expects ” , “ intends ” , “ plans ” , “ believes ” , “ seeks ” , “ estimates ” and similar expressions identify such forward-looking statements . the forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements . factors that might cause such a difference include , among other things , those set forth under “ risk factors ” and those appearing elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date hereof . we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements . readers are cautioned that any forward-looking statements are not guarantees of future performance . overview intl fcstone inc. is a diversified , global financial services organization providing financial products and advisory and execution services that help our clients access market liquidity , maximize profits and manage risk . intl fcstone inc. is a leader in the development of specialized financial services in commodities , securities , global payments , foreign exchange and other markets . our revenues are derived primarily from financial products and advisory services that fulfill our clients ' real needs and provide bottom-line benefits to their businesses . we create added value for our clients by providing access to global financial markets using our industry and financial expertise , deep partner and network relationships , insight and guidance , and integrity and transparency . our client-first approach differentiates us from large banking institutions , 28 engenders trust , and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world . our leadership positions span markets such as commodity risk management advisory services ; global payments ; market-making in international equities and other securities ; physical trading and hedging of precious metals and select other commodities ; execution of listed futures and options on futures contracts on all major commodity exchanges and foreign currency trading , among others . these businesses are supported by our global infrastructure of regulated operating subsidiaries , advanced technology platform and team of more than 1,000 employees . we currently maintain more than 20,000 accounts representing approximately 11,000 clients , located in more than 100 countries . our clients include producers , processors and end-users of nearly all widely traded physical commodities ; commercial counterparties who are end-users of our products and services ; governmental and non-governmental organizations ; and commercial banks , brokers , institutional investors and major investment banks . we believe our clients value us for our focus on their needs , our expertise and flexibility , our global reach , our ability to provide access to hard-to-reach markets and opportunities , and our status as a well-capitalized and regulatory-compliant organization . we believe we are well positioned to capitalize on key trends impacting the financial services sector . among others , these trends include the impact of increased regulation on banking institutions and other financial services providers ; increased consolidation , especially of smaller sub-scale financial services providers ; the growing importance and complexity of conducting secure cross-border transactions ; and the demand among financial institutions to transact with well-capitalized counterparties . we focus on mitigating exposure to market risk , ensuring adequate liquidity to maintain daily operations and making non-interest expenses variable , to the greatest extent possible . we report our operating segments based on services provided to clients . our activities are divided into the following functional areas consisting of commercial hedging , global payments , securities , physical commodities , and clearing and execution services ( “ ces ” ) . recent events affecting the financial services industry the dodd-frank act created a comprehensive new regulatory regime governing the otc and listed derivatives markets and their participants by requiring , among other things : centralized clearing of standardized derivatives ( with certain stated exceptions ) ; the trading of clearable derivatives on swap execution facilities or exchanges ; and registration and comprehensive regulation of new categories of market participants as “ swap dealers ” and swap “ introducing brokers. ” our subsidiary , intl fcstone markets , llc , is a registered swap dealer . most of the rules affecting this business are now final , and external business conduct rules came into effect on may 1 , 2013. nevertheless , some important rules , such as those setting capital and margin requirements , have not been finalized or fully implemented , and it is too early to predict with any degree of certainty how we will be affected . we will continue to monitor all applicable developments in the implementation of the dodd-frank act . the legislation and implementing regulations affect not only us , but also many of our customers and counterparties . we are reviewing the regulatory changes that will be introduced by the markets in financial instruments directive ( “ mifid 2 ” ) and the markets in financial instruments regulation ( “ mifir ” ) to assess the impact this legislation is likely to have on our united kingdom business when implemented in 2016 and 2017. among other things , the legislation will impose additional transaction and position reporting requirements , disclosure obligations , as well as requiring certain over-the-counter derivatives to be traded on organized trading facilities ( “ otfs ” ) . on november 14 , 2013 , the cftc finalized new rules known as “ enhancing customer protections rules. ” these provisions , among other things , require enhanced customer protections , risk management programs , internal monitoring and controls , capital and liquidity standards , customer disclosures , and auditing and examination programs for fcms . story_separator_special_tag discontinued operations and operating segment reorganization during the second quarter of fiscal 2013 , as a result of a change in management strategy in our base metals product line , we elected to pursue an exit of our physical base metals business through the sale and orderly liquidation of then-current open positions . we completed the exit of the physical base metals business during the second quarter of fiscal 2014. we have reclassified the physical base metals activities in the financial statements for all periods presented as discontinued operations . we continue to operate the portion of our base metals business related to non-physical assets , conducted primarily through the lme in our commercial hedging segment . 30 following the discontinuance of the physical base metals business and commencing during the second quarter of fiscal 2014 , we reorganized our operating segments into the following reportable segments : commercial hedging , global payments , securities , physical commodities and clearing and execution services . all segment information has been revised to reflect the operating segment reorganization retroactive to october 1 , 2011. see note 22 – segment and geographic information for further discussion of the operating segment reorganization . results of operations set forth below is our discussion of the results of our operations , as viewed by management , for the fiscal years ended september 30 , 2014 , 2013 and 2012 . the discussion below relates only to continuing operations . all revenues and expenses , including income tax expense , relating to discontinued operations have been removed from disclosures of total revenues and expenses in all periods , and are reported net in our consolidated income statements in “ ( loss ) income from discontinued operations , net of tax ” . financial overview the following table shows an overview of our financial results : financial overview ( unaudited ) replace_table_token_4_th the selected data table below reflects key operating metrics used by management in evaluating our product lines , for the periods indicated : replace_table_token_5_th operating revenues year ended september 30 , 2014 compared to year ended september 30 , 2013 operating revenues for fiscal 2014 and fiscal 2013 were $ 490.9 million and $ 468.2 million , respectively . this $ 22.7 million , or 5 % increase in operating revenues primarily resulted from strong revenue growth in our commercial hedging , global payments and securities segments . operating revenues in the commercial hedging and securities segments increased $ 22.0 million and $ 10.3 million , respectively , while global payments increased $ 14.5 million , or 35 % , over the prior year . these increases were partially offset by declines in our physical commodities and ces segments of $ 6.2 million and $ 7.6 million , respectively . also , fiscal 2013 operating revenues included a $ 9.2 million realized gain on the sale of shares of the lme and kansas city board of trade . 31 operating revenues in our commercial hedging segment increased 11 % to $ 224.0 million , primarily as a result of a $ 15.6 million increase in exchange-traded revenues driven by growth in growth in the agricultural commodity and lme metals markets , as the agricultural market conditions improved and our lme product line expanded into the far eastern markets . also contributing to this growth was a $ 6.0 million increase in otc revenues , driven by growth in the energy and renewable fuels markets . operating revenues in our global payments segment increased $ 14.5 million to $ 55.4 million in fiscal 2014 , compared to fiscal 2013 , driven by a 36 % increase in the number of global payments made as we continue to be successful in adding and on-boarding financial institutions to our electronic transaction order system . the increase in operating revenues in our securities segment was primarily a result of $ 5.2 million increase in asset management revenues in argentina , as well as a $ 3.9 million increase in debt trading revenues . debt trading revenues increased from continued growth in our export financing business , as well as from increased customer activity in the latin american and argentina markets . physical commodity segment operating revenues decreased as the result of a 15 % decline in the number of ounces traded in our precious metals product line , particularly in the far eastern markets , as well as diminished customer activity in our physical agricultural and energy business . operating revenues in our ces segment decreased as exchange-traded commission and clearing fee revenues decreased $ 1.1 million , primarily as a result of a 10 % decline in exchange-traded volumes and partially offset by an improvement in the overall average commission rate per contract . in addition , operating revenues in our customer prime brokerage product line declined $ 6.5 million as a result of a narrowing of spreads in the foreign exchange markets and declining performance on our arbitrage desk . see segment information below for additional information on activity in each of the segments . year ended september 30 , 2013 compared to year ended september 30 , 2012 operating revenues for fiscal 2013 and fiscal 2012 were $ 468.2 million and $ 448.1 million , respectively . the $ 20.1 million , or 4 % , increase in operating revenue primarily resulted from revenue growth in our securities , ces and physical commodity segments . operating revenues in the ces and physical commodity segments segments increased $ 9.4 million and $ 7.7 million , respectively , while securities segment revenues increased $ 22.4 million or 47 % over the prior year . in addition , global payments revenues increased $ 1.9 million over the prior year . these increases were partially offset by a $ 28.7 million decline in our commercial hedging segment . in addition , fiscal 2013 operating revenues included a $ 9.2 million realized gain on the sale of shares of the lme and kcbt .
| total segment results the following table shows summary information concerning all of our business segments combined . replace_table_token_9_th year ended september 30 , 2014 compared to year ended september 30 , 2013 the net contribution of all our business segments increased 9 % to $ 249.2 million in fiscal 2014 compared to $ 228.7 million in fiscal 2013 . segment income increased 14 % to $ 128.8 million in fiscal 2014 compared to $ 113.0 million in fiscal 2013 . year ended september 30 , 2013 compared to year ended september 30 , 2012 the net contribution of all our business segments increased 1 % to $ 228.7 million in fiscal 2013 compared to $ 226.5 million in fiscal 2012. segment income decreased slightly to $ 113.0 million in fiscal 2013 compared to $ 113.2 million in fiscal 2012. commercial hedging we serve our commercial clients through our team of risk management consultants , providing a high-value-added service that we believe differentiates us from our competitors and maximizes the opportunity to retain our clients . our risk management consulting services are designed to quantify and monitor commercial entities ' exposure to commodity and financial risk . upon assessing this exposure , we develop a plan to control and hedge these risks with post-trade reporting against specific client objectives . our clients are assisted in the execution of their hedging strategies through a wide range of products from listed exchange-traded futures and options , to basic otc instruments that offer greater flexibility , to structured otc products designed for customized solutions . our services span virtually all traded commodity markets , with the largest concentrations in agricultural and energy commodities ( consisting primarily of grains , energy and renewable fuels , coffee , sugar , cotton , and food service ) and base metals products listed on the lme .
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you can identify these statements by forward-looking words such as anticipate , intend , plan , continue , could , grow , may , potential , predict , strive , estimate , believe , expect and similar expressions that convey uncertainty of future events or outcomes . any forward-looking statements herein are made pursuant to the safe harbor provision of the private securities litigation reform act of 1995. our actual results could differ materially from the results anticipated by these forward-looking statements as a result of many known and unknown factors that are beyond our ability to control or predict , including but not limited to those discussed above in risk factors and elsewhere in this report . see also special cautionary notice regarding forward-looking statements at the beginning of item 1. business. critical accounting policies and estimates we have based the following discussion and analysis of financial condition and results of operations on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . note 1 to the consolidated financial statements for the fiscal year ended april 30 , 2014 , describes the significant accounting policies that we have used in preparing our financial statements . on an ongoing basis , we evaluate our estimates , including , but not limited to , those related to revenue/vendor-specific objective evidence ( vsoe ) , bad debts , capitalized software costs , goodwill , intangible asset measurement and impairment , stock-based compensation , income taxes and contingencies . 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 . our actual results could differ materially from these estimates under different assumptions or conditions . we believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements . revenue recognition . we recognize revenue in accordance with the software revenue recognition topic of the financial accounting standards board 's ( fasb ) accounting standards codification . we recognize license revenues in connection with license agreements for standard proprietary software upon delivery of the software , provided we deem collection to be probable , the fee is fixed or determinable , there is evidence of an arrangement , and vsoe exists with respect to any undelivered elements of the arrangement . we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , and training . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . 54 generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . allowance for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments . if the financial condition of these customers were to deteriorate , resulting in an impairment of their ability to make payments , we may require additional allowances or we may defer revenue until we determine that collectability is probable . we specifically analyze accounts receivable and historical bad debts , customer creditworthiness , current economic trends and changes in customer payment terms when we evaluate the adequacy of the allowance for doubtful accounts . valuation of long-lived and intangible assets . story_separator_special_tag management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . business combinations and intangible assets including goodwill . we account for business combinations using the acquisition method of accounting and accordingly , the identifiable assets acquired and liabilities assumed are recorded based upon management 's estimates of current fair values as of the acquisition date . the estimation process includes analyses based on income and market approaches . goodwill represents the excess purchase price over the fair value of net assets , including the amount assigned to identifiable intangible assets . the goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets . goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues . identifiable intangible assets with finite lives are amortized over there useful lives . amortization of current technology is recorded in cost of revenue-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles . acquisition-related costs , including advisory , legal , accounting , valuation and other costs , are expensed in general and administrative expenses in the periods in 56 which the costs are incurred . the results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date . story_separator_special_tag > competitive technologies . there is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology . competition in general . there are risks inherent in the market for business application software and related services , which has been and continues to be intensely competitive ; for example , some of our competitors may become more aggressive with their prices and or payment terms , which may adversely affect our profit margins . for more information , please see risk factors in item 1a . above . 58 recent accounting pronouncements in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . the asu will replace most existing revenue recognition guidance in u.s. gaap when it becomes effective . the new standard is effective for the company on may 1 , 2017. early application is not permitted . the standard permits the use of either the retrospective or cumulative effect transition method . the company is evaluating the effect that asu 2014-09 will have on its consolidated financial statements and related disclosures . the company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting . in april 2014 , the fasb issued asu no . 2014-08 , reporting discontinued operations and disclosures of disposals of components of an entity , to change the criteria for determining which disposals can be presented as discontinued operations and enhanced the related disclosure requirements . the new standard is effective for annual periods beginning on or after december 15 , 2014 and interim periods within that year . the standard is applied prospectively , with early adoption permitted for disposals ( or classifications as held for sale ) that have not been reported in financial statements previously issued . the company does not expect the standard to have a material impact on its consolidated financial statements . in july 2013 , the fasb issued an accounting standard update relating to the presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists . this update amends existing gaap that required in certain cases , an unrecognized tax benefit , or portion of an unrecognized tax benefit , to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward , a similar tax loss , or a tax credit carryforward when such items exist in the same taxing jurisdiction . the amendments in this update are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2013. early adoption is permitted . the amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date , and retrospective application is permitted . the company does not expect any impact from this update on our financial statements .
| results of operations the following table sets forth certain revenue and expense items as a percentage of total revenues for the three years ended april 30 , 2014 , 2013 , and 2012 and the percentage increases and decreases in those items for the years ended april 30 , 2014 and 2013 : replace_table_token_4_th nmnot meaningful economic overview and significant trends in our business corporate capital spending trends and commitments are the primary determinants of the size of the market for business software . corporate capital spending is , in turn , a function of general economic conditions in the u.s. and abroad and in particular may be affected by conditions in u.s. global credit markets . in recent years , the weakness in the overall world economy and the u.s. economy in particular has resulted in reduced expenditures in the business software market . in april 2014 , the international monetary fund ( imf ) provided an update to the world economic outlook ( weo ) for the 2014 world economic growth forecast . the update noted that , looking ahead , global growth is projected to strengthen from 3 percent in 2013 to 3.6 percent in 2014 and 3.9 percent in 2015 , broadly unchanged from the october 2013 outlook . in advanced economies , growth is expected to increase to about 57 2 1 / 4 percent in 201415 , an improvement of about 1 percentage point compared with 2013. key drivers are a reduction in fiscal tightening , except in japan , and still highly accommodative monetary conditions . growth will be strongest in the united states at about 2 3 / 4 percent . growth is projected to be positive but varied in the euro area : stronger in the core , but weaker in countries with high debt ( both private and public ) and financial fragmentation , which will both weigh on domestic demand .
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isobutanol is a four-carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents , paints and coatings or as a value-added gasoline blendstock . isobutanol can also be converted into butenes using dehydration chemistry deployed in the refining and petrochemicals industries today . the convertibility of isobutanol into butenes is important because butenes are primary hydrocarbon building blocks used in the production of hydrocarbon fuels , lubricants , polyester , rubber , plastics , fibers and other polymers . we believe that products derived from our isobutanol will be drop-in products , which means that our customers will be able to replace petroleum-based intermediate products with renewable isobutanol-based intermediate products without modification to their equipment or production processes . the final products produced from our renewable isobutanol-based intermediate products should be chemically and physically identical to those produced from petroleum-based intermediate products , except that they will contain carbon from renewable sources . customer interest in our renewable isobutanol is primarily driven by our production route , which we believe will be cost-efficient , and our renewable isobutanol 's potential to serve as a cost-effective , environmentally sensitive alternative to the petroleum-based intermediate products that are currently used . we believe that at every step of the value chain , renewable products that are chemically identical to the incumbent petrochemical products will have lower market adoption hurdles in contrast with other bioindustrial products because the infrastructure and applications for such products already exist . in addition , we believe that products made from biobased isobutanol will be subject to less raw material cost volatility than the petroleum-based products in use today because of the lower historical cost volatility of agricultural feedstocks compared to oil . in order to produce and sell isobutanol made from renewable sources , we have developed gift ® , an integrated technology platform for the efficient production and separation of renewable isobutanol . gift ® consists of two components , proprietary biocatalysts that convert sugars derived from multiple renewable feedstocks into isobutanol through fermentation , and a proprietary separation unit that is designed to continuously separate isobutanol during the fermentation process . we developed our technology platform to be compatible with the existing approximately 23 bgpy of global operating ethanol production capacity , as estimated by the rfa . gift ® is designed to permit ( i ) the retrofit of existing ethanol capacity to produce isobutanol , ethanol or both products simultaneously , or ( ii ) the addition of renewable isobutanol or ethanol production capabilities to a facility 's existing ethanol production by adding additional fermentation capacity side-by-side with the facility 's existing ethanol fermentation capacity ( collectively referred to as “ retrofit ” ) . having the flexibility to switch between the production of isobutanol and ethanol , or produce both products simultaneously , should allow us to optimize asset utilization and cash flows at a facility by taking advantage of fluctuations in market conditions . gift ® is also designed to allow relatively low capital expenditure retrofits of existing ethanol facilities , enabling a rapid route to isobutanol production from the fermentation of renewable feedstocks . we believe that our production route will be cost-efficient and will enable rapid deployment of our technology platform and allow our isobutanol and related renewable products to be economically competitive with many of the petroleum-based products used in the chemicals and fuels markets today . we expect that the combination of our efficient proprietary technology , our marketing focus on providing drop-in substitutes for incumbent petrochemical products and our relatively low capital investment retrofits will mitigate many of the historical issues associated with the commercialization of renewable chemicals and fuels . financial condition for the year ended december 31 , 2014 , we incurred a consolidated net loss of $ 41.1 million and had an accumulated deficit of $ 303.3 million . our cash and cash equivalents at december 31 , 2014 totaled $ 6.4 million which is primarily being used for the following : ( i ) operating activities and completion of the side-by-side configuration of our agri-energy facility ; ( ii ) operating activities at our corporate headquarters in colorado , including research and development work ; ( iii ) capital improvements primarily associated with the agri-energy facility ; ( iv ) costs associated with optimizing isobutanol production technology ; ( v ) costs associated with the ongoing litigation with butamax ; and ( vi ) debt service obligations . we expect to incur future net losses as we continue to fund the development and commercialization of our product candidates . our t ransition to profitability is dependent upon , among other things , the successful development and commercialization of our product candidates and the achievement of a level of revenues adequate to 63 support our existing cost st ructure . 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 the company 's 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 . based on our operating plan , existing working capital at december 31 , 2014 was not sufficient to meet the cash requirements to fund planned operations through december 31 , 2015 without additional sources of cash . these conditions raise substantial doubt about our ability to continue as a going concern . story_separator_special_tag during the year ended december 31 , 2013 , we derived revenue primarily from ( i ) hydrocarbon sales consisting primarily of the sale of biojet fuel , ( ii ) government grants and research and development programs , and ( iii ) sales of excess corn inventory . during the year ended december 31 , 2012 , we derived revenue primarily from ( i ) the sale of ethanol and ( ii ) government grants and research and development programs . substantially all ethanol sold through agri-energy from the date of acquisition through december 31 , 2012 was sold to c & n pursuant to an ethanol purchase and marketing agreement . cost of goods sold and gross loss our cost of goods sold during the year ended december 31 , 2014 primarily includes costs directly associated with ethanol production and initial operations for the production of isobutanol at the agri-energy facility such as costs for direct materials , direct labor , depreciation , other operating costs and certain plant overhead costs . direct materials include corn feedstock , denaturant and process chemicals . direct labor includes compensation of personnel directly involved in production operations at the agri-energy facility . other operating costs include utilities and natural gas usage . our cost of goods sold during the years ended december 31 , 2013 and 2012 primarily includes costs : ( i ) incurred in conjunction with the initial operations for the production of isobutanol at the agri-energy facility ; ( ii ) associated with the production of ethanol ; and ( iii ) associated with the sale of excess corn inventory . we periodically enter into forward purchase contracts and exchange-traded futures contracts associated with corn . accordingly , our cost of goods sold may also include gains or losses and or changes in fair value from our forward purchase contracts and exchange-traded futures contracts . 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 . 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 agri-energy facility that include administrative and oversight expenses , certain personnel-related expenses , insurance and other operating expenses . critical accounting policies and estimates the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . management bases its estimates , assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements , which in turn , could change the results from those reported . our management evaluates its estimates , assumptions and judgments on an ongoing basis . 65 while our significant accounting policies are more fully described in note 2 to our consolidated financial statements included in this report , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . accounting for senior secured debt , convertible notes and embedded derivative senior secured debt in may 2014 , the company entered into the loan agreement with certain lenders and whitebox , as administrative agent for the lenders , with a maturity date of march 15 , 2017 , pursuant to which the lenders committed to provide the term loan in an aggregate amount of up to approximately $ 31.1 million on the terms and conditions set forth in the loan agreement . the first advance of the term loan in the amount of $ 22.8 million , net of discounts and issue costs of $ 1.6 million and $ 1.5 million , respectively , was made to the company in may 2014. also in may 2014 , the company and its subsidiaries entered into the exchange and purchase agreement . pursuant to the terms of the exchange and purchase agreement , the lenders were given the right , subject to certain conditions , to exchange all or a portion of the outstanding principal amount of the term loan for the company 's newly created 2017 notes , which are convertible into shares of the company 's common stock . while outstanding , the term loan bore an interest rate equal to 15 % per annum , of which 5 % was payable in cash and 10 % was payable in kind and capitalized and added to the principal amount of the term loan .
| results of operations comparison of the years ended december 31 , 2014 and 2013 ( in thousands ) replace_table_token_9_th revenue . during the year ended december 31 , 2014 , we recognized revenue of $ 23.5 million associated with the sale of 10.3 million gallons of ethanol and related products . during the year ended december 31 , 2014 , the focus of our isobutanol production was on shipments for use at the demonstration plant located at south hampton 's facility near houston , texas to produce hydrocarbons and optimize specific parts of our technology to further enhance isobutanol production rates . hydrocarbon revenue increased during the year ended december 31 , 2014 primarily as a result of the shipment of bio-px to toray industries in the second quarter of 2014 , for which we recognized $ 1.5 million of revenue , including $ 1.0 million related to a payment we received from toray industries in 2012 for the design and construction of our bio-px demo plant . included in grant and other revenue is revenue associated with research and development and government grant agreements . grant and other revenue decreased in 2014 as a result of certain revenues granted in 2013 not being received in 2014. corn sales for the year ended december 31 , 2013 relate to a one-time sale of excess corn inventory on hand during that period . cost of goods and corn sold . our cost of goods sold during the year ended december 31 , 2014 included $ 31.6 million associated with the production and sale of ethanol and isobutanol optimization costs and $ 4.0 million in depreciation expense . the increase in cost of goods sold is related to the production of ethanol and increased production of hydrocarbon products during the year .
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on february 6 , 2012 , the executive compensation committee granted an award of 1,220 restricted shares and incentive stock options to story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( or md & a ) is intended to help the reader understand usa truck , inc. , our operations and our present business environment . md & a is provided as a supplement to and should be read in conjunction with our consolidated financial statements and notes thereto and other financial information that appears elsewhere in this report . this overview summarizes the md & a , which includes the following sections : our business – a general description of our business , the organization of our operations and the service offerings that comprise our operations . 23 story_separator_special_tag display : block ; margin-left : 18pt ; margin-right : 0pt '' > intermodal . intermodal shipping is a method of transporting freight using multiple modes of transportation between origin and destination , with the freight remaining in a trailer or special container throughout the trip . our rail intermodal service offering provides our customers cost savings over general freight with a slightly slower transit speed , while allowing us to reposition our equipment to maximize our freight network yield . during august 2010 , we entered into a long-term agreement with bnsf railway to lease 53 ' domestic intermodal containers . prior to the agreement , the majority of intermodal 's revenue was derived from tofc service . results of operations executive overview during the fourth quarter , industry-wide freight volumes were solid on a seasonally adjusted basis . the ata tonnage index increased 7.4 % over the fourth quarter of 2010 and most u.s. economic indicators improved versus the third quarter of 2011. we believe industry-wide trucking capacity remained in relative balance with demand , as qualified truck drivers remain scarce and the average age of tractors in our industry continues to hold at record-high levels . according to the cass truckload linehaul index , freight rates increased compared with the fourth quarter of 2010. consistent with that operating environment , revenue in our scs operating segment doubled to $ 23.0 million and its operating income increased 167.7 % to $ 1.6 million as we continue to integrate and cross-sell scs services with our traditional trucking services . overall , however , our financial results were disappointing . our cost control efforts in our trucking segment were effective , but we simply did not make the necessary progress on load volume or pricing during the quarter . nevertheless , we believe that improvements in our underlying operational performance will support higher freight volumes and rates , and that the economic environment entering 2012 affords us a sound foundation for gaining asset utilization and profitability . to review , our third quarter was marred by significant difficulties in implementing a new enterprise management software system . these difficulties caused a lack of visibility of freight in our system and numerous customer service disruptions . the service failures and lack of confidence in booking freight caused us to lose a percentage of our loads with many customers , often the most operationally demanding , highest paying loads . compounding this situation , we phased out service on two major accounts , one due to the end of a project and one due to inadequate pricing . although we did not expect to have this freight long-term , replacing approximately 6.2 % of our loads in one quarter has depressed our utilization and our rate structure while we replace the freight . these problems and the resulting lower miles also accelerated turnover in our driver base . the first step in our action plan to address this situation was to increase our senior management 's depth of operating experience in regional markets . in august , we hired a proven regional operator , david hartline , to lead our trucking segment as chief operating officer . during the fourth quarter , we filled key positions in customer service , load planning and driver recruiting with highly experienced personnel from outside the company . in addition , we consolidated the sales and operations reporting in our trucking business and , in january , replaced our former head of marketing and sales . these personnel moves were important , and we believe they positioned us for better long-term execution in our markets . under new sales and operations leadership , we introduced the next generation of our defined freight network that we call “ spider web 2.0. ” spider web 2.0 draws on the experience of mr. hartline 's team to narrow our operational focus to less than 1,000 lanes , targeting specific regional markets in which to build freight density . under a fresh philosophy and more effective methods introduced by new driver recruiting leadership , we have posted steady improvements in our unmanned tractor count . the second step in our plan was to improve critical operating metrics to re-establish our load base with customers and afford us momentum for increasing load volumes and rates . the key metrics we focused on initially were manned trucks , core customer on-time service , weekly load count , and load velocity . after several months of intense work in installing new operations and sales leadership teams and training our people on new processes and procedures , we are beginning to see signs of progress . our unmanned tractors , on-time service and load velocity all recorded a sharp decline in operating performance during the third quarter , followed by a flattening during the fourth quarter , and an improvement beginning in january . 25 we are currently operating with more manned trucks , better customer service , more loads per week , and greater velocity than when we started this process in the third quarter . improved discipline has contributed to a reduction in reportable accidents per million miles as well . story_separator_special_tag therefore , an increase in these revenues tends to cause expenses related to our operations that do involve our equipment—including fuel expense , depreciation and amortization expense , operations and maintenance expense , salaries , wages and employee benefits and insurance and claims expense—to decrease as a percentage of base revenue , and a decrease in these revenues tends to cause those expenses to increase as a percentage of base revenue with a related change in purchased transportation expense . since changes in scs revenues generally affect all such expenses , as a percentage of base revenue , we do not specifically mention it as a factor in our discussion of increases or decreases in the other expenses presented in the consolidated statements of operations in the period-to-period comparisons below . prior to january 1 , 2011 , we aggregated the financial data for our trucking operating segment , scs operating segment and rail intermodal operating segment into one segment for financial reporting purposes . during the first two quarters of 2011 , we segregated our business into three reportable segments : our trucking operating segment consisting primarily of our general freight and dedicated freight service offerings , our scs operating segment consisting entirely of our freight brokerage service offering , and our rail intermodal operating segment . during the third quarter of 2011 , we included the reporting of our rail intermodal operations with our reporting for trucking operations . however , for the year ended december 31 , 2011 , we determined that separate reporting of each segment was the most representative of the nature of our operations . accordingly , we again segregated our business into three reportable segments : our trucking operating segment consisting primarily of our general freight and dedicated freight service offerings , our scs operating segment consisting entirely of our freight brokerage service offering and our rail intermodal operating segment . fiscal year ended december 31 , 2011 compared to fiscal year ended december 31 , 2010 results of operations – combined services total base revenue increased 6.2 % from $ 386.9 million to $ 411.0 million . we reported a net loss for all service offerings of $ 10.8 million ( $ 1.05 per share ) , as compared to a net loss of $ 3.3 million ( $ 0.32 per share ) . our effective tax rate increased from 0.2 % to 31.5 % . income tax expense varies from the amount computed by applying the federal tax rate to income before income taxes primarily due to state income taxes , net of federal income tax effect , adjusted for permanent differences , the most significant of which is the effect of the per diem pay structure for drivers . due to the partially nondeductible effect of per diem payments , our tax rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure . 27 results of operations – trucking relationship of certain items to base trucking revenue the following table sets forth the percentage relationship of certain items to base revenue of our trucking operating segment for the periods indicated . fuel and fuel taxes are shown net of fuel surcharges . replace_table_token_7_th key operating statistics : replace_table_token_8_th ( 1 ) total miles include both loaded and empty miles . ( 2 ) the empty mile factor is the number of miles traveled for which we are not typically compensated by any customer as a percent of total miles traveled . ( 3 ) tractors include company-operated tractors in-service plus tractors operated by independent contractors . ( 4 ) average miles per trip is based upon loaded miles divided by the number of trucking shipments . ( 5 ) operating ratio is based upon total operating expenses , net of fuel surcharge revenue , as a percentage of base revenue . base revenue from our trucking operating segment decreased from $ 338.4 million to $ 321.3 million . the decrease was primarily the result of : · our miles per tractor per week decreased 8.8 % . · our unmanned tractor count increased 78.2 % . 28 the operating ratio for our trucking operating segment deteriorated by 5.1 percentage points of base trucking revenue to 106.0 % due to the following factors : · salaries , wages and employee benefits increased by 2.2 percentage points of base trucking revenue due in large part to a 5.0 % reduction in base trucking revenue and an 18.1 % reduction in our independent contractors . as the percentage of our fleet comprised of independent contractors decreases , the percentage of our fleet comprised of company drivers increases along with the associated salaries , wages and benefits for such company drivers . also , during the year , we had increases in wages in our maintenance department as we expanded the number of terminal locations to better service our operations . during 2011 , we continued to see evidence of a tightening market of eligible drivers related to the implementation of the dot 's csa program . this program was a significant factor in our total driver compensation costs increasing 5.9 % on a per mile basis as we needed to offer sign-on bonuses to attract new drivers . new hours-of-service rules may further reduce the pool of eligible drivers and may lead to increases in driver related expenses that would increase salaries , wages and employee benefits . · fuel and fuel taxes , net of fuel surcharge , increased 0.7 percentage points of base trucking revenue . the increase was primarily due to an increase of 30.7 % in fuel price per gallon net of a gain on the sale of a fuel contract in 2010. on may 25 , 2010 we entered into an agreement to purchase 0.5 million gallons of diesel fuel per month for the time period of july 2010 through june 2012 as a hedge against the price of diesel fuel .
| results of operations – an analysis of our consolidated results of operations for the three years presented in our consolidated financial statements and a discussion of seasonality , the potential impact of inflation and fuel availability and cost . off-balance sheet arrangements – a discussion of significant financial arrangements , if any , that are not reflected on our balance sheet . liquidity and capital resources – an analysis of cash flows , sources and uses of cash , debt , equity and contractual obligations . critical accounting estimates – a discussion of accounting policies that require critical judgment and estimates . our business we operate primarily in the for-hire truckload segment of the trucking industry . customers in a variety of industries engage us to haul truckload quantities of freight , with the trailer we use to haul that freight being assigned exclusively to that customer 's freight until delivery . our business is classified into three operating and reportable segments : our trucking operating segment consisting primarily of our general freight and dedicated freight service offerings ; our scs operating segment consisting entirely of our freight brokerage service offering ; and our rail intermodal operating segment . we previously included the results of our freight brokerage and cofc portion of our rail intermodal service offering in our scs operating segment . the tofc portion of our rail intermodal service offering was classified within our trucking operating segment . we later combined cofc and tofc and reported them as intermodal and brokerage was reported as scs . substantially all of our base revenue from the three reportable segments is generated by transporting , or arranging for the transportation of , freight for customers and is predominantly affected by the rates per mile received from our customers and similar operating costs .
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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 , revenues , costs and expenses , interest rates , outcome of contingencies , business strategies , regulatory filings and requirements , performance and market acceptance of our products , the estimated potential size of markets , capital requirements , the terms of any capital financing agreements and other statements that are not historical facts . you can find many of these statements by looking for words like “ believes , ” “ expects , ” “ anticipates , ” “ estimates , ” “ may , ” “ should , ” “ will , ” “ could , ” “ plan , ” “ intend , ” or similar expressions in this annual report on form 10-k. we intend that such forward-looking statements be subject to the safe harbors created thereby . these forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties . if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize , actual results may differ materially from current expectations and projections . factors that might cause such a difference include those discussed under “ risk factors , ” as well as those discussed elsewhere in the annual report on form 10-k. you are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this annual report on form 10-k or , in the case of documents referred to or incorporated by reference , the date of those documents . all subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section . we do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report on form 10-k or to reflect the occurrence of unanticipated events , except as may be required under applicable u.s. securities law . if we do update one or more forward-looking statements , no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements . recent developments reverse stock split on january 17 , 2014 , our board of directors approved an amendment to our certificate of incorporation to effect a reverse stock split by a ratio of 1-for-14 , with no reduction in the number of shares of common stock that were previously authorized in our certificate of incorporation . the reverse stock split was effective on january 29 , 2014. no fractional shares of our common stock were issued as a result of the reverse stock split . in the event the reverse stock split left a stockholder with a fraction of a share , the number of shares due to the stockholder was rounded up to the nearest whole share . unless otherwise noted , all share and per share data in this annual report on form 10-k give effect to the 1-for-14 reverse stock split of our common stock and are subject to the foregoing adjustments for fractional shares . public offering of units on march 25 , 2014 , we closed a registered public offering of 3,588,878 units for gross proceeds of $ 15,432,175. each unit consisted of one share of the company 's common stock and one warrant , each warrant exercisable for seven years to purchase one share of the company 's common stock at an exercise price of $ 4.75. net of placement agent fees of $ 1,211,734 and offering costs of $ 624,211 , we received net proceeds of $ 13,596,230. of the gross proceeds , $ 9,124,109 million was allocated to common stock and $ 6,308,066 million was allocated to warrants , based on relative fair values . 23 conversion of notes and interest to equity pursuant to note conversion agreements with wavi holding ag and taurus4757 gmbh ( the “ note holders ” ) , concurrently with the closing of our public offering of units , we converted approximately $ 14.3 million of indebtedness , including accrued interest , to the note holders into equity , issuing to the note holders an aggregate of 3,321,405 units having terms substantially similar to the public offering units . in connection with the note conversion , our $ 14.3 million indebtedness to the note holders under the terms of our previously disclosed facility agreements was extinguished , all remaining unamortized deferred finance costs were recorded to additional paid in capital , and the note holders agreed to release all security interests . of the total conversion amount , $ 8.4 million was allocated to common stock and $ 5.8 million was allocated to warrants , based on relative fair values . listing of common stock on nasdaq capital market on march 26 , 2014 , our common stock was listed on the nasdaq capital market under the symbol blfs . biologistex joint venture on september 29 , 2014 , we entered into an llc agreement with savsu to create biologistex , a 20-year joint venture for the purpose of acquiring , developing , maintaining , owning , operating , marketing and selling an integrated platform of a cloud-based information service and precision thermal shipping products based on savsu 's next generation evo smart shippers . the joint venture vehicle , biologistex ccm , llc , is structured as a delaware limited liability company . story_separator_special_tag · cardio3 biosciences , a leader in engineered cell therapy with clinical programs initially targeting indications in cardiovascular disease and oncology , has embedded the company 's clinical grade cryostor cryopreservation freeze media in its ongoing congestive heart failure cardiopoietic regenerative therapy ( chart-1 ) phase iii clinical trial in europe and israel and the pending chart-2 phase iii clinical trial to be conducted in the united states . · cord blood registry ( cbr ® ) , the world 's largest newborn stem cell company , announced the adoption of biolife 's cryostor clinical grade cryopreservation freeze media in its process for cryogenic storage of umbilical cord tissue stem cells . · several new customers disclosed the use of the company 's cryostor and hypothermosol biopreservation media products in pre-clinical validation projects and clinical trials at the recent international society for cellular therapy ( isct ) conference as follows : 25 · gsk – overcoming automation and formulation challenges in the manufacture and distribution of next generation ex vivo gene therapy products . · hemacare bioresearch products & services – cryopreserved leukopaks ( lp ) maintain cell viability & functionality . · masthercell ( for their customer imcyse ) – technology transfer and process development for an autologous cell therapy against multiple sclerosis . · roosterbio – poster : cryopreserved hmsc maintain comparable in vitro functional activity compared to fresh hmsc . · use of cryostor cryopreservation freeze media with a dendritic cell based vaccine was published in the journal oncotarget . · we announced that our cryostor cell freeze media was utilized in a mayo clinic porcine animal study of umbilical cord blood-derived mononuclear cells ( ubc-mnc ) to evaluate the safety and feasibility of these cells for cardiac regeneration in pediatric congenital heart disease ( chd ) . develop or invest in innovative new products . we are continuously seeking to utilize the unique nature of our technologies to develop new products and are also evaluating complementary and competing technologies developed outside of the company . product innovation : new products and service launches completed in 2015 include : · biologistex – we commercially launched the biologistex cold chain management service , which includes access to our biologistex web app and use of the evo smart shipper . · cell thawing media - we commenced gmp manufacturing and sales of low molecular weight dextran solutions for use in thawing human cells . we gained about 50 new customers for this product in 2015 . · bloodstor 27 nacl freeze media – we launched the new product targeting end user cryopreservation applications including freezing of platelets for clinical administration . the first substantial order for bloodstor® 27 nacl was shipped to the netherlands ministry of defense in the late fourth quarter of 2015. intellectual property . expanding our intellectual property protection : · we were granted a new australian patent number 2009228056 titled , “ materials and methods for hypothermic collection of whole blood ” . · we filed a patent application with claims related to novel features for next generations of the evo smart shipper and future releases of the biologistex cloud based cold chain management app . innovation recognition . we received recognition for our innovative products : · we received the 2015 silver award for achievement in medical technology from seattle business magazine . · the evo smart shipper , designed and manufactured by savsu and marketed by biolife , was the silver award recipient at the recent medical design excellence awards competition for the category medical product packaging , graphic instructions , and labeling systems . · we were recognized by seattle business magazine , which included biolife in its annual list of the 100 best companies to work for in washington state for 2015. financial performance summary for 2015 · we grew our biopreservation media business 29 % over 2014. this substantial increase was driven by a 45 % increase in revenue from the regenerative medicine segment . at the end of 2014 , we estimated that biolife products were incorporated into the storage , shipping , freezing , and or clinical administration processes and protocols of 175 regenerative medicine pre-clinical projects and clinical trials . this increased to over 200 by the end of 2015. we also drove more sales through our distributors , with an increase of 20 % in revenue from distributors in 2015 compared to 2014 . 26 · gross margin in 2015 was 59 % , compared to 49 % in 2014 , driven by the significant increase in our biopreservation media revenue and the elimination of low margin contract-manufacturing revenue . · our 2015 consolidated net loss was $ 5.0 million and net loss attributable to biolife was $ 4.2 million . this is compared to a consolidated net loss of $ 3.3 million in 2014 , of which $ 3.2 million was attributable to biolife . the increase in the loss is primarily the result of increased headcount and spending related to the development and launch activities of our biologistex joint venture . · we used $ 6.1 million in cash and short term investments in 2015 and ended the year with $ 3.8 million in cash and short term investments . the increased cash burn is primarily the result of increased headcount and spending related to the development and launch activities of our biologistex joint venture . story_separator_special_tag interest expense was related to interest on two notes payable . the reduction in interest expense from 2014 to 2015 was due to the conversion of the notes and interest into stock as of march 25 , 2014. amortization of deferred financing costs . amortization of deferred financing costs represented the cost of warrants issued which were amortized over the life of the debt . in connection with the termination of the note facility agreements in 2014 , we recorded $ 101,852 , the remaining unamortized costs , as an adjustment to additional paid in capital .
| comparison of annual results of operations percentage comparisons have been omitted within the following table where they are not considered meaningful . revenue and gross margin replace_table_token_2_th core product sales . our core products are sold through both direct and indirect channels to the customers in the biobanking , drug discovery , and regenerative medicine markets . sales to our core customers in 2015 increased compared to 2014 due to a 34 % increase in volume sold offset by a slight decrease in our average selling price per liter in 2015. the increase was primarily in sales to our regenerative medicine customers , which increased 45 % in 2015 compared to 2014. revenue from this market should increase over the next three to five years as some customers receive regulatory and marketing approvals for their clinical cell and tissue-based products . contract manufacturing services . in 2015 , we recorded $ 0.1 million in contract manufacturing revenue from one customer . in 2014 , we recorded revenue from sales to one contract manufacturing customer of $ 1.1 million . the contract with this customer was terminated in may 2014. in 2014 , we also recorded $ 0.2 million associated with one other contract manufacturing customer . cost of sales . cost of sales consists of raw materials , labor and overhead expenses . cost of sales in 2015 decreased compared to 2014 due primarily to the significant reduction in volume in lower margin contract manufacturing services revenue . gross margin . gross margin as a percentage of revenue increased to 59.1 % in 2015 compared to 49.0 % in 2014. gross margin as a percentage of revenue increased in 2015 , due to the change in the mix of revenue , with sales of our core products having a higher gross margin than the contract manufacturing revenue . revenue concentration .
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our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included elsewhere in this report . overview we are a provider of radio-frequency , or rf , high-performance analog , and mixed-signal communications systems-on-chip solutions for the connected home , wired and wireless infrastructure , and industrial and multi-market applications . we are a fabless integrated circuit design company whose products integrate all or substantial portions of a broadband communication system . in most cases , these products are designed on a single silicon-die , using standard digital cmos processes and conventional packaging technologies . we believe this enables our solutions to achieve superior power , performance , and cost advantages relative to our industry competition . our customers include electronics distributors , module makers , original equipment manufacturers ( oems ) , and original design manufacturers ( odms ) , who incorporate our products in a wide range of electronic devices . examples of such end market electronic devices incorporating our products include cable docsis broadband modems and gateways ; wireline connectivity devices for in-home networking applications ; rf transceivers and modems for wireless carrier access and backhaul infrastructure ; fiber-optic modules for data center , metro , and long-haul transport networks ; video set-top boxes and gateways ; hybrid analog and digital televisions , direct broadcast satellite outdoor and indoor units ; and power management and interface products used in these and a range of other markets . we combine our high-performance rf and mixed-signal semiconductor design skills with our expertise in digital communications systems , software , high-performance analog , and embedded systems to provide highly integrated semiconductor devices and platform-level solutions that are manufactured using a range of semiconductor manufacturing processes , including low-cost complementary metal oxide semiconductor , or cmos , process technology , silicon germanium , gallium arsenide , bicmos and indium phosphide process technologies . our ability to design analog and mixed-signal circuits in cmos allows us to efficiently combine analog and digital signal processing functionality in the same integrated circuit . as a result , our solutions have high levels of functional integration and performance , small silicon die size , and low power consumption . moreover , we are uniquely positioned to offer customers a combination of proprietary cmos-based radio system architectures that provide the benefits of superior rf system performance , along with high-performance analog interface and power management solutions that enable shorter design cycles , significant design flexibility , and low system cost across a wide range of broadband communications , wired and wireless infrastructure , and industrial and multimarket applications . 46 our net revenue has grown from approximately $ 0.6 million in fiscal 2006 to $ 385.0 million in fiscal 2018 . in fiscal 2018 , our net revenue was derived primarily from sales of rf receivers and rf receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters , global analog and digital rf receiver products for analog and digital pay-tv applications , radio and modem solutions into wireless carrier access and backhaul infrastructure platforms , high-speed optical interconnect solutions sold into optical modules for data-center , metro and long-haul networks , and high-performance interface and power management solutions into a broad range of communications , industrial , automotive and multi-market applications . our ability to achieve revenue growth in the future will depend , among other factors , on our ability to further penetrate existing markets ; our ability to expand our target addressable markets by developing new and innovative products ; and our ability to obtain design wins with device manufacturers , in particular manufacturers of set-top boxes , data modems , and gateways for the broadband service provider and pay-tv industries , manufacturers selling into the smartphone market , storage networking market , cable infrastructure market , industrial and automotive markets , and optical module and telecommunications infrastructure markets . products shipped to asia accounted for 81 % , 89 % and 93 % of net revenue during the years ended december 31 , 2018 , 2017 and 2016 , respectively , including 63 % , 71 % and 78 % , respectively , from products shipped to china . although a large percentage of our products is shipped to asia , we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside asia . for example , we believe revenue generated from sales of our digital terrestrial set-top box products during the years ended december 31 , 2018 , 2017 and 2016 related principally to sales to asian set-top box manufacturers delivering products into europe , middle east , and africa , or emea markets . similarly , revenue generated from sales of our cable modem products during the years ended december 31 , 2018 , 2017 and 2016 related principally to sales to asian odms and contract manufacturers delivering products into european and north american markets . to date , all of our sales have been denominated in united states dollars . there is a growing portion of our business , related specifically to our high-speed optical interconnect products , that are shipped to , and are ultimately consumed in asian markets , with the majority of these products being purchased by end customers in china . a significant portion of our net revenue has historically been generated by a limited number of customers . in the year ended december 31 , 2018 , one of our customers , arris ( which entered into a definitive agreement to be acquired by commscope holding company , inc. ) accounted for 18 % of our net revenue , and our ten largest customers collectively accounted for 61 % of our net revenue . story_separator_special_tag effective january 1 , 2018 , we adopted asc 606 and recognize revenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which collection is probable , taking into account our customer 's rights to price protection , other pricing credits , unit rebates , and rights to return unsold product . transfer of control occurs either when products are shipped to or received by the distributor or direct customer , based on the terms of the specific agreement with the customer , if we have a present right to payment and transfer of legal title and the risks and rewards of ownership to the customer has occurred . for most of our product sales , transfer of control occurs upon shipment to our distributor or direct customer . in assessing whether collection of consideration from a customer is probable , we consider the customer 's ability and intention to pay that amount of consideration when it is due . payment of invoices is due as specified in the underlying customer agreement , typically 30 days from the invoice date , which occurs on the date of transfer of control of the products to the customer . since payment terms are less than a year , we have elected the practical expedient and do not assess whether a customer contract has a significant financing component . a five-step approach is applied in the recognition of revenue under asc 606 : ( 1 ) identify the contract with a customer , ( 2 ) identify the performance obligations in the contract , ( 3 ) determine the transaction price , ( 4 ) allocate the transaction price to the performance obligations in the contract , and ( 5 ) recognize revenue when we satisfy a performance obligation . we applied asc 606 to our customer contracts that were not completed before the january 1 , 2018 adoption date . customer purchase orders plus the underlying master sales agreements are considered to be contracts with the customer for purposes of applying the five-step approach under asc 606. pricing adjustments and estimates of returns under contractual stock rotation rights are treated as variable consideration for purposes of determining the transaction price , and are estimated at the time control transfers using the expected value method based on our analysis of actual price adjustment claims by distributors and product and historical return rates , and then reassessed at the end of each reporting period . we also consider whether any variable consideration is constrained , since such amounts for which it is probable that a significant reversal will occur when the contingency is subsequently resolved are required to be excluded from revenues . price adjustments are finalized at the time the products are sold through to the end customer and the distributor or end customer submits a claim to reduce the sale price to a pre-approved net price . stock rotation allowances are capped at a fixed percentage of our sales to a distributor for a period of time , up to six months , as specified in the individual distributor contract . if our current estimates of such credits and rights are materially inaccurate , it 48 may result in adjustments that affect future revenues and gross profits . returns under our general assurance warranty of products for a period of one to three years have not been material and warranty-related services are not considered a separate performance obligation under the customer contracts . most of our customers resell our product as part of their product and thus are tax-exempt , however to the extent we collect and remit taxes on product sales from customers , we have elected to exclude from the measurement of transaction price such taxes . each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer . although customers may place orders for products to be delivered on multiple dates that may be in different quarterly reporting periods , all of the orders are scheduled within one year from the order date . we have opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations , which represent products to be shipped within 12 months under open customer purchase orders , at the end of the current reporting period as allowed under asc 606. we have also elected to record sales commissions when incurred , pursuant to the practical expedient under asc 340 , as the period over which the sales commission asset that would have been recognized is less than one year . customer contract liabilities consist of obligations to deliver rebates to customers in the form of units of products , which are included in accrued expenses and other current liabilities in the consolidated balance sheets . other obligations to customers consist of estimates of price protection rights offered to our end customers , which are included in accrued price protection liability in the consolidated balance sheets , as well as price adjustments expected to be claimed by the distributor upon sell-through of the products to their customers , and amounts expected to be returned by distributors under stock rotation rights , which are included in accrued expenses and other current liabilities in the consolidated balance sheets . we also record a right of return asset consist of amounts representing the products we expect to receive from customers in returns , which is included in inventory in the consolidated balance sheets , and is typically settled within six months of transfer of control to the customer , or the period over which stock rotation rights are based .
| results of operations the following describes the line items set forth in our consolidated statements of operations . net revenue . net revenue is generated from sales of radio-frequency , analog and mixed-signal integrated circuits for the connected home , wired and wireless infrastructure , and industrial and multi-market applications . a significant portion of our sales are to distributors , who then resell our products . cost of net revenue . cost of net revenue includes the cost of finished silicon wafers processed by third-party foundries ; costs associated with our outsourced packaging and assembly , test and shipping ; costs of personnel , including stock-based compensation , and equipment associated with manufacturing support , logistics and quality assurance ; amortization of acquired developed technology intangible assets and inventory step-ups to fair value ; amortization of certain production mask costs ; cost of production load boards and sockets ; and an allocated portion of our occupancy costs . research and development . research and development expense includes personnel-related expenses , including stock-based compensation , new product engineering mask costs , prototype integrated circuit packaging and test costs , computer-aided design software license costs , intellectual property license costs , reference design development costs , development testing and evaluation costs , depreciation expense and allocated occupancy costs . research and development activities include the design of new products , refinement of existing products and design of test methodologies to ensure compliance with required specifications . all research and development costs are expensed as incurred . selling , general and administrative . selling , general and administrative expense includes personnel-related expenses , including stock-based compensation , amortization of certain acquired intangible assets , third-party sales commissions , field application engineering support , travel costs , professional and consulting fees , legal fees , depreciation expense and allocated occupancy costs . impairment losses . impairment losses consist of charges resulting from the impairment of acquired intangible assets . restructuring charges .
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on the date of issuance , we allocated $ 1.0 million of the proceeds to derivative warrant liability , to record the warrants at fair value , recorded a $ 0.1 million loss on extinguishment and reduced debt $ 0.1 million related to the subordinated noteholders exchange , and recorded $ 1.2 million as preferred stock . we recorded a $ 0.8 million dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock issued to purchases who did not exchange debt , as the fair value of the common stock underlying the convertible preferred stock at issuance exceeded the amount recorded in preferred stock . in february 2016 , we issued and sold 3,000 shares of series f preferred stock and sold warrants to purchase 2,660,000 shares of common stock ( exercise price of $ 2.00 per share , exercisable beginning in august 2016 and expiring in august 2021 ) . the placement agent for the offering received a cash fee of $ 0.2 million . the net proceeds from the offering were $ 2.6 million , after deducting cash offering expenses of $ 0.4 million . on the date of issuance , we allocated $ 2.5 million of the $ 3.0 million gross proceeds to derivative warrant liability , to record the warrants at fair value and recorded the remaining $ 0.5 million proceeds as preferred stock . we recorded a dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock at issuance ( $ 0.5 million ) , as the fair value of the common stock underlying the convertible preferred stock at issuance was $ 2.7 million . as a result of this offering , the exercise price of certain warrants that contained full ratchet anti-dilution provisions was reduced from $ 5.24 per share to $ 1.50 per share and the number of shares of common stock underlying these warrants increased from 426,489 shares to 1,489,868 shares . 38 index ricebran technologies notes to consolidated financial statements transactions with senior debenture holders in february 2017 , we sold and issued in a private placement , for an aggregate subscription amount of $ 6.0 million : ( i ) senior debentures in the principal amount of $ 6.6 million and ( ii ) warrants to purchase an aggregate of 6,875,000 shares of common stock ( exercise price of $ 0.96 per share , exercisable beginning february 2017 and expiration february 2022 ) . we received aggregate net proceeds of $ 5.5 million , after deducting placement agent fees and allocated expenses of $ 0.5 million . concurrently , we amended existing warrants , held by the debenture purchasers , for the purchase of up to 875,000 shares to ( i ) reduce the exercise prices from an average $ 5.49 per share to $ 0.96 per share , providing the warrants are not exercisable until august 2017 , and ( ii ) change the expiration dates to august 2022 , which increased the average remaining term of the warrants from 2.1 years to 5.5 years . we recorded $ 4.6 million as an increase to derivative warrant liabilities , to record the warrants at their fair value on the date of issuance , the $ 0.5 million as an increase in common stock to record the change in fair value of existing warrants and the remaining $ 0.4 million to debt , debt issuance costs and debt discount . we used the net proceeds from the offering to ( i story_separator_special_tag see note 4 of our notes to consolidated financial statements for a discussion of divestitures and discontinued operations . story_separator_special_tag new roman ' ; font-weight : normal ; font-style : italic ; text-align : left '' > index inventories - inventories are stated at the lower of cost or net realizable value , with cost determined by the first-in , first-out method . we employ a full absorption procedure using standard cost techniques . the standards are customarily reviewed and adjusted annually so that they are materially consistent with actual purchase and production costs . provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels , historical obsolescence and future sales forecasts ; while inventory determined to be obsolete is written off immediately . property and equipment – property and equipment are stated at cost less accumulated depreciation . depreciation is computed on the straight-line basis over the estimated useful lives of the assets . expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized . gains or losses on the sale of property and equipment are reflected in net income ( loss ) we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . an impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset . an impairment loss is recognized based on the difference between the carrying values and estimated fair value . the estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year . estimates of future cash flows are based on many factors , including current operating results , expected market trends and competitive influences . assets to be disposed of by sale are reported at the lower of the carrying amount or fair value , less estimated costs to sell . revenue recognition – we recognize revenue for product sales when title and risk of loss pass to our customers , generally upon shipment . each transaction is evaluated to determine if all of the following four criteria are met : story_separator_special_tag on the date of issuance , we allocated $ 1.0 million of the proceeds to derivative warrant liability , to record the warrants at fair value , recorded a $ 0.1 million loss on extinguishment and reduced debt $ 0.1 million related to the subordinated noteholders exchange , and recorded $ 1.2 million as preferred stock . we recorded a $ 0.8 million dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock issued to purchases who did not exchange debt , as the fair value of the common stock underlying the convertible preferred stock at issuance exceeded the amount recorded in preferred stock . in february 2016 , we issued and sold 3,000 shares of series f preferred stock and sold warrants to purchase 2,660,000 shares of common stock ( exercise price of $ 2.00 per share , exercisable beginning in august 2016 and expiring in august 2021 ) . the placement agent for the offering received a cash fee of $ 0.2 million . the net proceeds from the offering were $ 2.6 million , after deducting cash offering expenses of $ 0.4 million . on the date of issuance , we allocated $ 2.5 million of the $ 3.0 million gross proceeds to derivative warrant liability , to record the warrants at fair value and recorded the remaining $ 0.5 million proceeds as preferred stock . we recorded a dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock at issuance ( $ 0.5 million ) , as the fair value of the common stock underlying the convertible preferred stock at issuance was $ 2.7 million . as a result of this offering , the exercise price of certain warrants that contained full ratchet anti-dilution provisions was reduced from $ 5.24 per share to $ 1.50 per share and the number of shares of common stock underlying these warrants increased from 426,489 shares to 1,489,868 shares . 38 index ricebran technologies notes to consolidated financial statements transactions with senior debenture holders in february 2017 , we sold and issued in a private placement , for an aggregate subscription amount of $ 6.0 million : ( i ) senior debentures in the principal amount of $ 6.6 million and ( ii ) warrants to purchase an aggregate of 6,875,000 shares of common stock ( exercise price of $ 0.96 per share , exercisable beginning february 2017 and expiration february 2022 ) . we received aggregate net proceeds of $ 5.5 million , after deducting placement agent fees and allocated expenses of $ 0.5 million . concurrently , we amended existing warrants , held by the debenture purchasers , for the purchase of up to 875,000 shares to ( i ) reduce the exercise prices from an average $ 5.49 per share to $ 0.96 per share , providing the warrants are not exercisable until august 2017 , and ( ii ) change the expiration dates to august 2022 , which increased the average remaining term of the warrants from 2.1 years to 5.5 years . we recorded $ 4.6 million as an increase to derivative warrant liabilities , to record the warrants at their fair value on the date of issuance , the $ 0.5 million as an increase in common stock to record the change in fair value of existing warrants and the remaining $ 0.4 million to debt , debt issuance costs and debt discount . we used the net proceeds from the offering to ( i story_separator_special_tag see note 4 of our notes to consolidated financial statements for a discussion of divestitures and discontinued operations . story_separator_special_tag new roman ' ; font-weight : normal ; font-style : italic ; text-align : left '' > index inventories - inventories are stated at the lower of cost or net realizable value , with cost determined by the first-in , first-out method . we employ a full absorption procedure using standard cost techniques . the standards are customarily reviewed and adjusted annually so that they are materially consistent with actual purchase and production costs . provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels , historical obsolescence and future sales forecasts ; while inventory determined to be obsolete is written off immediately . property and equipment – property and equipment are stated at cost less accumulated depreciation . depreciation is computed on the straight-line basis over the estimated useful lives of the assets . expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized . gains or losses on the sale of property and equipment are reflected in net income ( loss ) we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . an impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset . an impairment loss is recognized based on the difference between the carrying values and estimated fair value . the estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year . estimates of future cash flows are based on many factors , including current operating results , expected market trends and competitive influences . assets to be disposed of by sale are reported at the lower of the carrying amount or fair value , less estimated costs to sell . revenue recognition – we recognize revenue for product sales when title and risk of loss pass to our customers , generally upon shipment . each transaction is evaluated to determine if all of the following four criteria are met :
| results of operations during the second quarter of 2017 , we began to separately report the results of our wholly-owned subsidiary , healthy natural , inc. ( hn ) and our investment in nutra sa as discontinued operations in our consolidated statements of operations and present the related assets and liabilities as held for sale in our consolidated balance sheets . these changes have been applied for all periods presented . unless otherwise noted , amounts and percentages for all periods discussed below reflect the results of operations and financial condition from our continuing operations . refer to note 4 of our notes to consolidated financial statements for additional information on discontinued operations . replace_table_token_1_th revenues increased $ 0.4 million , or 2.9 % , in 2017 compared to the 2016. animal feed product revenues increased 9 % . animal nutrition revenue growth was driven by the supply and cooperation agreement entered into with kentucky equine research ( ker ) at the end of december 2015. food product revenues decreased less than 2 % year over year , primarily due to timing of shipments . gross profit percentage increased 4.3 percentage points to 28.4 % in 2017 from 24.1 % in 2016. the increase in gross profit was primarily attributable to the approximately 4.2 % decrease in raw bran prices during 2017 compared to 2016. additionally , the improvement in gross profit was attributable to a decrease in obsolete inventory during 2017 compared to the prior year . selling , general and administrative ( sg & a ) expenses were $ 9.9 million in 2017 , compared to $ 12.4 million in 2016 , a decrease of $ 2.5 million , or 20.2 % . the decrease is related to our continued strategic effort to manage costs and expenses . due to the reduction of staff and outside sales consultants , the sg & a salary , wages and benefits expenses decreased $ 0.8 million .
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these statements discuss goals , intentions and expectations as to future trends , plans , events , results of operations or financial condition , or state other information relating to us , based on our current beliefs as well as assumptions made by us and information currently available to us . forward-looking statements generally will be accompanied by words such as “ anticipate , ” “ believe , ” “ could , ” “ estimate , ” “ expect , ” “ forecast , ” “ intend , ” “ may , ” “ possible , ” “ potential , ” “ predict , ” “ project , ” or other similar words , phrases or expressions . this includes , without limitation , our statements and expectations regarding any current or future recovery in our industry , our publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals , our integration of acquired businesses , and our expectations with respect to leverage . although we believe these forward-looking statements are reasonable , they are based upon a number of assumptions concerning future conditions , any or all of which may ultimately prove to be inaccurate . important factors that could cause actual results to differ materially from the forward-looking statements include , without limitation : the risks described in item 1a and in item 7a of this annual report on form 10-k ; changes in the financial stability of our clients or the overall economic environment , resulting in decreased corporate spending and service sector employment ; changes in relationships with clients ; the mix of products sold and of clients purchasing our products ; the success of new technology initiatives ; changes in business strategies and decisions ; competition from our competitors ; our ability to recruit and retain an experienced management team ; changes in raw material prices and availability ; restrictions on government spending resulting in fewer sales to the u.s. government , one of our largest customers ; our debt restrictions on spending ; our ability to protect our patents , copyrights and trademarks ; our reliance on furniture dealers to produce sales ; lawsuits arising from patents , copyrights and trademark infringements ; violations of environmental laws and regulations ; potential labor disruptions ; adequacy of our insurance policies ; the availability of future capital and the cost of borrowing ; the overall strength and stability of our dealers , suppliers , and customers ; access to necessary capital ; our ability to successfully integrate acquired businesses ; the success of our design and implementation of a new enterprise resource planning system ; and currency rate fluctuations . the factors identified above are believed to be important factors but not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement . unpredictable or unknown factors could also have material adverse effects on us . all forward-looking statements included in this form 10-k are expressly qualified in their entirety by the foregoing cautionary statements . except as required under the federal securities laws and the rules and regulations of the sec , we undertake no obligation to update , amend , or clarify forward-looking statements , whether as a result of new information , future events , or otherwise . overview we design , manufacture , market and sell high-end commercial and residential furniture , accessories , textiles , fine leathers and designer felt for the workplace and residential markets , as well as modern outdoor furniture . we work with clients to create inspired modern interiors . our design-driven businesses share a reputation for high-quality and sophistication offering a diversified product portfolio that endures throughout evolving trends . our products are targeted at the middle to upper-end of the market where we reach customers primarily through a broad network of independent dealers and distribution partners , our direct sales force , our showrooms , and our online presence . business highlights during the last decade we have diversified our sources of revenue among our varying operating segments . over the last two years , our efforts to diversify have included the acquisition of fully in august 2019 , a portland based e-commerce based company servicing the small business and consumer home office market , the acquisition of muuto in january 2018 , a danish-based global commercial furniture design and distribution company , and multiple organic product development and design projects that have enhanced our portfolio and client offerings . we expect to continue to develop our acquired businesses and expand organically , be acquisitive on an opportunistic basis and continue our efforts to improve the profitability of our office segment . we believe we are well positioned to continue to build on these initiatives and benefit from the trend to more social and hospitality-based workplaces in the coming years . our efforts to diversify our sources of revenue among our operating segments has not detracted from our continued focus on growing and improving the operating performance of our office segment . the lean initiatives that were executed in 2019 25 have contributed greatly to the improvements in gross margin , and we expect more positive contributions in this area as we move into 2020. in addition , we just announced a restructuring plan in january 2020 involving a reduction of our fixed cost footprint that will occur over the next two years and will yield significant savings on an annualized basis as we near the end of 2021. we are looking beyond the traditional office product categories of systems , task seating and storage , to furniture that supports activity areas and the in-between spaces where people meet . additionally , we believe that our success in traditional office products gives us an advantage throughout the workplace . our rockwell unscripted collection , as well as muuto offerings , encompass every product category ranging from seating and lounge to architectural walls and storage . story_separator_special_tag investing activities for the year ended december 31 , 2019 included the purchase of fully for $ 30.9 million , net of cash acquired . in addition , we used $ 49.9 million of cash for capital expenditures . during 2018 , we used $ 308.0 million , net of cash acquired , for the purchase of muuto and $ 40.3 million of cash for capital expenditures . the capital expenditures are reflective of our commitment to enhance and modernize our sales , manufacturing and information technology infrastructure . acquisitions are reflective of our strategy of building our global capabilities as a singular resource for high-design workplaces and homes . 30 during the year ended december 31 , 2019 , we entered into a first amendment to the third amended and restated credit agreement ( the `` credit agreement amendment '' ) , dated as of january 23 , 2018 ( together , as amended , the `` credit agreement '' ) . among other things , the credit agreement amendment extends the maturity of the credit facility from january 2023 to august 2024. net borrowings under the revolving credit facility ( the `` revolver '' ) governed by the credit agreement in 2019 were approximately $ 4.0 million . payments on the term loan facility were $ 17.1 million in 2019. additionally , we used $ 32.8 million of cash to fund dividend payments , $ 3.3 million to repurchase shares used to offset the cost of employee tax withholdings related to equity award settlements , and $ 2.0 million to pay fees related to the credit agreement amendment , of which the majority of the fees were capitalized and will be amortized over the term of the amended credit agreement . we use our credit facility in the ordinary course of business to fund our working capital needs and investments and , at times , make significant borrowings and repayments under the facility depending on our cash needs and availability at such time . borrowings under the credit agreement may be repaid at any time , but no later than at maturity in august 2024. as of december 31 , 2019 , we believe that existing cash balances and internally generated cash flows , together with the borrowing capacity available under our credit facility , will be sufficient to fund working capital needs , capital spending requirements , debt service requirements and dividend payments for at least the next twelve months . future debt payments may be paid out of cash flows from operations , from future refinancing of our debt or from equity issuance . in january 2018 , we amended and extended what was then our existing credit facility , dated as of may 20 , 2014 , with a new $ 750.0 million credit facility scheduled to mature in january 2023 ( the `` third amended and restated credit agreement '' ) . cash proceeds received during 2018 from the issuance of revolving and term loan debt totaled approximately $ 841 million , the majority of which was issued under the third amended and restated credit agreement . these proceeds were used , among other things , to finance a portion of the muuto acquisition and repay the outstanding term loan balances of $ 165.0 million from the predecessor credit facility . additionally , we used $ 30.0 million of cash to fund dividend payments , $ 4.4 million to repurchase shares used to offset the cost of employee tax withholdings related to equity award settlements , $ 7.9 million to fund a contribution to the defined benefit union plan , and $ 5.7 million to pay fees related to the issuance of debt under the third amended and restated credit agreement . the credit agreement requires that we comply with two financial covenants ; ( i ) consolidated leverage ratio , defined as the ratio of total indebtedness to consolidated ebitda ( as defined in the credit agreement ) and ( ii ) consolidated interest coverage ratio , defined as the ratio of our consolidated ebitda ( as defined in the credit agreement ) to our consolidated interest expense . our consolidated leverage ratio can not exceed 4.00 to 1 , which steps down over time to 3.75 to 1 starting with the quarter ending june 30 , 2020 , and to 3.50 to 1 starting with the quarter ending june 30 , 2021 , and which may be increased in certain circumstances . our consolidated interest coverage ratio must be a minimum of 3.0 to 1. because of the financial covenant mentioned above , our ability to borrow the entire capacity under our credit facility could be reduced if by borrowing , our leverage ratio would exceed the covenant . we are also required to comply with various other affirmative and negative covenants including , without limitation , covenants that prevent , restrict or limit the following : our ability to pay dividends , engage in certain mergers or acquisitions , make certain investments or loans , incur future indebtedness , engage in sale-leaseback transactions , alter our capital structure or line of business , prepay subordinated indebtedness , engage in certain transactions with affiliates and sell stock or assets . at december 31 , 2019 , we were in compliance with all covenants applicable to our credit facility . 31 contractual obligations the following table summarizes our contractual cash obligations as of december 31 , 2019 ( in millions ) : replace_table_token_10_th ( 1 ) contractual obligations for long-term debt and short-term borrowings include principal and interest payments . interest payments have been computed based on an estimated variable interest as of december 31 , 2019 . the estimated variable interest rate is based on the company 's expected consolidated leverage ratio and the forecasted libor rate for each period presented . the computation of interest , as included in the above table , is based on our amended credit facility .
| results of operations comparison of consolidated results for the years ended december 31 , 2019 and december 31 , 2018 replace_table_token_4_th 26 net sales net sales for the year ended december 31 , 2019 were $ 1,428.1 million , an increase of $ 125.8 million , or 9.7 % , from sales of $ 1,302.3 million for the year ended december 31 , 2018 . net sales for the office segment were $ 873.8 million during the year ended 2019 , an increase of $ 76.7 million , or 9.6 % compared to the year ended 2018. the office segment sales growth was primarily due to improved performance in height-adjustable tables , newer office systems products , conference room solutions and four months of fully sales since acquisition . net sales for the lifestyle segment were $ 554.3 million during the year ended 2019 , an increase of 9.7 % compared with the year ended 2018. this increase was primarily driven by strong growth in cross-over sales into commercial workplace settings , particularly at muuto . gross profit gross profit for 2019 was $ 549.0 million , an increase of $ 67.5 million , or 14.0 % , from gross profit of $ 481.5 million in 2018 . during the year ended 2019 , gross margin increased to 38.4 % from 37.0 % in the year ended 2018. the increase in gross margin was mainly driven by continuous improvement activities , net price realization and higher volume absorption of fixed costs , partially offset by commodity and transportation inflation as well as higher tariffs during the year . operating profit operating profit for 2019 was $ 129.8 million , an increase of $ 14.6 million , or 12.6 % , from operating profit of $ 115.2 million for 2018 . operating profit as a percentage of sales increased from 8.8 % in 2018 to 9.1 % in 2019 .
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the effects of inflation are implicitly considered in the reserving story_separator_special_tag financial condition and results of operations the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements , related notes and other financial information appearing elsewhere in this annual report on form 10-k , filed with the u. s. securities and exchange commission ( “ sec ” ) . forward-looking statements certain statements contained in this annual report on form 10-k , which are not statements of historical fact , are forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , as section 21e of the securities exchange act of 1934 , as amended . forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance . words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” `` will , '' “ intend , ” “ may , ” “ plan , ” “ seek ” and similar terms and phrases , or the negative thereof , may be used to identify forward-looking statements . the forward-looking statements contained in this report are based on management 's good-faith belief and reasonable judgment based on current information . the forward-looking statements are qualified by important factors , risks and uncertainties , many of which are beyond our control , which could cause our actual results to differ materially from those in the forward-looking statements , including those described above in item 1a risk factors and subsequent reports filed with or furnished to the sec . any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein . we undertake no obligation to publicly update any forward-looking statement , whether as a result of new information , future developments or otherwise , except as may be required by any applicable laws or regulations . business overview we are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines . our growth has been significant since our founding in 2009. currently , we are authorized to write insurance as an excess and surplus lines carrier in 45 states , including the district of columbia . we are licensed to write insurance as an admitted carrier in 42 states , including the district of columbia , and we offer our insurance products in all 50 states . our revenues are primarily derived from premiums earned from our insurance operations . we also generate other revenues through investment income and other income which mainly consists of : installment fees and policy issuance fees generally related to the policies we write . our expenses consist primarily of losses and loss adjustment expenses , agents ' commissions , and other underwriting and administrative expenses . we organize our operations in three insurance businesses : commercial insurance lines , personal lines , and agency business . together , the commercial and personal lines refer to “ underwriting ” operations that take insurance risk , and the agency business refers to non-risk insurance business . through our commercial insurance lines , we offer coverage for both commercial property and commercial liability . we also offer coverage for commercial automobiles and workers ' compensation . our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis . through our personal insurance lines , we offer homeowners insurance and dwelling fire insurance products to individuals in several states . our specialty homeowners insurance product line is primarily comprised of low-value dwelling insurance tailored for owners of lower valued homes , which we offer in illinois , indiana and texas . due to recent florida-based industry events , we have been de-emphasizing our florida homeowners ' business and reducing our exposures in that state , as well as other wind-exposed states like texas and hawaii . through our wholesale agency business segment , we offer commercial and personal lines insurance products for our insurance company subsidiaries as well as third-party insurers . we have expanded the wholesale agency business to develop more non-risk revenue streams , and to provide our agents with more insurance product options . 35 critical accounting p olicies and estimates general we identified the accounting estimates below as critical to the understanding of our financial position and results of operations . critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us to exercise significant judgment . we use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements . these judgments and estimates affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of material contingent assets and liabilities . actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements . we evaluate our estimates regularly using information that we believe to be relevant . see the consolidated financial statements note 1 ~ summary of significant accounting policies , for further details . loss and loss adjustment expense reserves our recorded loss and loss adjustment expenses ( `` lae '' ) reserves represent management 's best estimate of unpaid loss and lae at each balance sheet date , based on information , facts and circumstances known at such time . our loss and lae reserves reflect our estimates at the balance sheet date of : case reserves , which are unpaid loss and lae amounts that have been reported ; and incurred but not reported ( `` ibnr '' ) reserves , which are ( 1 ) unpaid loss and lae amounts that have been incurred but not yet reported ; and ( 2 ) the expected development on case reserves . story_separator_special_tag most or all of these factors are not directly or precisely quantifiable , particularly on a prospective basis , and are subject to a significant degree of variability over time . in addition , the establishment of loss and lae reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which can not yet be quantified . as a result , an integral component of our loss and lae reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and lae . accordingly , the ultimate liability may vary significantly from the current estimate . the effects of change in the estimated loss and lae reserves are included in the results of operations in the period in which the estimate is revised . our reserves consist entirely of reserves for property and liability losses , consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts . several years may elapse between the occurrence of an insured loss , the reporting of the loss to us and our payment of the loss . the level of ibnr reserves in relation to total reserves depends upon the characteristics of the specific line of business , particularly related to the speed with which claims are reported and outstanding claims are paid . lines of business for which claims are reported slowly will have a higher percentage of ibnr reserves than lines of business that report and settle claims more quickly . the following table shows the ratio of ibnr reserves to total reserves net of reinsurance recoverables as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_8_th although we believe that our reserve estimates are reasonable , it is possible that our actual loss and lae experience may not conform to our assumptions and may , in fact , vary significantly from our assumptions . accordingly , the ultimate settlement of losses and the related lae may vary significantly from the estimates included in our financial statements . we continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us . such adjustments are included in current operations . our loss and lae reserves do not represent an exact measurement of liability , but are estimates . the most significant assumptions affecting our ibnr reserve estimates are the loss development factors applied to paid losses and case reserves to develop ibnr by line of business and accident year . although historical loss development provides us with an indication of future loss development , it typically varies from year to year . thus , for each accident year within each line of business we select one loss development factor out of a range of historical factors . 38 we generated a sensitivity analysis of our net reserves which represents reasonab ly likely levels of variability in our selected loss development factors . we believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and lae estimates . we applied this approach on an accident year basis , reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year . generally , the most recent accident years are characterized by more unreported losses an d less information available for settling claims , and have more inherent uncertainty than the reserve estimates for more mature accident years . therefore , we used variability factors of plus or minus 10 % for the most recent accident year , 5 % for the prece ding accident year , and 2.5 % for the second preceding accident year . there is minimal expected variability for accident years at four or more years ' maturity . the following table displays ultimate net loss and lae and net loss and lae reserves by accident year for the year ended december 31 , 2019. we applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and lae reserve change and the impact on 2019 reported pre-tax income and on net income and shareholders ' equity at december 31 , 2019. we believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year 's reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor . we also believe that such changes to our reserve balance would not have a material impact on our operating results , financial position , or liquidity . the net income and shareholders ' equity amounts include an income tax rate assumption of 21 % . the dollar amounts in the table are in thousands . replace_table_token_9_th investment valuation and impairment we carry debt securities classified as available‑for‑sale at fair value , and unrealized gains and losses on such securities , net of any deferred taxes , are reported as a separate component of accumulated other comprehensive income . our equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value and any changes in fair value are recognized in net income . we carry other equity investments that do not have a readily determinable fair value at cost , less impairment and adjusted for observable price changes under the measurement alternative provided under gaap . we review these investments for impairment during each reporting period . we do not have any securities classified as trading or held‑to‑maturity . we evaluate our available‑for‑sale investments regularly to determine whether there have been declines in value that are other‑than‑temporary . our outside investment managers assist us in this evaluation .
| summary operating results replace_table_token_17_th ( 1 ) the loss ratio is the ratio , expressed as a percentage , of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations . the 2018 and 2017 ratios have been recast to reflect the new presentation . refer to note 17 ~ segment information for further details . ( 2 ) the expense ratio is the ratio , expressed as a percentage , of policy acquisition costs and operating expenses to net earned premiums and other income from underwriting operations . the 2018 and 2017 ratios have been recast to reflect the new presentation . refer to note 17 ~ segment information for further details . ( 3 ) the combined ratio is the sum of the loss ratio and the expense ratio . a combined ratio under 100 % indicates an underwriting profit . a combined ratio over 100 % indicates an underwriting loss . * percentage change is not meaningful premiums earned premiums are earned ratably over the term of the policy , whereas written premiums are reflected on the effective date of the policy . all commercial lines and homeowners products have annual policies , under which premiums are earned evenly over one year . almost all personal automobile policies are six-month term policies under which premiums are earned evenly over a six-month period . the resulting net earned premiums are impacted by the gross and ceded written premiums , earned ratably over time .
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we provide engineering services , worldwide procurement and distribution , materials management , world-class manufacturing and assembly services , in-house testing , and unparalleled customer service . our international production capability provides our customers with benefits of improved supply-chain management , reduced inventories , lower transportation costs , and reduced product fulfillment time . we continue to make investments in all of our operating facilities to give us the production capacity , capabilities and logistical advantages to continue to win new business . the following information should be read in conjunction with the consolidated financial statements included herein and with item 1a , risk factors included as part of this filing . our mission is to provide our customers with superior manufacturing and engineering services at the lowest total cost for the highest quality products , and create long-term mutually beneficial business relationships by employing our “ trust , commitment , results ” philosophy . executive summary while fiscal year 2014 was a challenging year with respect to our total revenue , we continued to make significant progress in ramping up our new programs , expanding our customer base and extending our capabilities . throughout the year , our revenue was impacted by slowdowns and delays from certain longstanding customers . at the same time , we saw the continued ramp up of our new programs , while maintaining operating efficiencies and a strong balance sheet . net sales of $ 305.4 million for fiscal year 2014 decreased by 15.4 percent as compared to net sales of $ 361.0 million in fiscal year 2013 . the decrease in net sales was primarily driven by the overall decrease in demand related to current customer programs . at the end of fiscal year 2014 , we were generating revenue from 196 separate programs and 59 distinct customers as compared to 183 programs and 56 customers at the end of fiscal year 2013 . these new customers have programs that represent small annual sales while others have multi-million-dollar potential . moving into the first quarter of fiscal 2015 , our new customer programs continue to steadily ramp up and we expect to see renewed sequential growth . furthermore , our acquisition of cdr manufacturing on september 3 , 2014 , represents a major step forward for key tronic , significantly growing our revenue and extending capabilities and customer base worldwide . excluding the potential impact of the acquisition of cdr manufacturing in fiscal year 2015 , the company expects to report revenue in the range of $ 76 million to $ 82 million for the first quarter of fiscal year 2015 . future results will depend on actual levels of customers ' orders , the timing of the start-up of production of new product programs and the potential impact of the macroeconomic uncertainty . we believe that we are well positioned in the ems industry to continue expansion of our customer base and continue long-term growth . the concentration of our largest customers decreased during fiscal year 2014 with the top five customers ' sales decreasing to 62 percent of total sales in 2014 from 71 percent in 2013 , and 73 percent in 2012 . our current customer relationships involve a variety of products , including consumer electronics , electronic storage devices , plastics , household products , gaming devices , specialty printers , telecommunications , industrial equipment , military supplies , computer accessories , electronic whiteboards , medical , educational , irrigation , automotive , transportation management , robotics , rfid , power supply , off-road vehicle equipment , fitness equipment , hvac controls , and consumer products . gross profit as a percent of sales was 8.8 percent in fiscal year 2014 compared to 9.6 percent for the prior fiscal year . this 0.8 percentage point decrease in gross profit as a percentage of net sales during fiscal year 2014 as compared to fiscal year 2013 is primarily related to a 5.1 percentage point increase in certain overhead costs as we brought on additional headcount and equipment to support new customer programs , partially offset by a 4.3 percentage point improvement in material costs . the level of gross margin is impacted by product mix , timing of the startup of new programs , facility utilization , pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter and year to year . operating income as a percentage of sales for fiscal year 2014 was 3.0 percent compared to 5.0 percent for fiscal year 2013 . the decrease in operating income as a percentage of net sales was primarily due to a decrease in gross margin and a slight increase in headcount in program management and engineering to support new program wins and anticipated future growth . net income for fiscal year 2014 was $ 7.6 million or $ 0.67 per diluted share , as compared to net income of $ 12.6 million or $ 1.12 per diluted share for fiscal year 2013 . the decrease in net income for fiscal year 2014 as compared to fiscal year 2013 was primarily due to a decrease in demand from some of our large , longstanding customers as well as an increase in certain overhead costs as a percentage of net sales , partially offset by a decrease in material-related costs as a percentage of net sales . 18 we maintain a strong balance sheet with a current ratio of 2.4 and currently have no bank debt apart from $ 7.9 million outstanding under a factoring agreement described in note 5. total cash provided by operating activities as defined on our cash flow statement was $ 1.5 million during fiscal year 2014 . we maintain sufficient liquidity for our expected future operations . we did not have an outstanding balance on our revolving line of credit with wells fargo bank , n.a . as of june 28 , 2014 . as a result , $ 30.0 million remained available to borrow as of june 28 , 2014 . story_separator_special_tag the 1.0 percentage point increase in gross profit as a percentage of net sales during fiscal year 2013 as compared to fiscal year 2012 is primarily related to a 1.9 percentage point improvement in material costs , as a percent of sales , partially offset by a 0.9 percentage point increase in certain overhead costs . changes in gross profit margins reflect the impact of a number of factors that can vary from period to period , including product mix , start-up costs and efficiencies associated with new programs , product life cycles , sales volumes , capacity utilization of our resources , management of inventories , component pricing and shortages , end market demand for customers ' products , fluctuations in and timing of customer orders , and competition within the ems industry . these and other factors can cause variations in operating results . there can be no assurance that gross margins will not decrease in future periods . we took early pay discounts to suppliers that totaled approximately $ 946,000 and $ 932,000 in fiscal years 2013 and 2012 , respectively . early pay discounts will fluctuate based on our liquidity and changes in the discounts and terms offered by our suppliers . research , development and engineering research , development and engineering expenses ( rd & e ) consists principally of employee related costs , third party development costs , program materials , depreciation and allocated information technology and facilities costs . total rd & e expense was $ 5.2 million and $ 4.4 million in fiscal years 2013 and 2012 , respectively . this $ 0.7 million increase is primarily the result of an increase in payroll related expenses as additional headcount was necessary to support new programs as they ramp up . total rd & e expenses as a percent of net sales were 1.4 percent and 1.3 percent in fiscal years 2013 and 2012 , respectively . this 0.1 percentage point increase in rd & e is primarily related to our deleveraging of operating expenses as a percent of net sales . selling , general and administrative selling , general and administrative expenses ( sg & a ) consist principally of salaries and benefits , advertising and marketing programs , sales commissions , travel expenses , provision for doubtful accounts , facilities costs , and professional services . total sg & a expenses were $ 11.2 million and $ 11.0 million in fiscal years 2013 and 2012 , respectively . this $ 0.2 million increase is primarily related to an increase in payroll related expenses due to increased headcount and higher incentive compensation as compared to the prior year . this increase is partially offset by the positive impact of a non-recurring adjustment of approximately $ 0.5 million related to the elimination of a deferred compensation liability . total sg & a expenses as a percent of net sales were 3.1 percent and 3.2 percent in fiscal years 2013 and 2012 , respectively . this 0.1 percent percentage point improvement in sg & a is primarily related to our continued success in leveraging operating expenses as a percent of net sales . interest expense we had net interest expense of $ 0.3 million and $ 0.5 million in fiscal years 2013 and 2012 , respectively . this decrease is primarily related to a decrease in the average balance outstanding on our line of credit during the year and the impact of not having an outstanding balance on our line of credit at fiscal year end 2013 . 23 income tax provision we had an income tax expense of $ 5.3 million during fiscal year 2013 as compared to an income tax expense of $ 2.2 million in fiscal year 2012. the income tax expense recognized during both fiscal 2013 and 2012 was primarily a function of u.s. and foreign taxes recognized at the statutory rates offset by the net benefit associated with federal research and development tax credits and changes in potential foreign tax credits . the impact of this offset was greater in 2012 because the company recognized a benefit related to federal research and development tax credits during fiscal 2012 , due to the results of a multi-year tax credit study performed during that year . fiscal 2013 recognized credits were related to expenses incurred during the current year . due to increased profitability , revenue growth , and new customer programs , we utilized all remaining domestic and foreign net operating loss carryforwards ( nols ) during fiscal year 2012. as a result , there was no remaining deferred tax asset as of june 30 , 2012 related to nols . in addition , we continually review our requirements for liquidity domestically to fund revenue growth and to look for potential future acquisitions . we continue to anticipate repatriating a portion of our unremitted foreign earnings . the associated taxes and potential foreign tax credits are included in the income tax calculation . for further information on taxes please review footnote 6 of the “ notes to consolidated financial statements. ” capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2014 was $ 1.5 million compared to net cash provided by operating activities of $ 29.3 million and net cash used in operating activities of $ 5.1 million in fiscal years 2013 and 2012 , respectively . the working capital year-over-year change is primarily related to a $ 10.5 million increase in inventory , a $ 2.7 million increase in accounts receivable , partially offset by a $ 6.1 million increase in accounts payable . the working capital changes during fiscal year 2013 are primarily due to a $ 13.3 million decrease in inventory and a $ 13.6 million decrease in accounts receivable , which were partially offset by a $ 16.6 million decrease in accounts payable . accounts receivable fluctuates based on the timing of shipments , terms offered and collections .
| results of operations comparison of the fiscal year ended june 28 , 2014 with the fiscal year ended june 29 , 2013 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_5_th net sales the decrease in net sales from prior year was primarily driven by an approximate $ 67.4 million decrease in revenues related to decreased demand from current customer programs , an approximate $ 5.2 million decrease in revenues related to program losses , partially offset by a $ 17.0 million increase in revenues related to new program wins and the revenue generated from the acquisition of sabre . the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2014 and 2013 : replace_table_token_6_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . as we continue to diversify our customer base and win new customers we will continue to see a change in the industry concentrations of our revenue . sales to foreign locations outside the united states represented 35.3 percent , and 31.8 percent of our total net sales in fiscal years 2014 , and 2013 , respectively . 19 cost of sales total cost of sales as a percentage of net sales was 91.2 percent and 90.4 percent in fiscal years 2014 , and 2013 , respectively . total cost of materials as a percentage of net sales was approximately 64.5 percent and 68.5 percent in fiscal years 2014 and 2013 , respectively .
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newtek business services corp. and subsidiaries consolidated schedule of investments december 31 , 2019 ( in thousands ) portfolio company tickmarks company address industry type of investment interest rate ( 2 ) maturity principal cost fair value % of net assets replace_table_token_73_th f-49 see accompanying notes to consolidated financial statements . newtek business services corp. and subsidiaries consolidated schedule of investments december 31 , 2019 ( in thousands ) portfolio company tickmarks company address industry type of story_separator_special_tag introduction and certain cautionary statements the following discussion and analysis of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the company together with its subsidiaries . this discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes . the statements in this annual report may contain forward-looking statements relating to such matters as anticipated future financial performance , business prospects , legislative developments and similar matters . we note that a variety of factors could cause our actual results to differ materially from the anticipated results expressed in the forward-looking statements such as intensified competition and or operating problems in our operating business projects and their impact on revenues and profit margins or additional factors as described under “ risk factors ” above . executive overview we are a leading national non-bank lender and own and control certain portfolio companies under the newtek® brand ( our “ controlled portfolio companies , ” as defined below ) that provide a wide range of business and financial solutions to smbs . newtek 's and its portfolio companies ' business and financial solutions include : business lending , including origination of sba 7 ( a ) , sba 504 loans and nonconforming ( non sba ) conventional loans , electronic payment processing , managed technology solutions ( cloud computing ) , technology consulting , ecommerce , accounts receivable and inventory financing , personal and commercial insurance services , web services , data backup , storage and retrieval , and payroll and benefits solutions to smb accounts nationwide across all industries . we have an established and reliable platform that is not limited by client size , industry type , or location . as a result , we believe we have a strong and diversified client base across every state in the u.s. and across a variety of different industries . in addition , we have developed a financial and technology based business model that 78 enables us and our controlled portfolio companies to acquire and process our smb clients in a very cost effective manner . this capability is supported in large part by newtracker® , our patented prospect management technology software , which is similar to , but we believe better suited for our needs than , the system popularized by salesforce.com . we believe that this technology and business model distinguishes us from our competitors . we consolidate the following wholly-owned subsidiaries : newtek small business finance , llc newtek asset backed securities , llc ccc real estate holdings , llc the whitestone group , llc wilshire colorado partners , llc ( 1 ) wilshire dc partners , llc wilshire holdings i , inc. wilshire louisiana bidco , llc wilshire louisiana partners ii , llc wilshire louisiana partners iii , llc wilshire louisiana partners iv , llc wilshire new york advisers ii , llc wilshire new york partners iii , llc wilshire new york partners iv , llc ( 2 ) wilshire new york partners v , llc ( 2 ) wilshire partners , llc exponential business development co. , inc. newtek commercial lending , inc. newtek lsp holdco , llc newtek business services holdco 1 , inc. newtek business services holdco 2 , inc. newtek business services holdco 3 , inc. newtek business services holdco 4 , inc. newtek business services holdco 5 , inc. ( formerly banc-serv acquisition , inc. ) newtek business services holdco 6 , inc. ( 1 ) entity was merged into the whitestone group , llc on december 31 , 2018 . ( 2 ) entity was merged into the whitestone group , llc on december 31 , 2017. we are an internally-managed , closed-end , non-diversified investment company that has elected to be regulated as a bdc under the 1940 act . in addition , for u.s. federal income tax purposes , we have elected to be treated as a ric under the code beginning with our 2015 tax year . as a bdc and a ric , we are also subject to certain constraints , including limitations imposed by the 1940 act and the code . as a result , previously consolidated subsidiaries are now recorded as investments in controlled portfolio companies , at fair value . nsbf is a consolidated subsidiary and originates loans under the sba 's 7 ( a ) loan program . our common shares are currently listed on the nasdaq global market under the symbol “ newt ” . nsbf has been granted plp status and originates , sells and services sba 7 ( a ) loans and is authorized to place sba guarantees on loans without seeking prior sba review and approval . being a national lender with plp status allows nsbf to expedite the origination of loans since nsbf is not required to present applications to the sba for concurrent review and approval . the loss of plp status would adversely impact our marketing efforts and ultimately our loan origination volume which would negatively impact our results of operations . 79 as a bdc , our investment objective is to generate both current income and capital appreciation primarily through loans originated by our business finance ecosystem and our equity investments in certain portfolio companies that we control . story_separator_special_tag we record current period 80 changes in fair value of investments and assets that are measured at fair value as a component of the net change in unrealized appreciation ( depreciation ) on investments or servicing assets , as appropriate , in the consolidated statements of operations . expenses our primary operating expenses are salaries and benefits , interest expense , origination and servicing and other general and administrative costs , such as professional fees , marketing , referral fees , servicing costs and rent . since we are an internally-managed bdc with no outside adviser or management company , the bdc incurs all the related costs to operate the company . guarantees the company is a guarantor on the sterling receivable and inventory facility at nbc . maximum borrowings under the sterling receivable and inventory facility are $ 35,000,000 . the sterling receivable and inventory facility matures in august 2022 and automatically renews annually . at december 31 , 2019 , total principal owed by nbc was $ 25,802,000 . in addition , the company deposited $ 750,000 to collateralize the guarantee . at december 31 , 2019 , the company determined that it is not probable that payments would be required to be made under the guarantee . the company is a guarantor on the nbl facility . maximum borrowings under the nbl facility are $ 75,000,000 with an accordion feature to increase maximum borrowings to $ 150,000,000 . the nbl facility matures in july 2021 . at december 31 , 2019 , total principal owed by nbl was $ 12,165,000 . at december 31 , 2019 , the company determined that it is not probable that payments would be required to be made under the guarantee . the company is a guarantor on the webster facility , a term loan facility between nms with webster bank with an aggregate principal amount up to $ 50,000,000 . the webster facility matures in november 2023. at december 31 , 2019 , total principal outstanding was $ 32,375,000 . at december 31 , 2019 , the company determined that it is not probable that payments would be required to be made under the guarantee . unfunded commitments at december 31 , 2019 , the company had $ 7,653,000 of unfunded commitments in connection with its sba 7 ( a ) non-affiliate investments related to portions of loans originated which are partially funded . the company will fund these commitments from the same sources it uses to fund its other investment commitments . loan portfolio asset quality and composition the following tables set forth distributions of the cost basis of the company 's sba 7 ( a ) loan portfolio at december 31 , 2019 and december 31 , 2018 , respectively , in thousands . the tables include loans in which nsbf owns 100 % as a result of nsbf originating the loan and subsequently repurchasing the guaranteed portion from the sba . the total of 100 % nsbf-owned loans at december 31 , 2019 and december 31 , 2018 is $ 11,307,000 and $ 11,605,000 , respectively . distribution by business type replace_table_token_12_th replace_table_token_13_th 81 distribution by borrower credit score replace_table_token_14_th replace_table_token_15_th distribution by primary collateral type replace_table_token_16_th 82 replace_table_token_17_th distribution by days delinquent replace_table_token_18_th replace_table_token_19_th set forth below is a comparison of the results of operations for the years ended december 31 , 2019 and 2018. for a comparison of the results of operations for the years ended december 31 , 2018 and 2017 , see the company 's form 10-k for the year ended december 31 , 2018 , as filed with the sec on march 18 , 2019 . 83 comparison of the year ended december 31 , 2019 and 2018 investment income replace_table_token_20_th interest income the increase in interest income was attributable to the average outstanding accrual portfolio of sba non-affiliate investments increasing to $ 339,128,000 from $ 282,378,000 for the year ended december 31 , 2019 and 2018 , respectively . the increase in the average outstanding accrual portfolio resulted from the origination of new sba non-affiliate investments period over period . we also recognized an additional $ 897,000 of interest income period over period from holding sba guaranteed loans . dividend income dividend income is dependent on portfolio company earnings . current year dividend income may not be indicative of future period dividend income . dividend income was earned from the following portfolio companies for the year ended december 31 , 2019 and 2018 : replace_table_token_21_th ( 1 ) on december 31 , 2018 , premier was merged into nms . nsbf servicing portfolio and related servicing income the following table represents the nsbf originated servicing portfolio and servicing income earned for the year ended december 31 , 2019 and 2018 : replace_table_token_22_th ( 1 ) of this amount , the total average nsbf originated portfolio earning servicing income was $ 1,180,558,000 and $ 975,852,000 for the year ended december 31 , 2019 and 2018 , respectively . the increase in servicing income was attributable to the increase in total portfolio investments for which we earn servicing income . the portfolio earning servicing income increase d $ 204,706,000 period over period . the increase was attributable to an increase in sba 7 ( a ) non-affiliate investments period over period . 84 other income other income relates primarily to legal , packaging , prepayment , and late fees earned from sba 7 ( a ) loans . the increase was related to an increase in legal , prepayment and packaging fees earned as a result of the larger dollar volume of loans originated . expenses : replace_table_token_23_th salaries and benefits as discussed below , the decrease in salaries and benefits was the result of certain nsbf employees being hired by sbl . sbl is a lender service provider that , effective january 1 , 2019 , provides nsbf with loan origination and loan processing functions performed by its employees . as a result , costs related to these employees previously included in salaries and benefits , are included in origination and loan processing - related party .
| overview our liquidity and capital resources are derived from our capital one facility , notes payable - related parties , 2023 notes , 2024 notes , securitization transactions and cash flows from operations , including investment sales and repayments , and income earned . our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur . we have used , and expect to continue to use , our borrowings and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives . we may raise additional equity or debt capital through both registered offerings off a shelf registration , including “ at-the-market ” , or atm , and private offerings of securities . as of december 31 , 2019 , our asset coverage was 173 % based on $ 439,550,000 of aggregate principal amount of senior securities outstanding . on april 27 , 2018 , we announced that our board , including a “ required majority ” ( as such term is defined in section 57 ( o ) of the 1940 act ) of the board , approved a proposal to reduce our asset coverage requirement as set forth in section 61 ( a ) ( 2 ) of the 1940 act , from 200 % to 150 % , pursuant to recent modifications included in the small business credit availability act . such change would have been effective april 27 , 2019. however , on july 26 , 2018 , our stockholders approved a proposal to reduce our asset coverage requirement to 150 % , effective july 27 , 2018 . 87 public offerings atm program the 2017 atm equity distribution agreement provided that we may offer and sell up to 4,400,000 shares of common stock from time to time through the placement agents . from inception through december 31 , 2019 , we sold 1,618,375 shares of our common stock at a weighted average price of $ 18.07
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thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers at competitive rates . in recent years , we have been successful at keeping over 98 % of our land subject to grazing leases . 9 story_separator_special_tag line-height : 1.25 ; text-indent : 36pt '' > oil and gas royalty revenue in 2013 was $ 24,496,851 compared to $ 14,670,915 in 2012 , an increase of 67.0 % . oil royalty revenue was $ 19,930,212 and gas royalty revenue was $ 4,566,639 in 2013. crude oil production from trust royalty wells increased 60.6 % in 2013 from 2012. the average prices per royalty barrel of crude oil for 2013 and 2012 were $ 91.56 and $ 87.56 , respectively . total gas production increased 47.7 % , and the average price of gas increased by 10.6 % in 2013 compared to 2012. grazing lease income in 2013 was $ 494,210 compared to $ 488,694 in 2012. interest revenue ( including interest on investments ) was $ 496,243 in 2013 compared to $ 725,687 in 2012 , a decrease of 31.6 % . interest on notes receivable amounted to $ 484,238 in 2013 compared to $ 706,252 in 2012. at year end 2013 , notes receivable from land sales were $ 3,887,906 compared to $ 8,370,984 at year end 2012. interest on investments amounted to $ 12,005 in 2013 and $ 19,435 in 2012 , respectively . total principal cash payments on notes receivable were $ 4,483,078 in 2013 including $ 2,736,616 of prepaid principal . 11 easements and sundry income revenue in 2013 was $ 12,220,187 compared to $ 10,911,848 in 2012. the increase in easements and sundry income revenue was primarily attributable to increases in the amount of sundry income , sundry lease rental income , and , to a lesser extent , pole line easement income received in 2013 compared to 2012 due to an increase in drilling and exploration activity on land owned by the trust . these increases were partially offset by a decrease in seismic easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,420,635 in 2013 compared to $ 941,757 in 2012. oil and gas production taxes were $ 1,259,287 in 2013 compared to $ 756,076 in 2012. ad valorem taxes were $ 99,984 in 2013 compared to $ 128,391 in 2012. all other expenses were $ 2,557,866 in 2013 compared to $ 2,342,248 in 2012. liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , easements and sundry income , and land sales . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . tabular disclosure of contractual obligations the trust is currently a lessee under a month-to-month operating lease in connection with its administrative offices located in dallas , texas . this lease agreement requires monthly rent of approximately $ 5,867. as of december 31 , 2014 , the trust 's known contractual obligations were as follows : payment due by period contractual obligations total less than 1 year 1-3 years 3-5 years more than 5 years long-term debt obligations $ – $ – $ – $ – $ – capital lease obligations – – – – – operating lease obligations – – – – – purchase obligations – – – – – other long-term liabilities reflected on the trust 's balance sheet under gaap – – – – – total $ – $ – $ – $ – $ – 12 effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . any required allowance for losses is recorded in the period of determination . at december 31 , 2014 and 2013 , there were no significant delinquencies and , as such , no allowances for losses have been recorded . valuation of real story_separator_special_tag thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers at competitive rates . in recent years , we have been successful at keeping over 98 % of our land subject to grazing leases . 9 story_separator_special_tag line-height : 1.25 ; text-indent : 36pt '' > oil and gas royalty revenue in 2013 was $ 24,496,851 compared to $ 14,670,915 in 2012 , an increase of 67.0 % . oil royalty revenue was $ 19,930,212 and gas royalty revenue was $ 4,566,639 in 2013. crude oil production from trust royalty wells increased 60.6 % in 2013 from 2012. the average prices per royalty barrel of crude oil for 2013 and 2012 were $ 91.56 and $ 87.56 , respectively . total gas production increased 47.7 % , and the average price of gas increased by 10.6 % in 2013 compared to 2012. grazing lease income in 2013 was $ 494,210 compared to $ 488,694 in 2012. interest revenue ( including interest on investments ) was $ 496,243 in 2013 compared to $ 725,687 in 2012 , a decrease of 31.6 % . interest on notes receivable amounted to $ 484,238 in 2013 compared to $ 706,252 in 2012. at year end 2013 , notes receivable from land sales were $ 3,887,906 compared to $ 8,370,984 at year end 2012. interest on investments amounted to $ 12,005 in 2013 and $ 19,435 in 2012 , respectively . total principal cash payments on notes receivable were $ 4,483,078 in 2013 including $ 2,736,616 of prepaid principal . 11 easements and sundry income revenue in 2013 was $ 12,220,187 compared to $ 10,911,848 in 2012. the increase in easements and sundry income revenue was primarily attributable to increases in the amount of sundry income , sundry lease rental income , and , to a lesser extent , pole line easement income received in 2013 compared to 2012 due to an increase in drilling and exploration activity on land owned by the trust . these increases were partially offset by a decrease in seismic easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,420,635 in 2013 compared to $ 941,757 in 2012. oil and gas production taxes were $ 1,259,287 in 2013 compared to $ 756,076 in 2012. ad valorem taxes were $ 99,984 in 2013 compared to $ 128,391 in 2012. all other expenses were $ 2,557,866 in 2013 compared to $ 2,342,248 in 2012. liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , easements and sundry income , and land sales . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . tabular disclosure of contractual obligations the trust is currently a lessee under a month-to-month operating lease in connection with its administrative offices located in dallas , texas . this lease agreement requires monthly rent of approximately $ 5,867. as of december 31 , 2014 , the trust 's known contractual obligations were as follows : payment due by period contractual obligations total less than 1 year 1-3 years 3-5 years more than 5 years long-term debt obligations $ – $ – $ – $ – $ – capital lease obligations – – – – – operating lease obligations – – – – – purchase obligations – – – – – other long-term liabilities reflected on the trust 's balance sheet under gaap – – – – – total $ – $ – $ – $ – $ – 12 effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . any required allowance for losses is recorded in the period of determination . at december 31 , 2014 and 2013 , there were no significant delinquencies and , as such , no allowances for losses have been recorded . valuation of real
| results of operations the trust 's primary sources of income are revenue derived from sales of land , either for cash or a combination of cash and mortgage notes , and revenue derived from the trust 's land and mineral interests . 2014 compared to 2013 total operating and investing revenues in 2014 aggregated $ 55,216,753 , an increase of $ 11,095,674 , or 25.1 % , from the $ 44,121,079 of total operating and investing revenues recorded in 2013. this increase resulted primarily from increases in easements and sundry income and oil and gas royalty revenue . these increases were partially offset by a decrease in land sales and interest income from notes receivable . earnings per sub-share certificate were $ 4.14 for 2014 compared to $ 3.16 in 2013. the trust purchased and retired 150,803 sub-shares during 2014 , leaving 8,322,399 sub-shares outstanding at december 31 , 2014. land sales in 2014 were $ 3,698,312 compared to $ 6,413,588 in 2013 , a decrease of $ 2,715,276 , or 42.3 % . a total of 1,950 acres were sold in 2014 at an average price of $ 1,897 per acre , compared to 10,399 acres in 2013 at an average price per acre of $ 617. rentals , royalties and other income ( including interest on investments ) were $ 51,518,441 in 2014 compared to $ 37,707,491 in 2013 , an increase of 36.6 % . oil and gas royalty revenue in 2014 was $ 29,346,103 compared to $ 24,496,851 in 2013 , an increase of 19.8 % . oil royalty revenue was $ 22,766,264 and gas royalty revenue was $ 6,579,839 in 2014. crude oil production from trust royalty wells increased 19.8 % in 2014 from 2013. the average prices per royalty barrel of crude oil for 2014 and 2013 were $ 87.28 and $ 91.56 , respectively . total gas production increased 28.6 % , and the average price of gas increased by 11.9
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the historical condition and results of operations for grubhub inc. for the periods presented and the results of acquired businesses from the relevant acquisition dates . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect the company 's plans , estimates , and beliefs . actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in part i , item 1a , “ risk factors ” . this overview summarizes the md & a , which includes the following sections : our business – for a general description of our business , strategy , challenges and products and services see part i , item 1 , “ business ” of this annual report on form 10-k. significant accounting policies and critical estimates – for further discussion of accounting policies that require critical judgments and estimates see part ii , item 8 , note 2 , summary of significant accounting policies , of the accompanying notes to our consolidated financial statements in this annual report on form 10-k. operations review – an analysis of our consolidated results of operations for the year ended december 31 , 2019 as compared to the prior year , pro-forma results of operations and non-gaap financial measures . liquidity and capital resources – an analysis of cash flows , contractual obligations and commitments , the impact of inflation , changes in interest rates and fluctuations in foreign currency and an overview of financial position . 27 significant accounting policies and critical estimates our financial statements are prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances . our actual results could differ from these estimates . we believe our most critical accounting policies and estimates relate to the following : revenue recognition website and software development costs valuation and recoverability of intangible assets with finite lives and other long-lived assets stock-based compensation goodwill income taxes for a description of our significant accounting policies including critical judgments and estimates , see part ii , item 8 , note 2 , summary of significant accounting policies , of the accompanying notes to our consolidated financial statements in this annual report on form 10-k. operations review executive overview in 2019 , we continued our strong growth trajectory , generating 30 % revenue growth and continued growth across all key business metrics as compared to 2018. additionally , we have made meaningful progress on our restaurant network and diner loyalty initiatives in 2019. we have expanded our network to more than 300,000 restaurants and launched a number of new loyalty programs for our restaurant partners . compared to 2018 , our revenues increased by $ 304.9 million , or 30 % , to $ 1.3 billion for the year ended december 31 , 2019. the increase was primarily related to the significant growth in active diners , which increased from 17.7 million as of december 31 , 2018 to 22.6 million at the end of december 31 , 2019 , driving an increase in daily average grubs to 492,300 during the year ended december 31 , 2019 from 435,900 daily average grubs during 2018. we processed $ 5.9 billion in gross food sales in 2019 , a 17 % increase from the $ 5.1 billion in 2018. the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , technology and product improvements to drive more orders . in addition , revenue increased during the year ended december 31 , 2019 compared to 2018 due to an increase in our average commission rates , the full year impact of the levelup and tapingo acquisitions and a higher average order size . net income ( loss ) decreased by $ 97.0 million to a loss of $ 18.6 million or $ 0.20 per diluted share during the year ended december 31 , 2019 compared to 2018. the decrease was primarily driven by investments to grow our marketplace , including the expansion of the delivery network and increased marketing to generate organic growth . additionally , compensation expense , payment processing costs and certain other expenses increased as a result of organic growth in the business and order volume . during the year ended december 31 , 2019 , we issued $ 500.0 million in aggregate principal amount of 5.500 % senior notes due july 1 , 2027 ( “ senior notes ” ) . we used $ 323.0 million of the net proceeds from the senior notes to prepay and extinguish the term loan facility portion of our existing credit facility and $ 17.3 million to pay down the outstanding balance of the revolving loan under our existing credit facility . we entered into an amended and restated credit agreement on february 6 , 2019 which provides for aggregate revolving loans up to $ 225 million , of which there were no outstanding borrowings as of december 31 , 2019. see part ii , item 8 , note 10 , debt , for additional details . key business metrics to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we review key business metrics which include transactions placed on the platform where the company provides marketing services to generate orders . the platform excludes transactions where the company exclusively provides technology or fulfillment services . the following key business metrics are reviewed : active diners . story_separator_special_tag costs and expenses operations and support operations and support expenses consist of salaries and benefits , stock-based compensation expense and bonuses for salaried employees and payments to independent contractors engaged in customer care , operations and restaurant delivery services . operations and support expenses also include payment processing costs for diner orders , costs of uploading and maintaining restaurant menu content , communications costs related to orders , facilities costs allocated on a headcount basis and other expenses related to operating and maintaining an independent delivery network . sales and marketing sales and marketing expenses contain advertising expenses including search engine marketing , television , online display , media and other programs . sales and marketing expenses also consist of salaries , commissions , benefits , stock-based compensation expense and bonuses for restaurant sales , restaurant sales support , corporate and campus program customer sales and marketing employees , payments to contractors and facilities costs allocated on a headcount basis . technology ( exclusive of amortization ) technology ( exclusive of amortization ) expenses consist of salaries and benefits , stock-based compensation expense and bonuses for salaried employees and payments to contractors engaged in the design , development , maintenance and testing of our platform , including our websites , mobile applications and other products . technology expenses also include facilities costs allocated on a headcount basis but do not include amortization of capitalized website and software development costs . general and administrative general and administrative expenses consist of salaries , benefits , stock-based compensation expense and bonuses for executive , finance , accounting , legal , human resources and administrative support . general and administrative expenses also include legal , accounting , other third-party professional services , other miscellaneous expenses and facilities costs allocated on a headcount basis . depreciation and amortization depreciation and amortization expenses primarily consist of amortization of acquired intangibles and depreciation of computer equipment , furniture and fixtures , leasehold improvements and capitalized website and software development costs . income tax ( benefit ) expense income tax ( benefit ) expense consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions , deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes , excess tax benefits or deficiencies from stock-based compensation and net operating loss carryforwards . 30 story_separator_special_tag historical operating performance on a more consistent basis , we also use adjusted ebitda for business planning purposes , in evaluating business opportunities and determining incentive compensation for certain employees . in addition , management believes adjusted ebitda and similar measures are widely used by investors , securities analysts , ratings agencies and other parties in evaluating companies in the industry as a measure of financial performance and debt-service capabilities . our use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : adjusted ebitda does not reflect our cash expenditures for capital equipment or other contractual commitments ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect capital expenditure requirements for such replacements ; 33 adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; and other companies , including companies in the same industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . in evaluating adjusted ebitda , you should be aware that in the future the company will incur expenses similar to some of the adjustments in this presentation . the presentation of adjusted ebitda should not be construed as indicating that our future results will be unaffected by these expenses or by any unusual or non-recurring items . when evaluating our performance , you should consider adjusted ebitda alongside other financial performance measures , including net income and other gaap results . the following table sets forth adjusted ebitda and a reconciliation to net income ( loss ) for each of the periods presented below : replace_table_token_13_th ( a ) acquisition and restructuring costs include transaction and integration-related costs , such as legal and accounting costs , associated with acquisition and restructuring initiatives . legal costs included above are not expected to be recurring ( see part ii , item 8 , note 9 , commitments and contingencies , to the company 's consolidated financial statements in this annual report on form 10-k for additional details ) . ( b ) stock-based compensation for the years ended december 31 , 2019 and 2018 included $ 1.6 million and $ 4.8 million , respectively , of expense related to the accelerated vesting of equity awards to certain terminated acquired employees . liquidity and capital resources as of december 31 , 2019 , we had cash and cash equivalents of $ 375.9 million consisting of cash , money market funds , commercial paper and u.s. and non-u.s.-issued corporate debt securities with original maturities of three months or less and short-term investments of $ 49.3 million consisting of commercial paper and other short-term corporate debt securities with original maturities greater than three months , but less than one year . we generate a significant amount of cash flows from operations and have additional availability under the credit facility .
| results of operations the following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenues : replace_table_token_4_th ( a ) totals of percentage of revenues may not foot due to rounding ( b ) for an explanation of adjusted ebitda as a measure of the company 's operating performance and a reconciliation to net earnings , see “ non-gaap financial measure—adjusted ebitda ” below . the following is a discussion of our results of operations for the year ended december 31 , 2019 compared to 2018. for a discussion related to results of operations for the year ended december 31 , 2018 compared to 2017 , refer to the section titled “ results of operations ” in part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our 2018 form 10-k. revenues replace_table_token_5_th 2019 compared to 2018 revenues increased by $ 304.9 million , or 30 % , for the year ended december 31 , 2019 compared to 2018 . the increase was primarily related to significant growth in active diners , which increased from 17.7 million to 22.6 million at the end of each year , driving an increase in daily average grubs to 492,300 during the year ended december 31 , 2019 from 435,900 daily average grubs during 2018 . the growth in active diners and daily average grubs was due primarily to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , and technology and product improvements to drive more orders .
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these forward-looking statements involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those discussed in part i , item 1a - “ risk factors ” in this annual report on form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's opinions only as of the date hereof . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements , except as required by law . readers should carefully review the risk factors and the risk factors set forth in other documents we file from time to time with the sec . overview j2 global , inc. , together with its subsidiaries ( “ j2 global ” , “ the company ” , “ our ” , “ us ” or “ we ” ) , is a leading provider of internet services . through our cloud services segment , we provide cloud services to consumers and businesses and license our intellectual property ( “ ip ” ) to third parties . in addition , the cloud services segment includes fax , voice , backup , security and email marketing products . our digital media segment specializes in the technology , gaming , lifestyle and healthcare markets offering content , tools and services to consumers and businesses . our cloud services segment generates revenues primarily from customer subscription and usage fees and from ip licensing fees . our digital media segment generates revenues from advertising and sponsorships , subscription and usage fees , performance marketing and licensing fees . in addition to growing our business organically , on a regular basis we acquire businesses to grow our customer bases , expand and diversify our service offerings , enhance our technologies , acquire skilled personnel and enter into new markets . our consolidated revenues are currently generated from three basic business models , each with different financial profiles and variability . our cloud services segment is driven primarily by subscription revenues that are relatively higher margin , stable and predictable from quarter to quarter with some seasonal weakness in the fourth quarter . the cloud services segment also includes the results of our ip licensing business , which can vary dramatically in both revenues and profitability from period to period . our digital media segment is driven primarily by advertising revenues , has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter . we continue to pursue additional acquisitions , which may include companies operating under business models that differ from those we operate under today . such acquisitions could impact our consolidated profit margins and the variability of our revenues . j2 global was incorporated in 2014 as a delaware corporation through the creation of a new holding company structure , and our cloud services segment , operated by our wholly owned subsidiary , j2 cloud services , llc ( formerly j2 cloud services , inc. ) , and its subsidiaries , was founded in 1995. we manage our operations through two business segments : cloud services and digital media . information regarding revenue and operating income attributable to each of our reportable segments and certain geographic information is included within note 16 , “ segment information ” of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k , which is incorporated herein by reference . - 38 - cloud services segment performance metrics the following table sets forth certain key operating metrics for our cloud services segment for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands , except for percentages ) : replace_table_token_7_th ( 1 ) quarterly arpu is calculated using our standard convention of applying the average of the quarter 's beginning and ending base to the total revenue for the quarter . we believe arpu provides investors an understanding of the average monthly revenues we recognize associated with each cloud services customer . as arpu varies based on fixed subscription fee and variable usage components , we believe it can serve as a measure by which investors can evaluate trends in the types of services , levels of services and the usage levels of those services across our cloud services customer base . ( 2 ) cloud services customers are defined as paying direct inward dialing numbers for fax and voice services , and direct and resellers ' accounts for other services . ( 3 ) cancel rate is defined as cancels of small and medium businesses and individual cloud services customers with greater than four months of continuous service ( continuous service includes cloud services customers administratively canceled and reactivated within the same calendar month ) , and enterprise cloud services customers beginning with their first day of service . calculated monthly and expressed as an average over the three months of the quarter . digital media segment performance metrics the following table sets forth certain key operating metrics for our digital media segment for the years ended december 31 , 2017 , 2016 and 2015 ( in millions ) : replace_table_token_8_th sources : google analytics and partner platforms - 39 - critical accounting policies and estimates we prepare our consolidated financial statements and related disclosures in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and our discussion and analysis of our financial condition and operating results require us to make judgments , assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes . see note 2 , “ basis of presentation and summary of significant accounting policies ” of the notes to consolidated financial statements in part ii , item 8 of this form 10-k which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . story_separator_special_tag also , digital media revenues are generated through the license of certain speed testing technology which is recognized when delivered to the client and through providing data services primarily to internet service providers ( “ isps ” ) and wireless carriers which is recognized as earned over the term of the access period . the digital media business also generates other types of revenues , including business listing fees , subscriptions to online publications , and from other sources . such other revenues are recognized as earned . the company determines whether digital media revenue should be reported on a gross or net basis by assessing whether the company is acting as the principal or an agent in the transaction . if the company is acting as the principal in a transaction , the company reports revenue on a gross basis . if the company is acting as an agent in a transaction , the company reports revenue on a net basis . in determining whether the company acts as the principal or an agent , the company follows the accounting guidance for principal-agent considerations and the company places the most weight on three factors : whether or not the company ( i ) is the primary obligor in the arrangement , ( ii ) has latitude in determining pricing and ( iii ) bears credit risk . the company records revenue on a gross basis with respect to revenue generated ( i ) by the company serving online display and video advertising across its owned-and-operated web properties , on third party sites or on unaffiliated advertising networks , ( ii ) through the company 's lead-generation business and ( iii ) through the company 's digital media licensing program . the company records revenue on a net basis with respect to revenue paid to the company by certain third-party advertising networks who serve online display and video advertising across the company 's owned-and-operated web properties and certain third party sites . valuation and impairment of investments we account for our investments in debt and equity securities in accordance with financial accounting standards board ( “ fasb ” ) asc topic no . 320 , investments - debt and equity securities ( “ asc 320 ” ) . asc 320 requires that certain debt and equity securities be classified into one of three categories : trading , available-for-sale or held-to-maturity securities . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts and time deposits . we determine the appropriate classification of our investments at the time of acquisition and reevaluate such determination at each balance sheet date . held-to-maturity securities are those investments that we have the ability and intent to hold until maturity . held-to-maturity securities are recorded at amortized cost . available-for-sale securities are recorded at fair value , with unrealized gains or losses recorded as a separate component of accumulated other comprehensive income ( loss ) in stockholders ' equity until realized . trading securities are carried at fair value , with unrealized gains and losses included in interest and other income on our consolidated statement of income . all securities are accounted for on a specific identification basis . we assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions ( see note 4 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k ) . - 41 - share-based compensation expense we comply with the provisions of fasb asc topic no . 718 , compensation - stock compensation ( “ asc 718 ” ) . accordingly , we measure share-based compensation expense at the grant date , based on the fair value of the award , and recognize the expense over the employee 's requisite service period using the straight-line method . the measurement of share-based compensation expense is based on several criteria including , but not limited to , the valuation model used and associated input factors , such as expected term of the award , stock price volatility , risk free interest rate , dividend rate and award cancellation rate . these inputs are subjective and are determined using management 's judgment . if differences arise between the assumptions used in determining share-based compensation expense and the actual factors , which become known over time , we may change the input factors used in determining future share-based compensation expense . any such changes could materially impact our results of operations in the period in which the changes are made and in periods thereafter . we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation . long-lived and intangible assets we account for long-lived assets in accordance with the provisions of fasb asc topic no . 360 , property , plant , and equipment ( “ asc 360 ” ) , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets . we assess the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could individually or in combination trigger an impairment review include the following : . significant underperformance relative to expected historical or projected future operating results ; . significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; . significant negative industry or economic trends ; . significant decline in our stock price for a sustained period ; and . our market capitalization relative to net book value . if we determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value .
| segment results our business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance . our reportable business segments are : ( i ) cloud services ; and ( ii ) digital media . we evaluate the performance of our operating segments based on segment revenues , including both external and intersegment net sales , and segment operating income . we account for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments . identifiable assets by segment are those assets used in the respective reportable segment 's operations . corporate assets consist of cash and cash equivalents , deferred income taxes and certain other assets . all significant intersegment amounts are eliminated to arrive at our consolidated financial results . - 50 - cloud services the following segment results are presented for fiscal years 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_17_th segment net sales of $ 579.0 million in 2017 increased $ 12.0 million , or 2.1 % , from the prior comparable period primarily due to business acquisitions . segment net sales of $ 566.9 million in 2016 increased $ 62.3 million , or 12.3 % , from the prior comparable period primarily due to business acquisitions . segment gross profit of $ 460.2 million in 2017 increased $ 13.8 million from 2016 and segment gross profit of $ 446.4 million in 2016 increased $ 42.9 million from 2015 primarily due to an increase in net sales between the periods . the gross profit as a percentage of revenues for 2017 was consistent with the previous comparable period . the gross profit as a percentage of revenues for 2016 was lower in comparison to the previous comparable period primarily due to increased transition-related costs within network operations .
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factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , among others , the following possibilities : ( 1 ) local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact ; ( 2 ) changes in the level of non-performing assets and charge-offs ; ( 3 ) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements ; ( 4 ) the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board ; ( 5 ) inflation , interest rate , securities market and monetary fluctuations ; ( 6 ) political instability ; ( 7 ) acts of war or terrorism ; ( 8 ) the timely development and acceptance of new products and services and perceived overall value of these products and services by users ; ( 9 ) changes in consumer spending , borrowings and savings habits ; ( 10 ) changes in the financial performance and or condition of the company 's borrowers ; ( 11 ) technological changes ; ( 12 ) acquisitions and integration of acquired businesses ; ( 13 ) the ability to increase market share and control expenses ; ( 14 ) changes in the competitive environment among financial holding companies ; ( 15 ) the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and its subsidiaries must comply including those under the dodd-frank act ; ( 16 ) the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board and other accounting standard setters ; ( 17 ) changes in the company 's organization , compensation and benefit plans ; ( 18 ) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews ; ( 19 ) greater than expected costs or difficulties related to the integration of new products and lines of business ; and ( 20 ) the company 's success at managing the risks involved in the foregoing items . the company cautions readers not to place undue reliance on any forward-looking statements , which speak only as of the date made , and advises readers that various factors including , but not limited to , those described above , could affect the company 's financial performance and could cause the company 's actual results or circumstances for future periods to differ materially from those anticipated or projected . except as required by law , the company does not undertake , and specifically disclaims any obligations to , publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements . general the financial review which follows focuses on the factors affecting the consolidated financial condition and results of operations of the company and its wholly owned subsidiaries , the bank , nbt financial services and nbt holdings during 2012 and , in summary form , the preceding two years . collectively , the registrant and its subsidiaries are referred to herein as “ the company. ” net interest margin is presented in this discussion on a fully taxable equivalent ( fte ) basis . average balances discussed are daily averages unless otherwise described . the audited consolidated financial statements and related notes as of december 31 , 2012 and 2011 and for each of the years in the three-year period ended december 31 , 2012 should be read in conjunction with this review . amounts in prior period consolidated financial statements are reclassified whenever necessary to conform to the 2012 presentation . 34 critical accounting policies the company has identified policies as being critical because they require management to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions . these policies relate to the allowance for loan losses , pension accounting , other-than-temporary impairment , provision for income taxes and intangible assets . management of the company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations . while management 's current evaluation of the allowance for loan losses indicates that the allowance is adequate , under adversely different conditions or assumptions , the allowance may need to be increased . for example , if historical loan loss experience significantly worsened or if current economic conditions significantly deteriorated , additional provision for loan losses would be required to increase the allowance . in addition , the assumptions and estimates used in the internal reviews of the company 's nonperforming loans and potential problem loans have a significant impact on the overall analysis of the adequacy of the allowance for loan losses . while management has concluded that the current evaluation of collateral values is reasonable under the circumstances , if collateral values were significantly lower , the company 's allowance for loan policy would also require additional provision for loan losses . management is required to make various assumptions in valuing its pension assets and liabilities . these assumptions include the expected rate of return on plan assets , the discount rate , and the rate of increase in future compensation levels . changes to these assumptions could impact earnings in future periods . story_separator_special_tag 38 asset/liability management the company attempts to maximize net interest income and net income , while actively managing its liquidity and interest rate sensitivity through the mix of various core deposit products and other sources of funds , which in turn fund an appropriate mix of earning assets . the changes in the company 's asset mix and sources of funds , and the resulting impact on net interest income , on a fully tax equivalent basis , are discussed below . the following table includes the condensed consolidated average balance sheet , an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest bearing liabilities on a taxable equivalent basis . interest income for tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35 % . replace_table_token_11_th 1. securities are shown at average amortized cost . 2. for purposes of these computations , nonaccrual loans are included in the average loan balances outstanding . the interest collected thereon is included in interest income based upon the characteristics of the related loans . 39 2012 operating results as compared to 2011 operating results net interest income while the rate paid on interest bearing liabilities decreased 17 basis points , the yield on interest earning assets declined 37 basis points compared to the same period for 2011 , resulting in margin compression for the year ended december 31 , 2012. the yield on securities available for sale was 2.45 % for the year ended december 31 , 2012 , compared with 2.97 % for the year ended december 31 , 2011. this decrease was due primarily to the reinvestment of cash flows from maturing securities and cash received from branch acquisitions in 2011 and the first quarter of 2012 into lower yielding securities in the current rate environment . the average balance of securities available for sale for the year ended december 31 , 2012 was $ 1.2 billion , up approximately $ 54.8 million , or 4.9 % , from the year ended december 31 , 2011. this increase was due primarily to reinvestment of cash flows from held to maturity securities into available for sale securities , and investment of liquidity from branch acquisition activity and deposit growth . the yield on loans was 5.17 % for the year ended december 31 , 2012 , compared with 5.58 % for the year ended december 31 , 2011. the average balance of loans for the year ended december 31 , 2012 was $ 4.1 billion , up approximately $ 375.5 million ( including approximately $ 124.3 million from acquisitions ) , or 10.2 % , from the year ended december 31 , 2011. the reduction in yields on earning assets was partially offset by a reduction in rates paid on interest bearing liabilities . the rate on time deposits was 1.45 % for the year ended december 31 , 2012 , compared with 1.80 % for the year ended december 31 , 2011. the rate on money market deposit accounts was 0.18 % for the year ended december 31 , 2012 , compared with 0.34 % for the year ended december 31 , 2011. the following table presents changes in interest income , on a fte basis , and interest expense attributable to changes in volume ( change in average balance multiplied by prior year rate ) , changes in rate ( change in rate multiplied by prior year volume ) , and the net change in net interest income . the net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change . replace_table_token_12_th 40 loans and corresponding interest and fees on loans the average balance of loans increased by approximately $ 375.5 million , or 10.2 % , from 2011 to 2012. the yield on average loans decreased from 5.58 % in 2011 to 5.17 % in 2012 , as loan rates declined due to the historically low rate environment in 2012. interest income from loans on a fte basis increased 1.97 % , from $ 205.3 million in 2011 to $ 209.4 million in 2012. this increase was due to the increase in average loan balances noted above , and was partially offset by the decrease in yields . total loans increased $ 477.4 million , or 12.6 % ( 6.8 % organic growth ) from december 31 , 2011 to december 31 , 2012. in june 2012 , the company acquired hampshire first bank in new hampshire , including approximately $ 219 million in loans , which contributed to this loan growth . commercial loans increased $ 83.5 million , or 13.7 % , from $ 611.3 million at december 31 , 2011 to $ 694.8 million at december 31 , 2012 , due to strong originations in 2012 , particularly in our upstate new york markets and vermont , as well as approximately $ 29.9 million acquired from the aforementioned acquisition . commercial real estate loans increased $ 183.9 million , or 20.7 % , from $ 888.9 million at december 31 , 2011 to $ 1.1 billion at december 31 , 2012 , in large part due to strong originations in our upstate new york markets as well as originations from new markets , particularly vermont . the company also acquired approximately $ 149.8 million in commercial real estate loans from the aforementioned acquisition . real estate construction and development loans increased $ 29.1 million from $ 94.0 million at december 31 , 2011 to $ 123.1 million at december 31 , 2012 due to the addition of a few large , commercial development loans during 2012 primarily from existing customers within our footprint .
| overview significant factors management reviews to evaluate the company 's operating results and financial condition include , but are not limited to : net income and earnings per share , return on assets and equity , net interest margin , noninterest income , operating expenses , asset quality indicators , loan and deposit growth , capital management , liquidity and interest rate sensitivity , enhancements to customer products and services , technology advancements , market share and peer comparisons . the following information should be considered in connection with the company 's results for the fiscal year ended december 31 , 2012 : · significant strategic expansion during 2012 : § announced the planned acquisition of alliance financial corporation , a $ 1.4 billion financial holding company headquartered in syracuse , n.y. , expected to close in early 2013 ; § acquired and successfully integrated hampshire first bank during the second quarter of 2012 ; now operating 5 branches in southern new hampshire ; and § acquired three branches in greene county , new york in january 2012 . · net interest margin for 2012 declined 23 basis points as a result of the continued low rate environment on loans and investments . · 2012 organic loan growth of 6.8 % , offsetting aforementioned margin compression , driven by : § consumer loan growth of 10.7 % ; and § commercial loan growth of 8.7 % . · asset quality indicators showed improvement from last year : § nonperforming loans to total loans was 0.98 % , down from 1.09 % for last year ; § past due accruing loans to total loans was 0.71 % , down from 0.89 % for last year ; and § net charge-off ratio was 0.55 % , down from 0.56 % for last year . · service charges on deposit accounts continued to decrease due primarily to a decrease in overdraft activity .
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as of december 31 , 2019 , the company had deferred revenue of $ 20.0 million , of which $ 4.5 million and $ 15.5 million story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this annual report on form 10-k , or annual report . some of the information contained in this discussion and analysis and set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the section titled “ risk factors ” in part i , item 1a 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 biopharmaceutical company seeking to redefine the power of small molecules to control the expression of genes . based on our unique ability to elucidate regulatory regions of the genome , we aim to develop medicines that provide a profound benefit for patients with diseases that have eluded other genomics-based approaches . we are currently focused on developing treatments for cancer and diseases resulting from mutations of a single gene , also known as monogenic diseases , and building a clinical stage pipeline of gene control medicines . our lead product candidates are : sy-1425 , a selective retinoic acid receptor alpha , or rarα , agonist that we are evaluating in a phase 3 clinical trial in combination with azacitidine in a genomically defined subset of patients with higher-risk myelodysplastic syndrome , or hr-mds , and that we plan to evaluate in a randomized phase 2 clinical trial in combination with venetoclax and azacitidine in a genomically defined subset of newly diagnosed patients with acute myeloid leukemia , or aml , who are not suitable candidates for standard intensive chemotherapy ; sy-2101 , a novel oral form of arsenic trioxide , or ato , which we plan to evaluate in a dose confirmation study , followed by a phase 3 clinical trial , in patients with newly diagnosed acute promyelocytic leukemia , or apl ; and sy-5609 , a highly selective and potent oral inhibitor of cyclin-dependent kinase 7 , or cdk7 , that we are currently evaluating in the dose escalation portion of a phase 1 clinical trial in patients with select advanced solid tumors . we also have multiple preclinical and discovery programs in oncology and monogenic diseases such as sickle cell disease and myotonic dystrophy type 1. we expect to nominate our next development candidate to enter investigational new drug application , or ind , enabling preclinical studies in 2022. in december 2019 , we entered into a collaboration with global blood therapeutics , inc. , or gbt , to discover , develop and commercialize novel therapies for sickle cell disease and beta thalassemia . we also use our gene control platform in collaboration with third parties to identify and validate targets in diseases beyond our current areas of focus . to this end , we entered into a target discovery , research collaboration and option agreement with incyte corporation , or incyte , in january 2018 , under which we are using our platform to identify novel therapeutic targets with a focus on myeloproliferative neoplasms . sy-1425 at the 62nd american society of hematology annual meeting and exposition held in december 2020 , or ash 2020 , we presented new data from our fully enrolled phase 2 clinical trial evaluating the safety and efficacy of sy-1425 in combination with azacitidine in newly diagnosed aml patients who are not suitable candidates for standard chemotherapy , as well as in relapsed or refractory , or r/r , aml patients who have been prospectively selected using our proprietary rara , the gene that codes for rarα biomarker . as of an october 1 , 2020 data cut-off , 51 newly diagnosed unfit aml patients , including both rara-positive and rara-negative patients , were eligible for a safety analysis . among these patients , sy-1425 in combination with azacitidine was generally well-tolerated , with no evidence of increased toxicity relative to either as a single agent , including rates of myelosuppression that were comparable to single-agent azacitidine . as of the data cut-off , of the 18 rara-positive patients that were evaluable for clinical response , the overall response rate , or orr , was 67 % , with a composite complete response rate of 61 % , with 50 % of patients achieving complete response , or cr , and 11 % achieving a complete response with incomplete blood count recovery , or cri . the median time to initial response was 1.2 months , the median duration of response was 10.8 months , and the median overall survival , or os , among patients who achieved a cr or cri was 18 months . as of the data cut-off , of the 28 rara-negative patients that were evaluable for clinical response , the 78 orr was 43 % , with a composite complete response rate of 32 % , with 25 % of patients achieving cr and 7 % achieving cri . the median time to initial response was 3.0 months , and the median duration of response was 10 . 3 months . we also presented new translational data demonstrating that most rara-positive newly diagnosed unfit aml patients have a monocytic disease phenotype that is highly correlated with resistance to upfront treatment with venetoclax and azacitidine . these data suggest that the rara biomarker not only selects for patients who are more likely to respond to treatment with sy-1425 but also for patients who are less likely to respond to treatment with venetoclax and azacitidine . story_separator_special_tag as of an august 21 , 2020 data cut-off , 17 patients had been enrolled in the trial and were eligible for safety , pk and pd analysis . patients were either treated with continuous daily dosing of single-agent sy-5609 at 1 , 3 , 4 or 5 mg , or for three weeks on and one week off at 3 mg in combination with fulvestrant . the data showed that sy-5609 demonstrated dose-dependent increases in polr2a mrna expression , a pd marker being used in the trial to measure cdk7 biological activity . notably , increases in polr2a in patients treated at 3 mg daily reached levels associated with tumor regressions in preclinical models , as well as with levels of cdk7 target engagement at which a clinical response and apoptosis were observed in a trial of patients treated with sy-1365 , an iv cdk7 inhibitor that we had been developing in a phase 1 clinical trial before we made the portfolio decision in october 2019 to discontinue its further development and prioritize the development of sy-5609 . sy-5609 demonstrated approximately dose-proportional pk as both a single agent and in combination , minimal accumulation with repeat dosing , and a steady state half-life compatible with once-daily dosing . the majority of adverse events reported with sy-5609 as a single agent were low grade . the most common adverse events were nausea , diarrhea , fatigue , platelet count decrease , and vomiting . the safety profile of sy-5609 in combination with fulvestrant was consistent with that of single-agent sy-5609 . five of the 13 patients treated with single-agent sy-5609 were response evaluable , and of those , three achieved stable disease and two had progressive disease ; one of the four patients treated in the combination cohort was response evaluable and had progressive disease . the maximum tolerated dose for continuous daily dosing was achieved at 3 mg. the phase 1 clinical trial continues to actively enroll patients with select solid tumors , with additional cohort extensions in select populations . alternate dosing regimens are also being explored in the trial . we expect to report additional dose escalation data , including clinical activity data , in the third quarter of 2021 , and to initiate the expansion portion of the phase 1 clinical trial in the second half of 2021. recent developments on january 22 , 2021 , we issued and sold an aggregate of 5,400,000 shares of our common stock in an underwritten public offering at a public offering price of $ 14.00 per share , resulting in gross proceeds of $ 75.6 million before deducting underwriting discounts and commissions and other transaction expenses of approximately $ 4.8 million . the public offering was made pursuant to an underwriting agreement between us and cowen and company , llc and piper sandler & co. , as representatives of the several underwriters , on january 19 , 2021. the public offering price was $ 14.00 per share , and the underwriters agreed to purchase shares from us pursuant to the underwriting agreement at a price of $ 13.16 per share . the shares were issued pursuant to a shelf registration statement on form s-3 that was filed with the sec on june 12 , 2020 and declared effective by the sec on june 22 , 2020. financial operations overview revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future . for the year ended december 31 , 2020 , we recognized approximately $ 15.1 million of revenue , $ 11.7 million of which was related to our collaboration with gbt and $ 3.4 million of which was related to our target discovery collaboration with incyte . for the years ended december 31 , 2019 and 2018 , we recognized $ 2.0 million and $ 2.1 million of revenue , respectively , all of which was attributable to our collaboration agreement with incyte . expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including development of our gene control platform and the development of our product candidates , which include : employee-related expenses , including salaries and benefits ; stock-based compensation expense ; external costs of funding activities performed by third parties that conduct research and development on our behalf and of purchasing supplies used in designing , developing and manufacturing preclinical study and clinical trial materials ; 80 consulting , licensing and professional fees related to research and development activities ; and facilities costs , depreciation and amortization and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments made to vendors for goods or services that will be received in the future for use in research and development activities are deferred and capitalized , even when there is no alternative future use for the research and development , until related goods or services are provided . we typically use our employee , consultant and infrastructure resources across our research and development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , other internal costs or certain external consultant costs to specific product candidates or development programs . the following table summarizes our external research and development expenses by program , as well as expenses not allocated to programs , for the years ended december 31 , 2020 , 2019 and 2018 ( in thousands ) : replace_table_token_3_th ( 1 ) the results for the year ended december 31 , 2019 include credits of $ 1.9 million and $ 1.2 million for our sy-1425 and sy-1365 clinical trials , respectively , due to a change in estimate of costs incurred over the life of these clinical trials through march 31 , 2019 .
| results of operations comparison of years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 , together with the changes in those items in dollars ( in thousands ) : replace_table_token_5_th revenue for the year ended december 31 , 2020 , we recognized approximately $ 15.1 million of revenue , $ 11.7 million of which was attributable to our collaboration with gbt and $ 3.4 million of which was attributable to our target discovery collaboration with incyte . for the year ended december 31 , 2019 , we recognized $ 2.0 million of revenue , all of which was attributable to our target discovery collaboration with incyte . research and development expense research and development expense increased by approximately $ 17.8 million , or 31 % , from $ 58.2 million for the year ended december 31 , 2019 to $ 76.1 million for the year ended december 31 , 2020. the following table summarizes our research and development expenses for the years ended december 31 , 2020 and 2019 , together with the changes to those items in dollars ( in thousands ) : replace_table_token_6_th 86 the change in research and development expense was primarily attributable to research and development activities associated with advancing our lead clinical and preclinical programs and enhancing our internal capabilities , and included the following : an increase of approximately $ 12.9 million , or 43 % , in external research and development , primarily attributable to the $ 12.0 million paid to orsenix for the acquisition of the sy-2101 , and due to the increases in costs associated with the continued advancement of our existing clinical trials of sy-5609 and sy-1425 and advancement of our preclinical programs , including our sickle cell disease development activities in collaboration with gbt ; an increase of approximately $ 3.0 million , or 19 % , for employee-related expenses , including increased salary and
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52 standard avb financial corp. notes to consolidated financial statements for the years ended december 31 , 2017 and september 30 , 2016 and the three months ended december 31 , 2016 note 1 — summary of significant accounting story_separator_special_tag this section is intended to help potential investors understand our financial performance through a discussion of the factors affecting our financial condition at december 31 , 2017 and december 31 , 2016 , and our consolidated results of operations for the year ended december 31 , 2017 , the three months ended december 31 , 2016 and the fiscal year ended september 30 , 2016. this section should be read in conjunction with the audited consolidated financial statements and notes that appear elsewhere in this annual report . overview historically , standard bank has operated as a traditional community bank . at december 31 , 2017 , $ 261.7 million , or 34.8 % of its loan portfolio , consisted of one- to four-family residential real estate loans , of which $ 174.1 million , or 66.5 % , were fixed rate loans and $ 87.6 million , or 33.5 % were adjustable rate loans . this resulted in standard being particularly vulnerable to increases in interest rates , as its interest-bearing liabilities mature or reprice more quickly than its interest-earning assets . in recent years , standard has increased its focus on the origination of commercial real estate loans , which generally provide higher yields than one- to four-family residential mortgage loans , have shorter durations and are usually originated with adjustable interest rates . at december 31 , 2017 , $ 301.0 million , or 40.0 % of its loan portfolio , consisted of commercial real estate loans . other than standard 's loans for the construction of one- to four-family residential properties and home equity lines of credit , it does not offer “ interest only ” mortgage loans on one- to four-family residential properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . standard also does not offer loans that provide for negative amortization of principal , such as “ option arm ” loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . standard does not offer “ subprime loans ” ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . standard also does not own any private label mortgage-backed securities that are collateralized by alt-a , low or no documentation or subprime mortgage loans . at december 31 , 2017 , 86.3 % of standard 's mortgage-backed securities have been issued by freddie mac , fannie mae or ginnie mae which are u.s. government agencies or government-sponsored enterprises . these entities guarantee the payment of principal and interest on standard 's mortgage-backed securities . standard 's non-performing assets totaled $ 3.3 million , or 0.34 % , of total assets at december 31 , 2017 , compared to $ 970,000 , or 0.20 % , of total assets at september 30 , 2016. standard had $ 2.9 million and $ 689,000 of loans delinquent 90 days or greater at december 31 , 2017 and september 30 , 2016 , respectively . a $ 517,000 provision for loan losses was recorded during the year ended december 31 , 2017 compared to $ 105,000 during the fiscal year ended september 30 , 2016 . 24 business strategy standard 's primary objective is to operate as a profitable , community-oriented financial institution serving customers in its market areas . the bank is seeking to accomplish this objective by pursuing a business strategy that is designed to maintain core profitability , strong capital and high asset quality . this business strategy includes the following elements : remaining a community-oriented financial institution while continuing to increase the customer base of small and medium-size businesses in our market area . standard was established in 1913 and has operated continuously in the pittsburgh metropolitan area since that date . in 2017 , we merged with allegheny valley and expanded our footprint in the pittsburgh market area . we are committed to meeting the financial needs of the communities in which it operates , and is dedicated to providing quality personal service to its customers . standard provides a broad range of business and consumer financial services from its seventeen community banking offices . it continues to expand its commercial real estate and business lending staff to enhance its capacity to serve small and medium-sized businesses in its market area . increasing commercial real estate and business lending while maintaining conservative loan underwriting standards . the largest increase in the bank 's loan portfolio balance in recent years has been to the growth in the commercial loan portfolio . both standard and allegheny valley were pursuing strategies to expand commercial lending prior to the merger . commercial real estate and business loans totaled approximately $ 357.1 million , or 47.5 % of the gross loan portfolio at december 31 , 2017. in growing the commercial loan portfolio , the bank has emphasized maintaining strong asset quality by following conservative loan underwriting guidelines . all commercial loans are underwritten in a central location in the lawrenceville office to ensure uniformity and consistency in underwriting decisions . expanding the product mix and capacity to sell residential loans in the secondary mortgage market . the bank is in the process of expanding its offerings of residential lending products to include more saleable government sponsored loans ( e.g . usda , fha , phfa and va ) . story_separator_special_tag in estimating cash flows expected to be collected , we use available information with respect to security prepayment speeds , expected deferral rates and severity , whether subordinated interests , if any , are capable of absorbing estimated losses and the value of any underlying collateral . deferred tax assets . we use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized . if future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied , the asset may not be realized and our net income will be reduced . goodwill and other intangible assets . we must assess goodwill and other intangible assets for impairment . this assessment involves estimating the fair value of our reporting units . if the fair value of the reporting unit is less than its carrying value including goodwill , we would be required to take a charge against earnings to write down the assets to the lower value . pension plan . the bank maintains a noncontributory defined benefit pension plan covering employees whose benefits were frozen effective august 1 , 2005. no future benefits are accrued , however the plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the bank . 26 balance sheet analysis : december 31 , 2017 and december 31 , 2016 general . the company 's total assets at december 31 , 2017 were $ 972.6 million compared to $ 488.0 million at december 31 , 2016 , an increase of $ 484.6 million , or 99.3 % , due primarily to the acquisition of allegheny valley . cash and cash equivalents . cash and cash equivalents increased $ 5.7 million , or 54.6 % , to $ 16.3 million at december 31 , 2017 from $ 10.5 million at december 31 , 2016 , due primarily to the acquisition of allegheny valley . cash from customers into deposit accounts , loan and security repayments and proceeds from borrowed funds typically increase these accounts . decreases result from customer withdrawals , new loan origination , purchases of investment securities and repayment of borrowed funds . investment and mortgage-backed securities . investments and mortgage-backed securities available for sale increased $ 72.5 million , or 119.5 % , to $ 133.2 million at december 31 , 2017 from $ 60.7 million at december 31 , 2016. the increase in the securities portfolio includes $ 95.9 million of securities acquired from allegheny valley . investment and mortgage-backed securities composition . the composition of the investment and mortgage-backed securities portfolio is summarized in the following table . at december 31 , 2017 and december 31 , 2016 , all of our investment and mortgage-backed securities were classified as available for sale and recorded at current fair value . at december 31 , at september 30 , 2017 2016 2016 ( dollars in thousands ) amortized cost fair value amortized cost fair value amortized cost fair value municipal obligations $ 49,988 $ 50,777 $ 29,437 $ 29,326 $ 28,675 $ 29,545 u.s. government and agency obligations 8,334 8,340 9,000 8,934 10,000 10027 corporate bonds 2,276 2,272 2,534 2,525 2,539 2534 mortgage-backed securities : ginnie mae pass through certificates 17,416 17,291 5,129 5,093 5,695 5715 fannie mae pass through certificates 16,078 16,145 5,403 5,478 5,806 6017 freddie mac pass through certificates 12,510 12,537 5,520 5,521 6,051 6164 collateralized mortgage obligations 7,277 7,159 1,571 1,556 1,663 1670 private pass through certificates 14,603 14,498 85 85 87 87 equity securities 3,647 4,170 2,050 2,163 2,052 2144 total securities $ 132,129 $ 133,189 $ 60,729 $ 60,681 $ 62,568 $ 63,903 during the year ended december 31 , 2017 , securities purchased of $ 46.9 million were offset by $ 53.0 million in securities sales and
| general . net income for the year ended december 31 , 2017 was $ 4.3 million , or $ 1.08 per share , compared to $ 3.0 million , or $ 1.26 per share , for the fiscal year ended september 30 , 2016. return on average assets and average equity were 0.51 % and 3.69 % , respectively , for the year ended december 31 , 2017 compared to 0.64 % and 4.13 % , respectively , for the fiscal year ended september 30 , 2016. net interest income . net interest income increased $ 12.7 million , or 99.1 % , to $ 25.5 million for the year ended december 31 , 2017 from $ 12.8 million for the fiscal year ended september 30 , 2016. our net interest rate spread and net interest margin were 3.01 % and 3.20 % , respectively for the year ended december 31 , 2017 compared to 2.71 % and 2.86 % for the fiscal year ended september 30 , 2016. interest and dividend income . total interest and dividend income of $ 30.6 million for the year ended december 31 , 2017 increased $ 14.3 million , or 88.1 % , compared to the fiscal year ended september 30 , 2016. the increase was primarily due to the increase in the average balance of interest-earning assets by $ 348.8 million , or 78.1 % , to $ 795.5 million for the year ended december 31 , 2017 from $ 446.7 million due primarily to the merger with allegheny valley in april 2017. additionally , the average yield on interest-earning assets increased to 3.84 % for the year ended december 31 , 2017 from 3.64 % for the fiscal year ended september 30 , 2016. the average yield on all categories of interest earning assets increased from the previous fiscal year due to the rising interest rate environment .
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due to recent negative financial performance and cumulative losses incurred in recent years , the company was no longer able to conclude that it was more likely than not the u.s. and u.k. deferred tax assets would be fully realized and established a valuation allowance on the u.s. and u.k. deferred tax assets . a summary of the activity for the deferred tax asset valuation allowance follows : fiscal year 2014 ( dollars in thousands ) balance , june 30 , 2013 $ — establishment of valuation allowance against u.s. & u.k. deferred tax assets 84,391 changes to deferred tax asset valuation allowance ( 469 ) balance , june 30 , 2014 $ 83,922 the company will continue to assess its ability to realize its deferred tax assets on a quarterly basis and will reverse the valuation allowance and record a tax benefit when the company generates sufficient sustainable pretax earnings to make the realizability of the deferred tax assets story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( md & a ) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity and certain other factors that may affect our future results . business description regis corporation owns , franchises and operates beauty salons . as of june 30 , 2014 , the company owned , franchised or held ownership interests in 9,674 locations worldwide . the company 's locations consist of 9,456 company-owned and franchised salons and 218 locations in which we maintain a non-controlling ownership interest of less than 100 % . each of the company 's salon concepts generally offer similar salon products and services and serve the mass market . see discussion within part i , item 1. results of operations beginning with the period ended september 30 , 2012 , the hair restoration centers reportable segment was accounted for as a discontinued operation . see note 2 to the consolidated financial statements . all comparable periods reflect hair restoration centers as a discontinued operation . explanations are primarily for north american value , unless otherwise noted . discontinued operations are discussed at the end of this section . beginning in fiscal year 2014 , costs associated with field leaders , excluding salons within the north american premium segment , that were previously recorded within general and administrative expense are now categorized within cost of service and site operating expense as a result of the field reorganization that took place in the fourth quarter of fiscal year 2013. previously , field leaders did not work on the salon floor daily . as reorganized , field leaders now spend most of their time on the salon floor leading and mentoring stylists , and serving guests . as a result , district and senior district leader labor costs are now reported within cost of service rather than general and administrative expenses , and their travel costs are reported within site operating expenses rather than general and administrative expenses . beginning in the second quarter of fiscal year 2014 , the company redefined its operating segments to reflect how the chief operating decision maker evaluates the business subsequent to the restructuring of its north american field organization that took place in the fourth quarter of fiscal year 2013 and was completed during the second quarter of fiscal year 2014. see notes 1 and 14 to the consolidated financial statements . 21 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2013 were 2,179 and 2,082 , respectively . the $ 1.8 million increase in royalties and fees was due to increased franchised locations during fiscal year 2014 and same-store sales increases at franchised locations . total franchised locations open at june 30 , 2013 and 2012 were 2,082 and 2,016 , respectively . the $ 0.8 million increase in royalties and fees was due to increased franchised locations during fiscal year 2013 and same-store sales increases at franchised locations . total franchised locations open at june 30 , 2012 and 2011 were 2,016 and 1,936 , respectively . during fiscal year 2012 , we purchased a 60.0 % ownership interest in a franchise network , consisting of 31 franchised locations . the $ 1.0 million increase in royalties and fees was also due to same-store sales increases at franchised locations , partly offset by the company purchasing 11 of our franchised salons during fiscal year 2012. cost of service the 180 basis point increase in cost of service as a percent of service revenues during fiscal year 2014 was primarily due to the change in expense categorization as a result of the field reorganization that took place during the fourth quarter of fiscal year 2013. the change in the expense categorization accounted for 140 basis points of the increase for fiscal year 2014 . the remaining increase of 40 basis points for fiscal year 2014 was primarily the result of negative leverage from stylist hours caused by a decline in same-store service sales , increased stylists wages and an increase in healthcare costs , partly offset by cost reductions due to the field reorganization and lower levels of bonuses and the lapping of a full commission coupon event that was not repeated this year . the 220 basis point increase in cost of service as a percent of service revenues during fiscal year 2013 was primarily due to increased labor costs in our north american value salons , a result of the company 's strategy to increase stylist hours in order to reduce guest wait times and improve the overall guest experience , and the negative leverage this created with same-store service sales declines . the company made slight improvement during the year in optimizing salon schedules to align with guest traffic . story_separator_special_tag rent rent expense decreased by $ 2.6 million during fiscal year 2014 primarily due to salon closures , mainly within our north american value and premium segments . the 90 basis point increase in rent expense as a percent of consolidated revenues during fiscal year 2014 was primarily due to negative leverage associated with this fixed cost category . rent expense decreased by $ 7.1 million during fiscal year 2013 primarily due to salon closures , mainly within our north american value and premium segments . the 50 basis point increase in rent expense as a percent of consolidated revenues during fiscal year 2013 was primarily due to negative leverage associated with this fixed cost category . the 30 basis point increase in rent expense as a percent of consolidated revenues during fiscal year 2012 was primarily due to negative leverage in this fixed cost category due to negative same-store sales , partly offset by favorable common area maintenance adjustments from landlords and salon closures . depreciation and amortization depreciation and amortization expense ( d & a ) increased $ 8.0 million or 80 basis points as a percent of consolidated revenues during fiscal year 2014 . this increase was primarily due to increased fixed asset impairment charges recorded in our north american premium and value segments , partly offset by declines in depreciation expense as a result of the fixed asset impairment charges recorded during fiscal years 2014 and 2013. d & a decreased $ 13.2 million or 40 basis points as a percent of consolidated revenues during fiscal year 2013. this decrease was primarily due to our lapping $ 16.2 million of accelerated amortization associated with the adjustment to the useful life of the company 's previously internally developed pos system . partly offsetting the 40 basis point improvement was $ 1.9 million ( $ 1.2 million net of tax or $ 0.02 per diluted share ) of accelerated depreciation expense in the current year 26 associated with exiting a leased building in conjunction with consolidating the company 's headquarters and negative leverage from the decrease in same-store sales . d & a increased $ 12.8 million or 70 basis points as a percent of consolidated revenues during fiscal year 2012. this increase was primarily due to $ 16.2 million ( $ 10.2 million net of tax or $ 0.18 per diluted share ) of accelerated amortization expense in the current year resulting from the useful life adjustment of the company 's internally developed pos system and negative leverage from the decrease in same-store sales . partly offsetting the basis point increase was the continuation of a decrease in depreciation expense from the reduction in salon construction beginning in fiscal year 2009 as compared to historical levels prior to fiscal year 2009. goodwill impairment the company recorded a goodwill impairment charge of $ 34.9 million related to the regis salon concept during fiscal year 2014 . the company redefined its operating segments during the second quarter of fiscal year 2014 . in addition , overall performance trends were down . for these reasons , the company was required to perform this goodwill assessment in the second quarter of fiscal year 2014. as a result of this non-cash charge , the company has no further goodwill on its balance sheet associated with the regis salon concept ( north american premium ) . the company remains focused on improving the performance of this business as it stabilizes and turns around the business . see notes 1 and 4 to the consolidated financial statements . the company did not record a goodwill impairment charge in fiscal year 2013. the company recorded a goodwill impairment charge of $ 67.7 million related to the regis salon concept during fiscal year 2012. due to the continuation of decreased same-store sales , the estimated fair value of the regis salon operations was less than the carrying value of this concept 's net assets , including goodwill . the $ 67.7 million impairment charge was the excess of the carrying value of goodwill over the implied fair value of goodwill for the regis salon concept . interest expense interest expense decreased by $ 15.3 million during fiscal year 2014 primarily due to a $ 10.6 million make-whole payment associated with the prepayment of private placement debt in june 2013 and decreased average outstanding debt and related interest rates compared to the prior year . interest expense increased by $ 9.3 million during fiscal year 2013 primarily due to a $ 10.6 million make-whole payment associated with the prepayment of private placement debt in june 2013 , partly offset by decreased debt levels as compared to fiscal year 2012. the 30 basis point improvement in interest as a percent of consolidated revenues during fiscal year 2012 was primarily due to decreased debt levels as compared to fiscal year 2011. interest income and other , net interest income and other , net decreased $ 33.4 million or 170 basis points as a percent of consolidated revenues during fiscal year 2014 . this decrease was primarily due to the recognition of a $ 33.8 million foreign currency translation gain in connection with the sale of provalliance during fiscal year 2013. interest income and other , net increased $ 30.3 million or 160 basis points as a percent of consolidated revenues during fiscal year 2013. this increase was primarily due to the recognition of a $ 33.8 million foreign currency translation gain in connection with the sale of provalliance , partly offset by fiscal year 2012 including a favorable legal settlement and the foreign currency impact on the company 's investment in my style .
| consolidated results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statement of operations . the percentages are computed as a percent of total revenues , except as otherwise indicated . replace_table_token_9_th ( 1 ) computed as a percent of service revenues and excludes depreciation and amortization expense . ( 2 ) computed as a percent of product revenues and excludes depreciation and amortization expense . ( 3 ) computed as a percent of ( loss ) income from continuing operations before income taxes and equity in loss of affiliated companies . the income tax ( expense ) benefit basis point change is noted as not applicable ( n/a ) as the discussion below is related to the effective income tax rate . 22 consolidated revenues consolidated revenues primarily include revenues of company-owned salons , product and equipment sales to franchisees and franchise royalties and fees . the following tables summarize revenues and same-store sales by concept , as well as the reasons for the percentage change : replace_table_token_10_th _ ( 1 ) same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period . quarterly and fiscal year same-store sales are the sum of the same-store sales computed on a daily basis . locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period . international same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation .
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although we believe that the expectations reflected in these forward‑looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward‑looking statements . there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward‑looking statements , including , but not limited to , the risks described below under “ part i – item 1a . – risk factors ” and the following : · natural disasters and adverse weather , acts of terrorism , an outbreak of hostilities or other international or domestic calamities and other matters beyond our control ; · the geographic concentration of our markets in beaumont and houston , texas ; · our ability to prudently manage our growth and execute our strategy ; · risks associated with our acquisition and de novo branching strategy ; · changes in management personnel ; · the amount of nonperforming and classified assets that we hold ; · time and effort necessary to resolve nonperforming assets ; · deterioration of our asset quality ; · interest rate risk associated with our business ; · business and economic conditions generally and in the financial services industry , nationally and within our primary markets ; · volatility and direction of oil prices and the strength of the energy industry , generally and within texas ; · the composition of our loan portfolio , including the identity of our borrowers and the concentration of loans in specialized industries ; · changes in the value of collateral securing our loans ; · our ability to maintain important deposit customer relationships and our reputation ; · our ability to maintain effective internal control over financial reporting ; · operational risks associated with our business ; · increased competition in the financial services industry , particularly from regional and national institutions ; · volatility and direction of market interest rates ; · liquidity risks associated with our business ; · systems failures or interruptions involving our information technology and telecommunications systems or third‑party servicers , including cyber security breaches of network security ; 57 · environmental liability associated with our lending activities ; · the institution and outcome of litigation and other legal proceedings against us or to which we may become subject ; · changes in the laws , rules , regulations , interpretations or policies relating to financial institution , accounting , tax , trade , monetary and fiscal matters ; · further government intervention in the u.s. financial system ; and · other factors that are discussed in the section to this annual report on form 10-k entitled “ risk factors ” . the foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward‑looking statements . any forward‑looking statement speaks only as of the date on which it is made and we do not undertake any obligation to publicly update or review any forward‑looking statement , whether as a result of new information , future developments or otherwise . new factors emerge from time to time and it is not possible for us to predict which will arise . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward‑looking statements . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 6. selected financial data ” and our consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate . certain risks , uncertainties and other factors , including those set forth in “ item 1a . – risk factors ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . we assume no obligation to update any of these forward-looking statements . story_separator_special_tag 0pt ; text-align : center ; line-height:100 % ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > 59 the following table presents an analysis of net interest income and net interest spread for the periods indicated , including average outstanding balances for each major category of interest‑earning assets and interest‑bearing liabilities , the interest earned or paid on such amounts and the average rate earned or paid on such assets or liabilities , respectively . the table also sets forth the net interest margin on average total interest‑earning assets for the same periods . interest earned on loans that are classified as nonaccrual is not recognized in income ; however , the balances are reflected in average outstanding balances for the period . for the years ended december 31 , 2017 and 2016 , the amount of interest income not recognized on nonaccrual loans was not material . any nonaccrual loans have been included in the table as loans carrying a zero yield . replace_table_token_8_th ( 1 ) includes average outstanding balances of loans held for sale of $ 769,000 and $ 905,000 million for the year ended december 31 , 2017 and 2016 , respectively . ( 2 ) net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities . ( 3 ) net interest margin is equal to net interest income divided by average interest‑earning assets . story_separator_special_tag net occupancy expenses . net occupancy expenses were $ 9.2 million and $ 10.1 million for the year ended december 31 , 2017 and 2016 , respectively . the decrease during 2017 was primarily due to the closing of multiple branches during 2017 and 2016 and a reduction in repairs , maintenance and janitorial services . professional and director fees . professional and director fees , which include legal , audit , loan review and consulting fees , were $ 3.1 million and $ 2.5 million for the year ended december 31 , 2017 and 2016 , respectively . the increase of $ 624,000 for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , is primarily due to increased audit fees as a result of the company 's initial public offering . advertising and marketing expenses . advertising and promotion‑related expenses were $ 1.5 million and $ 789,000 for the year ended december 31 , 2017 and 2016 , respectively . the increase in 2017 was primarily due to an increase in media costs associated with the company 's branding campaign that began early in the second quarter of 2017. other . this category includes operating and administrative expenses , such as atm expenses , wire transfer expense , payroll processing expense , amortization of non‑compete agreements , operational losses ( debit cards , check fraud , etc . ) , software licenses , business development expenses ( i.e. , travel and entertainment , charitable contributions and club memberships ) and insurance . other noninterest expense was $ 4.6 million for the year ended december 31 , 2017 , an increase of $ 515,000 , or 12.57 % , compared to the same period in 2016 , primarily due to increases in software licenses . income tax expense the amount of income tax expense we incur is impacted by the amounts of our pre‑tax income , tax‑exempt income and other nondeductible expenses . deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . for the years ended december 31 , 2017 and 2016 , income tax expense totaled $ 16.5 million and $ 12.0 million and our effective tax rate for those periods was 37.4 % and 30.7 % , respectively . the increase in tax expense for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 is due to the deferred tax asset remeasurement adjustment of $ 3.9 million related to the recent tax cuts and jobs act recorded in the fourth quarter of 2017 and true-ups and return to provision adjustments booked in 2017 . 63 results of operations year ended december 31 , 2016 vs year ended december 31 , 2015 net income for 2016 was $ 27.2 million compared to $ 24.1 million for 2015 , an increase of $ 3.1 million , or 12.73 % . this increase is primarily due to a $ 3.7 million increase in net interest income and a $ 2.4 million decrease in the provision for loan losses , which were partially offset by a $ 2.6 million increase in noninterest expense and a $ 1.2 million increase in income taxes . see further analysis of these fluctuations in the related discussions that follow . replace_table_token_12_th net interest income net interest income for 2016 was $ 101.5 million compared to $ 97.9 million for 2015 , an increase of $ 3.7 million , or 3.75 % . the growth in net interest income was primarily attributable to a $ 72.1 million , or 3.48 % , increase in average loans outstanding for the year ended december 31 , 2016 , compared to 2015 , partially offset by a three-basis point decrease in the yield on total loans . the increase in average loans outstanding was primarily due to organic growth in both of our markets and specifically loan growth in the houston market , including from the maturing of our westchase and the woodlands branches . for the year ended december 31 , 2016 , net interest margin and net interest spread were 3.87 % and 3.63 % , respectively , compared to 3.77 % and 3.54 % for the same period in 2015. tax equivalent net interest margin , defined as net interest income adjusted for tax‑free income divided by average interest‑earning assets , for 2016 was 3.96 % , an increase of 11 basis points compared with 3.85 % for 2015. this net interest margin increase was primarily due to growth of higher‑yielding interest‑earning assets , in both our loan portfolio and the state and municipal securities portion of our investment portfolio . for the years ended december 31 , 2016 and 2015 , the adjustments were approximately $ 2.4 million and $ 2.1 million , respectively . 64 replace_table_token_13_th ( 1 ) includes average outstanding balances of loans held for sale of $ 905,000 and $ 637,000 for the year ended december 31 , 2016 and 2015 , respectively . ( 2 ) net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities . ( 3 ) net interest margin is equal to net interest income divided by average interest‑earning assets . ( 4 ) to make pre‑tax income and resultant yields on tax‑exempt investments and loans comparable to those on taxable investments and loans , a tax equivalent adjustment of $ 2.4 million and $ 2.1 million for the years ended december 31 , 2016 and 2015 , respectively , has been computed using a federal income tax rate of 35 % .
| overview we are a bank holding company that operates through our wholly‑owned subsidiary , communitybank of texas national association , in houston and beaumont , texas . as of december 31 , 2017 , we had , on a consolidated basis , total assets of $ 3.1 billion , total loans of $ 2.3 billion , total deposits of $ 2.6 billion and total shareholders ' equity of $ 446.2 million . for the year ended december 31 , 2017 , net income was $ 27.6 million . the following discussion and analysis presents our financial condition and results of operations on a consolidated basis . however , because we conduct our material business operations through communitybank of texas , national association , the discussion and analysis relates to activities primarily conducted by the bank . as a bank holding company that operates through one segment , community banking , we generate most of our revenue from interest on loans and investments . we incur most of our expenses from interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . changes in market interest rates and the interest rates we earn on interest‑earning assets or pay on interest‑bearing liabilities , as well as in the volume and types of interest‑earning assets , interest‑bearing and noninterest‑bearing liabilities , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including , but not limited to , those set f orth under the section heading “ item 1a . risk factors ” above and elsewhere in this annua l report on form 10-k . see section heading “ note regard ing forward-looking st atements ” above . all dollar amounts stated herein are in u.s. dollars in thousands , except per share amounts , per warrant amounts , per ounce amounts , gold price per ounce amounts , and exchange rates unless specified otherwise . references to c $ refer to canadian currency , a $ to australian currency and $ to united states currenc y. overview vista gold corp. and its subsid iaries ( collectively , “ vista , ” the “ company , ” the “ corporation , ” “ we , ” “ our ” or “ us ” ) operate in the gold mining industry . we are focused on the evaluation , acquisition , exploration and advancement of gold exploration and potential development projects , which may lead to gold production or value adding strategic transactions such as earn-in right agreements or leases to third parties , joint venture arrangements with other mining companies , or outright sales of assets for cash and or other consideration . as such , we are considered an exploration stage enterprise . our approach to acquisitions of gold projects has generally been to seek projects within political jurisdictions with well-established mining , land ownership and tax laws , which have adequate drilling and geological data to support the completion of a third-party review of the geological data and to complete an estimate of the gold mineralization . in addition , we look for opportunities to improve the value of our gold projects through exploration drilling and or technical studies resulting in changes to the operating assumptions underlying previous engineering work . our holdings include the mt . todd gold project in australia , the guadalupe de los reyes gold/silver project in mexico , the l o s cardones ( formerly concordia ) gold project in mexico , the long va lley gold project in california , the awa k mas gold project in indonesia , and mining claims in utah . in additi on , we own approximately 28 % of the shares of midas gold corp. ( “ midas gold ” ) , a company exploring for gold and developing the golden meadows project in the yellow pine-stibnite district in idaho . midas gold is listed on the toronto stock exchange under the trading symbol “ max ” . outlook our mt . todd gold project in the northern territory , australia will be our principal focus in 2013. our 2013 plans for mt . todd include completing a final reserve estimate , initiating the process to permit construction of the project including an environmental impact statement , completing a feasibility study , and , if the project is feasible , initiating the financing for construction of the project . subject to successful completion of each of these , construction could begin in early 2014 , with construction completion and plant commissioning occurring in the latter part of 2015. we do not currently generate operating cash flows . our principal source of financing in the past has been the issuance of our common stock . market interest in the gold sector has diminished in recent years , due at least in part to the popularity of gold exchange traded funds and the rising costs for mine construction and operation . consequently , raising sufficient amounts of capital on reasonable terms has become increasingly difficult . these conditions could continue into 2013 , and could affect our ability to raise the necessary capital on reasonable terms , if at all . story_separator_special_tag financing activities during july 2012 , we closed a private placement of 5,000,000 units ( the “ july 2012 units ” ) for gross proceeds of $ 15,000 ( the “ july 2012 offering ” ) . each july 2012 unit consists of one common share in the capital of the company and one-half of one common share purchase warrant ( each full warrant , a “ july 2012 warrant ” ) . each july 2012 warrant entitles the holder thereof to purchase one common share at a price of $ 3.60 per share ( subject to adjustment in certain circumstances ) and is exercisable for a period of 24 months from the closing of the july 2012 offering . in connection with the july 2012 offering , we incurred $ 770 in commissions and other costs and issued a total of 166,667 compensation warrants to finders that provided services in respect of subscriptions for 3,333,334 july 2012 units . each compensation warrant entitles the holder thereof to purchase one common share at a price of $ 3.18 per share ( subject to adjustment in certain circumstances ) for a period of 24 months from the closing of the july 2012 offering . on september 29 , 2012 , we filed a registration statement on form s-3 related to the resale by the purchasers of the july 2012 units of the common shares issued as part of the units and common shares issuable upon exercise of the july 2012 warrants and compensation warrants . during december 2012 , we closed a public offering of 4,182,550 units ( the “ december 2012 units ” ) , which included 545,550 december 2012 units issued pursuant to the full exercise of the underwriters ' over-allotment option , for gross proceeds of $ 11,500 ( the “ december 2012 offering ” ) . each december 2012 unit consists of one common share in the capital of the company and one-half of one common share purchase warrant ( each full warrant , a “ december 2012 warrant ” ) . story_separator_special_tag project development update october 2012 we announced that we have completed a comprehensive analysis focused on optimizing the development plans for the mt . todd gold project in northern territory , australia . after a thorough review , management has selected for evaluation a two-phased strategy to achieve its development goals and economic objectives . stage 1 contemplates the construction of a 30,000 tpd project using a higher cut-off grade ( 0.5 g au/tonne vs. 0.4 g au/tonne used in all prior vista analysis ) , with lower grade material to be stockpiled . stage 2 would involve an expansion to 45,000 tpd after payback of initial capital and contemplates a reduction in the cut-off grade to 0.4 g au/tonne and the processing of stockpiled material from stage 1. this two-phased strategy enables us to minimize initial capital costs and further increase the average grade of material to the mill in the early years of the project to achieve the shortest possible payback period . it also provides the opportunity to achieve a 50 % increase in project scale with modest additional capital expenditures to allow us to take advantage of mt . todd 's large and growing resource base . additionally , we intend to complete a preliminary feasibility study in the first quarter of 2013 that evaluates this development strategy . we expect to complete a feasibility study for the project in the second quarter of 2013 , subject to the results of the preliminary feasibility study . exploration activity the focus of the geology staff in 2012 has been on the development drilling and exploration on the exploration licenses has been limited to meeting commitments to maintain the licenses in good standing . update drilling on snowdrop in late november 2012 , a single diamond drill hole was completed on the target before the onset of the wet season . sd12-01 was drilled at an angle across the target zone to a depth of 219.1m . although the hole did not intersect significant ore grade mineralization , assay results were encouraging , and we believe that additional drilling is warranted . the hole intersected zones of intensely silicified greywackes and shales with minor sheeted quartz veins . the alteration and veining is remarkably similar to that observed at the batman deposit in the vicinity of the core zone . the greywacke units are coarser grained than at batman , but the frequency of lithological changes and alteration types are all very similar . sulfides are present within the quartz veining and as disseminated blebs within intensely silicified siltstones . common sulfide minerals include pyrite , pyrrhotite , chalcopyrite , and arsenopyrite with traces of galena , sphalerite and bornite . veining has a steep dip to the east , similar to batman , but appears richer in base metals . disseminated sulphides are also more abundant , while the vein density is not as intense as batman . guadalupe de los reyes gold/silver project , mexico preliminary economic assessment in march 2013 , we announced the completion of a preliminary economic assessment ( “ pea ” ) for the guadalupe de los reyes gold/silver project in sinaloa , mexico which evaluated the viability of a 1,500 tonne per day ( 540,000 tonne per annum ) processing facility with positive results . the guadalupe de los reyes pea was completed by tetratech mm , inc. of golden , colorado , pursuant to canadian national instrument 43-101 standards of disclosure for mineral projects ( `` ni 43-101 `` ) . the pea was completed by or under the supervision of edwin c. lips p.e. , dr. rex bryan , vicki scharnhorst p.e . and erik spiller , each independent qualified persons ( as defined in ni 43-101 ) . mr. lips , dr. bryan and mr. spiller have reviewed and approved the technical and scientific information contained in this report . previous technical reports contain extensive geologic and technical information related to the deposit , on which this estimate relies . the last technical report was filed on sedar on november 29 , 2012 and is entitled `` technical report resource of guadalupe de los reyes gold silver project – sinaloa , mexico `` and was issued on november 5 , 2012. the pea is intended to provide only an initial review of the guadalupe de los reyes gold/silver project 's potential and is preliminary in nature . the pea includes inferred resources that are considered to be too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves , and there is no certainty that the economic results described in the pea will be realized . project economics the following table provides details on the project 's economics at variable gold price assumptions . replace_table_token_17_th project concept the guadalupe de los reyes gold/silver project , as currently envisioned , consists of five small open pits within the guadalupe de los reyes system , all located within approximately 2.5km of each other . conventional open pit methods are recommended for mining the five deposits . the deposits are typical of a low sulfidation epithermal system with mineralization occurring in westward dipping structural zones that range from a few meters to tens of meters in thickness . the gold occurs as microscopic-sized , free to quartz-encapsulated electrum associated with silver sulfides . historic metallurgic testwork focused on heap leach recovery methods ; however vista believes that finer grind size through milling could lead to better recoveries . vista 's testwork has focused on gold extraction under a conventional mill and cil circuit and has resulted in an estimated average gold recovery of 93 % and a range of silver recoveries , dependent on the specific deposit tested . mill throughput is assumed to be 1,500 tonnes per day or 540,000 tonnes per year . with this assumed production rate , the mine life would be approximately 11 years , with 5.5 million tonnes of material processed .
| results from operations summary for the year ended december 31 , 2012 , we continued to advance our mt . todd gold project in northern territory , australia with a view towards potential development . in 2012 our drilling programs resulted in significant expansion of the mineral resource ; we started treating the water in the existing open pit as a preliminary step to ultimately dewatering the pit , subject to strict quality standards and discharge rates ; and we progressed significantly in the completion of a pre-feasibility study on the project . we also completed a drilling program at our guadalupe de los reyes gold/silver project in sinaloa , mexico and completed a new resource estimate for that project . consolidated net loss for the year ended december 31 , 2012 was $ 70,656 or $ 0.9 5 per basic share . for the same period in 2011 we reported net income of $ 51,546 or $ 0.75 per basic share . for the same period in 2010 we reported net loss of $ 20,020 or $ 0.42 per basic share . the principal components of these year-over-year changes are discussed below . exploration , property evaluation and holding costs exploration , property evaluation and holding costs were $ 27,536 , $ 21,774 and $ 13,447 during the years ended december 31 , 2012 , 2011 and 2010 , respectively . the higher costs period-to-period were primarily due to increased activity at our mt . todd gold project associated with the pre-feasibility and feasibility studies and related activities , drilling , permitting , and the september 2012 start of water treatment in the existing open pit . at our los cardones gold project , costs decreased in 2012 from 2011 because since february 2012 invecture group , s.a. de c.v. ( “ invecture ” ) began to incur all costs associated with the progression of this project under an earn-in right agreement ( “ earn-in right agreement ” ) .
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we have become a valuable partner to our customers and a recognized industry leader by consistently providing high-quality products and services designed to meet their needs and enhance their business . our sales efforts are largely targeted towards the foodservice industry , principally chain restaurants and food processors such as chick-fil-a ® and yum ! brands ® , distributors such as us foods and sysco ® and retail customers , including grocery store chains and wholesale clubs such as kroger ® , wal-mart ® , costco ® , publix ® , albertsons ® , h-e-b ® and sam 's club ® . as a vertically integrated company , we control every phase of the production process , which helps us better manage food safety and quality , as well as more effectively control margins and improve customer service . we operate feed mills , hatcheries , processing plants and distribution centers in 12 u.s. states , puerto rico and mexico . our plants are strategically located to ensure that customers timely receive fresh products . with our global network of approximately 4,130 growers , 35 feed mills , 40 hatcheries , 30 processing plants , six prepared foods cook plants , 23 distribution centers , eight rendering facilities and three pet food plants , we believe we are well positioned to supply the growing demand for our products . we are one of the largest , and we believe one of the most efficient , producers and sellers of chicken in mexico . our presence in mexico provides access to a market with growing demand and has enabled us to leverage our operational strengths within the region . the market for chicken products in mexico is still developing with most sales attributed to fresh , commodity-oriented , market price-based business . we believe our mexico business is well positioned to continue benefiting from these trends in the mexican consumer market . additionally , we are an important player in the live market , which accounted for approximately 25 % of the industry 's chicken sales in mexico in 2015. pilgrim 's has approximately 39,000 employees and has the capacity to process more than 37 million birds per week for a total of more than 10.8 billion pounds of live chicken annually . in 2015 , we produced 7.9 billion pounds of chicken products , generating approximately $ 8.2 billion in net revenues and approximately $ 645.9 million in net income attributable to pilgrim 's . we operate on a 52/53-week fiscal year that ends on the sunday falling on or before december 31. the reader should assume any reference we make to a particular year ( for example , 2015 ) in this report applies to our fiscal year and not the calendar year . 27 executive summary we reported net income attributable to pilgrim 's pride corporation of $ 645.9 million , or $ 2.50 per diluted common share , for 2015. these operating results included gross profit of $ 1.3 billion . during 2015 , we generated $ 976.8 million of cash from operations . market prices for feed ingredients remain volatile . consequently , there can be no assurance that our feed ingredients prices will not increase materially and that such increases would not negatively impact our financial position , results of operations and cash flow . the following table compares the highest and lowest prices reached on nearby futures for one bushel of corn and one ton of soybean meal during the current year and previous two years : replace_table_token_10_th we purchase derivative financial instruments , specifically exchange-traded futures and options , in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs such as corn , soybean meal , sorghum , wheat , soybean oil and natural gas . we will sometimes take a short position on a derivative instrument to minimize the impact of a commodity 's price volatility on our operating results . we will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of our mexico operations that are denominated in mexican pesos . we do not designate derivative financial instruments that we purchase to mitigate commodity purchase or currency exchange rate exposures as cash flow hedges ; therefore , we recognize changes in the fair value of these derivative financial instruments immediately in earnings . we recognized $ 21.8 million , $ 16.1 million and $ 25.1 million in net gains related to changes in the fair value of derivative financial instruments during 2015 , 2014 and 2013. although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients , such changes do not immediately impact cost of sales . the cost of feed ingredients is recognized in cost of sales , on a first-in-first-out basis , at the same time that the sales of the chickens that consume the feed grains are recognized . thus , there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold . for example , corn delivered to a feed mill and paid for one week might be used to manufacture feed the following week . however , the chickens that eat that feed might not be processed and sold for another 42 to 63 days , and only at that time will the costs of the feed consumed by the chicken become included in cost of goods sold . commodities such as corn , soybean meal , sorghum , wheat and soybean oil are actively traded through various exchanges with future market prices quoted on a daily basis . these quoted market prices , although a good indicator of the commodity 's base price , do not represent the final price for which we can purchase these commodities . story_separator_special_tag ( b ) sg & a expense incurred by the mexico operations during 2015 increased $ 13.0 million , or 67.9 % , from sg & a expense incurred by the mexico operations during 2014 primarily because of expenses incurred by the acquired tyson mexico operations and an increase in sg & a expense incurred by our existing operations . expenses incurred by the acquired tyson mexico business contributed $ 10.3 million , or 53.5 percentage points , to the overall increase in sg & a expense . an increase in expenses incurred by our existing operations contributed $ 3.1 million , or 16.3 percentage points , to the overall increase in sg & a expense . sg & a expense incurred by our existing operations increased primarily because of a $ 1.8 million increase in contract labor , a $ 1.2 million increase in bad debt expense and a $ 1.1 million increase in legal services expense . other factors affecting sg & a expense were individually immaterial . 32 ( c ) administrative restructuring charges incurred by the u.s. operations during 2015 increased $ 3.3 million , or 145.2 % , from administrative restructuring charges incurred during 2014. during 2015 administrative restructuring charges represented impairment costs of $ 4.8 million related to assets held for sale in louisiana and texas and a loss of $ 0.8 million related to the sale of a rendering plant in arkansas . ( d ) our consolidated financial statements include the accounts of both our company and its majority owned subsidiaries . we eliminate all significant affiliate accounts and transactions upon consolidation . interest expense . consolidated interest expense decreased 54.3 % to $ 37.5 million in 2015 from $ 82.1 million in 2014 , primarily because of a decrease in the weighted average interest rate to 4.02 % in 2015 from 6.45 % in 2014 , partially offset by an increase in average borrowings of $ 933.6 million in 2015 compared to $ 526.7 million in 2014. as a percent of net sales , interest expense in 2015 and 2014 was 0.46 % and 0.96 % , respectively . income taxes . our consolidated income tax expense in 2015 was $ 346.8 million , compared to income tax expense of $ 390.9 million in 2014. the decrease in income tax expense in 2015 resulted primarily from a decrease in income . we expect a future effective tax rate that is comparative to 2015 . 2014 compared to 2013 net sales . net sales for 2014 increased $ 172.2 million , or 2.0 % , from 2013. the following table provides additional information regarding net sales : replace_table_token_19_th ( a ) u.s. sales generated in 2014 increased $ 146.8 million , or 2.0 % , from u.s. sales generated in 2013 , primarily because of an increase in the net revenue per pound sold that was partially offset by a decrease in pounds sold . increased net revenue per pound sold , which resulted primarily from an increase in market prices due to continued healthy demand for chicken products in combination with constrained supply , contributed $ 217.8 million , or 2.9 percentage points , to the revenue increase . a decrease in pounds sold partially offset the increase in revenue per pound sold by $ 70.8 million , or 0.9 percentage points . included in u.s. sales generated during 2014 and 2013 were sales to jbs usa food company totaling $ 39.7 million and $ 61.9 million , respectively . ( b ) mexico sales generated in 2014 increased $ 25.4 million , or 2.8 % , from mexico sales generated in 2013 , primarily because of an increase in the net revenue per pound sold and an increase in sales volume partially offset by the impact of foreign currency translation . the increase in net revenue per pound contributed $ 42.4 million , or 4.7 % , to the increase in sales . the increase in volume contributed $ 24.2 million , or 2.7 percentage points , to the increase in sales , partially offset by the unfavorable impact of foreign currency translation contributed $ 41.2 million , or 4.4 percentage points , to the revenue decrease . gross profit . gross profit increased by $ 548.6 million , or 64.9 % , from $ 845.7 million generated in 2013 to $ 1.4 billion generated in 2014. the following tables provide gross profit information : replace_table_token_20_th replace_table_token_21_th 33 replace_table_token_22_th ( a ) cost of sales incurred by our u.s. operations in 2014 decreased $ 339.0 million , or 5.0 % , from cost of sales incurred by our u.s. operations in 2013. cost of sales decreased primarily because of a $ 464.7 million decrease in feed ingredients costs , a $ 23.6 million decrease in wages and benefits , a $ 17.2 million decrease in co-pack labor , a $ 15.4 million decrease in freight and storage and a $ 5.1 million decrease in repairs and maintenance . decreases to cost of sales were partially offset by a decrease in derivative gains from $ 23.4 million in 2013 to $ 16.0 million in 2014 , a $ 6.2 million increase in utilities costs , a $ 5.8 million increase in contract labor costs and a $ 2.6 million increase in lease costs . other factors affecting u.s. cost of sales were immaterial . ( b ) cost of sales incurred by the mexico operations during 2014 decreased $ 37.3 million , or 4.8 % , from cost of sales incurred by the mexico operations during 2013. cost of sales decreased primarily because of lower feed ingredients costs partially offset by the impact of foreign currency translation . the impact of lower feed ingredients costs contributed $ 41.6 million , or 6.8 percentage points , to the decrease in costs of sales . the impact of foreign currency translation contributed $ 31.9 million , or 4.1 percentage points , to the decrease in cost of sales .
| results of operations 2015 compared to 2014 net sales . net sales for 2015 decreased $ 403.3 million , or 4.7 % , from 2014. the following table provides additional information regarding net sales : replace_table_token_11_th ( a ) u.s. net sales generated in 2015 decreased $ 503.7 million , or 6.6 % , from u.s. net sales generated in 2014 primarily because of a decrease in net sales per pound . lower net sales per pound , which reflects a slight shift in product mix toward lower-priced fresh chicken products when compared to the same period in the prior year , contributed $ 681.8 million , or 8.9 percentage points , to the sales decrease . an increase in sales volume partially offset the net decrease by $ 178.2 million , or 2.3 percentage points . included in u.s. sales generated during 2015 and 2014 were sales to jbs usa food company totaling $ 21.7 million and $ 39.7 million , respectively . ( b ) mexico sales generated in 2015 increased $ 100.4 million , or 10.7 % , from mexico sales generated in 2014 , primarily because of net sales generated by the recently acquired tyson mexico operations and an increase in sales volume experienced by our existing operations . the impact of the acquired business contributed $ 250.6 million , or 26.8 percentage points , to the increase in net sales . the sales volume increase experienced by our existing operations contributed $ 24.7 million , or 2.6 percentage points , to the increase in net sales . the impact of of the acquired business and the sales volume increase experienced by our existing operations were partially offset by a decrease in net sales per pound experienced by our existing operations and the impact of foreign currency translation on our existing operations .
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[ 71 ] in december 2010 , also at the request of the reserve bank , the board of directors of first united corporation elected to defer quarterly interest payments under story_separator_special_tag this discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto for the year ended december 31 , 2013 , which are included in item 8 of part ii of this annual report . overview first united corporation is a financial holding company which , through the bank and its non-bank subsidiaries , provides an array of financial products and services primarily to customers in four western maryland counties and three northeastern west virginia counties . its principal operating subsidiary is the bank , which consists of a community banking network of 25 branch offices located throughout its market areas . our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers . consolidated net income available to common shareholders was $ 4.7 million for the year ended december 31 , 2013 , compared to net income available to common shareholders of $ 3.0 million for the year ended december 31 , 2012. basic and diluted net income per common share for the year ended december 31 , 2013 were $ .75 , compared to basic and diluted net income per common share of $ .48 for the year ended december 31 , 2012. the increase in net income for 2013 when compared to 2012 was attributable to an $ 8.0 million increase in net interest income after provision for loan losses driven by reduced charge-off activity . this increase was offset by a decrease in other operating income of $ 2.1 million primarily attributable to a decline in net gains of $ 1.5 million and a decrease of $ .8 million in bank-owned life insurance ( “ boli ” ) income driven by a one-time death benefit of $ .7 million that was paid in march 2012. the increase was also offset by a $ 2.9 million increase in other operating expenses , due primarily to a $ 2.0 million increase in other real estate owned ( “ oreo ” ) expenses , and a $ 1.3 million increase in tax expense . the net interest margin for the year ended december 31 , 2013 , on a fully tax equivalent ( “ fte ” ) basis , decreased to 3.25 % from 3.30 % for the year ended december 31 , 2012. the provision for loan losses decreased to $ .4 million for the year ended december 31 , 2013 , compared to $ 9.4 million for 2012. the lower provision expense in 2013 was primarily due to a $ 9.0 million loan charge-off on a shared national credit for an ethanol plant in western pennsylvania , $ 1.1 million in charge-offs on a participation loan for a hotel located in hazleton , pennsylvania , and a $ .9 million charge-off on a motel located in salisbury , maryland , all during the first quarter of 2012. during 2013 , we continued to see a leveling in the credit quality of our loan portfolio as we experienced fewer loan downgrades and delinquency levels have improved . we also recorded a $ .8 million recovery on a large commercial real estate credit during the third quarter of 2013. specific allocations have been made for impaired loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance , and the qualitative factors affecting the allowance for loan losses ( “ all ” ) have been adjusted based on the current economic environment and the characteristics of the loan portfolio . other operating income decreased $ 2.0 million during 2013 when compared to 2012. this decrease was attributable to a decline of $ 1.5 million in net gains and a decrease of $ .8 million in boli income due to the one-time death benefit of $ .7 million in march 2012. operating expenses increased $ 2.9 million during 2013 when compared to 2012. this increase was due to a $ 2.1 million increase in oreo expenses primarily due to the increase in the valuation allowance on oreo in order to better position the properties for quicker retail sales . salaries and benefits increased $ .5 million in 2013 when compared to 2012 primarily due to increased 401k expense for a discretionary contribution into the plan as a result of the “ soft freeze ” on the defined benefit pension plan . other expenses increased $ .3 million in 2013 when compared to the 2012 due to increases in miscellaneous expenses such as legal and professional expenses . comparing december 31 , 2013 to december 31 , 2012 , outstanding loans decreased by $ 64.6 million ( 7.4 % ) . cre loans decreased $ 30.8 million as a result of the payoff of several large loans and ongoing scheduled principal payments . acquisition and development ( “ a & d ” ) loans decreased $ 21.2 million due primarily to $ 5.0 million of principal amortization and $ 28.7 million of payoffs , offset by $ 17.9 million of new loans . commercial and industrial ( “ c & i ” ) loans decreased $ 9.2 million due primarily to $ 8.7 million of payoffs and scheduled principal payments . residential mortgages increased by $ 4.0 million due to increased production of loans primarily in our 10/1 adjustable rate mortgage program . the bank continues to use fannie mae for the majority of new , longer-term , fixed-rate residential loan originations , although production for these loans slowed during the third and fourth quarters of 2013. the consumer portfolio decreased $ 7.4 million due primarily to repayment activity in the indirect auto portfolio offsetting new production . at december 31 , 2013 , approximately 57 % of the commercial loan portfolio was collateralized by real estate , compared to 60 % at december 31 , 2012 . story_separator_special_tag although the fdic and the maryland commissioner have authorized the bank to pay dividends to the corporation in an aggregate amount necessary for the corporation to make the quarterly interest payments due in march 2014 , june 2014 , september 2014 and december 2014 , that approval is subject to revocation by the fdic and the maryland commissioner at any time if they determine that the bank 's financial condition and or results of operations do not support the payment of dividends . as a result of these limitations , no assurance can be given that the corporation will make the quarterly interest payments due under the tps debentures in any future quarter . in the event that the corporation and or the bank do not receive the approvals necessary for the corporation to make future quarterly interest payments , the corporation will have to again elect to defer interest payments . the terms of the tps debentures permit the corporation to elect to defer payments of interest for up to 20 consecutive quarterly periods , provided that no event of default exists under the tps debentures at the time of the election . an election to defer interest payments is not considered a default under the tps debentures . estimates and critical accounting policies this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . ( see note 1 to the consolidated financial statements . ) on an on-going basis , management evaluates estimates and bases those estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements . allowance for loan losses , or all one of our most important accounting policies is that related to the monitoring of the loan portfolio . a variety of estimates impact the carrying value of the loan portfolio , including the calculation of the all , the valuation of underlying collateral , the timing of loan charge-offs and the placement of loans on non-accrual status . the allowance is established and maintained at a level that management believes is adequate to cover losses resulting from the inability of borrowers to make required payment on loans . estimates for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio , current and historical trends in delinquencies and charge-offs , and changes in the size and composition of the loan portfolio . the analysis also requires consideration of the economic climate and direction , changes in lending rates , political conditions , legislation impacting the banking industry and economic conditions specific to western maryland and northeastern west virginia . because the calculation of the all relies on management 's estimates and judgments relating to inherently uncertain events , actual results may differ from management 's estimates . the all is also discussed below in item 7 under the heading “ allowance for loan losses ” and in note 7 to the consolidated financial statements . goodwill accounting standards codification ( “ asc ” ) topic 350 , intangibles – goodwill and other , establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill . we have $ 11.0 million in recorded goodwill at december 31 , 2013 that is related to the acquisition of huntington national bank branches that occurred in 2003 that is not subject to periodic amortization . goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired . goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . impairment testing requires that the fair value of each of the corporation 's reporting units be compared to the carrying amount of its net assets , including goodwill . if the estimated current fair value of the reporting unit exceeds its carrying value , no additional testing is required and an impairment loss is not recorded . otherwise , additional testing is performed , and to the extent such additional testing results in a conclusion that the carrying value of goodwill exceeds its implied fair value , an impairment loss is recognized . [ 31 ] our goodwill relates to the value inherent in the banking business , and that value is dependent upon our ability to provide quality , cost effective services in a highly competitive local market . this ability relies upon continuing investments in processing systems , the development of value-added service features and the ease of use of our services . as such , goodwill value is supported ultimately by revenue that is driven by the volume of business transacted . a decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill , which could adversely impact earnings in future periods . asc topic 350 requires an annual evaluation of goodwill for impairment . the determination of whether or not these assets are impaired involves significant judgments and estimates . throughout 2013 , consistent with the corporation 's peer group , the shares of the corporation 's common stock traded below its book value . at december 31 , 2013 , the corporation 's stock price was below its tangible book value .
| summary of loan portfolio table 3 the following table presents the composition of our loan portfolio for the past five years : replace_table_token_14_th comparing december 31 , 2013 to december 31 , 2012 , outstanding loans decreased by $ 64.6 million ( 7.4 % ) . cre loans decreased $ 30.8 million as a result of the payoff of several large loans and ongoing scheduled principal payments . acquisition and development ( “ a & d ” ) loans decreased $ 21.2 million due primarily to $ 5.0 million of principal amortization and $ 28.7 million of payoffs , offset by $ 17.9 million of new loans . commercial and industrial ( “ c & i ” ) loans decreased $ 9.2 million due primarily to $ 8.7 million of payoffs and scheduled principal payments . residential mortgages increased by $ 4.0 million due to increased production of loans primarily in our 10/1 adjustable rate mortgage program . the bank continues to use fannie mae for the majority of new , longer-term , fixed-rate residential loan originations , although production for these loans slowed during the third and fourth quarters of 2013. the consumer portfolio decreased $ 7.4 million due primarily to repayment activity in the indirect auto portfolio offsetting new production . at december 31 , 2013 , approximately 57 % of the commercial loan portfolio was collateralized by real estate , compared to approximately 60 % at december 31 , 2012. adjustable interest rate loans made up 64 % of total loans at december 31 , 2013 and 2012. fixed–interest rate loans made up 36 % of the total loan portfolio at december 31 , 2013 and 2012 . [ 40 ] comparing december 31 , 2012 to december 31 , 2011 , outstanding loans decreased by $ 63.9 million ( 6.8 % ) . cre loans decreased $ 37.4 million as a result of several large loan payoffs , loan charge-offs and ongoing scheduled principal payments .
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replace_table_token_6_th for the period from december 4 , 2015 ( inception ) through december 31 , 2015 formation and operating costs $ 25,162 net loss $ ( 25,162 ) per share data : basic and diluted net loss per share $ ( 0.00 ) basic and diluted weighted average ordinary shares outstanding 7,500,000 74 item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures . disclosure controls and procedures disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 , as amended ( the `` exchange act `` ) is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the exchange act is accumulated and communicated to management , including our chief executive officer and chief financial officer , to allow timely decisions regarding required disclosure . as required by rules 13a-15 and 15d-15 under the exchange act , our chief executive officer and chief financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of december 31 , 2016. based upon their evaluation , our chief executive officer and chief financial officer concluded that our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act ) were effective . internal control over financial reporting this annual report on form 10-k does not include a report of management 's assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the sec for newly public companies . during the most recently completed fiscal quarter , there has been no change in our internal control over financial reporting that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information . none . 75 part iii item 10. directors , executive officers and corporate governance . our current directors and officers are as follows : replace_table_token_7_th thompson dean has served as a director since december 4 , 2015 and as the executive chairman of our board of directors since december 10 , 2015. mr. dean is a co-managing partner and chief executive officer of avista and has served in various capacities at avista since its founding in in 2005. from 1995 to 2005 , mr. dean served as co-managing partner of dljmb and was chairman of the investment committees of dljmb i , dljmb ii , dljmb iii and dlj growth capital partners . mr. dean currently serves on the boards of acino pharma ag , trimb healthcare and zest anchors llc . mr. dean is a former trustee of choate rosemary hall and the eaglebrook school . in addition , he serves on various committees of the boys club of new york , the lenox hill neighborhood association and the museum of the city of new york . mr. dean received a b.a . from the university of virginia , where he was an echols scholar , and an m.b.a. with high distinction from harvard business school , where he was a baker scholar . mr. dean was chosen to serve as the executive chairman of our board of directors because of his executive level management experience at avista , board and advisory experience with other companies in and outside of the healthcare industry and his extensive experience in the areas of finance , strategy , international business transactions and mergers and acquisitions . david burgstahler has served as a director since december 4 , 2015 and as our president and chief executive officer and a director since december 10 , 2015. mr. burgstahler is a co-managing partner and president of avista and has served in various capacities at avista since its founding in 2005. prior to forming avista , he was a partner of dljmb from 2004 to 2005 and he served in various capacities at dljmb and its affiliates from 1995 to 2005. prior to dljmb , mr. burgstahler worked at andersen consulting ( now known as accenture ) and mcdonnell douglas ( now known as boeing ) . he currently serves as a director of acp mountain holdings , inc. , angiodynamics inc. ( nasdaq : ango ) , inc research holdings , inc. ( nasdaq : incr ) , lantheus holdings , inc. ( nasdaq : lnth ) , osmotica holdings , s.c.sp , and wideopenwest , llc . mr. burgstahler also previously served on the boards of directors of armored autogroup , bioreliance corp. , convatec healthcare b s.a.r.l , focus diagnostics , inc. , strategic partners , llc , visant corp. and warner chilcott plc ( nasdaq : wcrx ) . mr. burgstahler is also a trustee of the trinity school in new york city . mr. burgstahler received a b.s . from the university of kansas and an m.b.a. from harvard business school . story_separator_special_tag mr. burgstahler was chosen to serve as a director because of his extensive experience serving as a director for a diverse group of private and public companies , including those in the healthcare industry . john cafasso has been our chief financial officer since december 10 , 2015. he joined avista in may 2011. prior to joining avista , mr. cafasso was in the asset management division of credit suisse 76 from 2001 to may 2011 , where he was responsible for the accounting and reporting for credit suisse 's direct private equity funds . prior to joining credit suisse , mr. cafasso was a manager at kpmg , llp story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the audited financial statements and the notes related thereto which are included in `` item 8. financial statements and supplementary data '' of this annual report on form 10-k. certain information contained in the discussion and analysis set forth below includes forward-looking statements . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under `` special note regarding forward-looking statements , '' `` item 1a . risk factors '' and elsewhere in this annual report on form 10-k. story_separator_special_tag from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account . we do not believe we will need to raise additional funds during the next 12 months in order to meet the expenditures required for operating our business . however , if our estimates of the costs of identifying a target business , undertaking in-depth due diligence and negotiating a business combination are less than the actual amount necessary to do so , we may have insufficient funds available to operate our business prior to our business combination . moreover , we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of a business combination , in which case we may issue additional securities or incur debt in connection with such business combination . we have 24 months after the close date to complete a business combination . if we do not complete a business combination within this time period , we shall ( i ) cease all operations except for the purposes of winding up , ( ii ) as promptly as reasonably possible , but not more than ten business days thereafter , redeem the public shares , at a per-share price , payable in cash , equal to the aggregate amount then on deposit in the trust account , including interest , net of tax ( less up to $ 50,000 of such net interest to pay dissolution expenses ) , divided by the number of then outstanding public shares , which redemption will completely extinguish the shareholder rights of owners of class a ordinary shares ( including the right to receive further liquidation distributions , if any ) , subject to applicable law , and ( iii ) as promptly as reasonably possible following such redemption , subject to the approval of the remaining shareholders and the board of directors , dissolve and liquidate , subject in each case to the company 's obligations under cayman islands law to provide for claims of creditors and the requirements of other applicable law . off-balance sheet financing arrangements as of december 31 , 2016 , we did not have any obligations , assets or liabilities which would be considered off-balance sheet arrangements . we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any 56 special purpose entities , guaranteed any debt or commitments of other entities , or purchased any non-financial assets . contractual obligations as of december 31 , 2016 , we did not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities . on october 10 , 2016 , we entered into an administrative services agreement pursuant to which have agreed to pay an affiliate of our sponsor a total of $ 10,000 per month for office space , administrative and support services . upon completion of a business combination or our liquidation , we will cease paying these monthly fees . the underwriters are entitled to underwriting commissions of 5.5 % , of which 2.0 % ( $ 6,200,000 ) was paid at the closing of the public offering and over-allotment option , and 3.5 % ( $ 10,850,000 ) was deferred . the deferred underwriting commissions held in the trust account will be forfeited in the event we do not complete a business combination , subject to the terms of the underwriting agreement . the underwriters are not entitled to any interest accrued on the deferred underwriting commissions . critical accounting policies the preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america 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 condensed financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . the company has identified the following as its significant accounting policies : offering costs the company complies with the requirements of accounting standards codification ( `` the asc '' ) 340-10-s99-1 and sec staff
| overview we are a blank check company incorporated as a cayman islands exempted company and formed for the purpose of effecting a business combination in the form of a merger , share exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more target businesses . we have reviewed , and continue to review , a number of opportunities to enter into a business combination with an operating business , but we are not able to determine at this time whether we will complete a business combination with any of the target businesses that we gave reviewed or with any other target business . we intend to effectuate a business combination using cash from the proceeds from the public offering and the sale of the private placement warrants , and from additional issuances of , if any , our capital stock and debt or a combination of cash , stock and debt . results of operations and known trends or future events for the year ended december 31 , 2016 , we had net losses of $ 208,698. for the period from december 4 , 2015 ( inception ) through december 31 , 2015 , we had net losses of $ 25,162. our business activities from inception through december 31 , 2016 consisted solely of completing the public offering , and identifying and evaluating prospective acquisition targets for a business combination . we will not generate any operating revenues until after completion of our business combination at the earliest . beginning in january 2017 , we generate non-operating income in the form of interest income on the funds held in the trust account . there has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements .
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the company makes advance payments to this entity to cover future sales orders . as of september 30 , 2016 and 2015 ; respectively , the aggregate prepaid balance to this related party was $ 45,505 and $ 70,433 ; respectively . ( f ) in august 2015 , the company issued to mircea georgescu , a 5 % beneficial owner of the company , 425,000 shares of common stock in exchange for consulting services . 5. common stock the company has 40,000,000 common shares authorized with a par value of $ 0.0001 per share . during the year ended september 30 , 2015 , the company had the following issuances : ( a ) 68,300 units for total proceeds of $ 20,490 . each unit consisted of one common share and one-half of one share purchase warrant . each whole share purchase warrant is exercisable at $ 0.60 per common share until the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . ( b ) 9 units for total proceeds of $ 27,000 . each unit consisted of 10,000 common shares and 5,000 share purchase warrants . each share purchase warrant is exercisable at $ 0.60 per common share until the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . ( c ) 544,200 shares of common stock for services valued in total at $ 163,260 . ( d ) 50,000 units for services valued in total at $ 15,000 . each unit consisted of one common share and one-half of one share purchase warrant . each whole share purchase warrant is exercisable at $ 0.60 per common share until the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . f- 10 effective january 30 , 2015 , the company amended the subscription agreements pursuant to which the company had issued 1,095,050 shares of common stock from inception to december 31 , 2014 for gross proceeds of $ 328,515 . pursuant to the amended subscription agreements , the company granted the investors an additional 5 % of the total amount of common shares each shareholder purchased . the aggregate amount of additional shares issued was 54,752 shares with a total value of $ 16,426 , which was recorded as stock-based compensation during the period . during the year ended september 30 , 2015 , the company received $ 22,005 of the subscriptions receivable at september 30 , 2014. during the year ended september 30 , 2016 , the company had the following issuances : ( a ) during september 30 , 2016 , the company issued 422,500 shares of common stock for services valued at 0.30 per common share for a total expense of $ 126,750 . of the 422,500 shares issued 22,500 common shares have not yet been issued by the transfer agent ; however , the company has accounted for these as issued and outstanding as of september 30 , 2016 . ( b ) in november 2015 , the company issued an aggregate of 15 units for total proceeds of $ 45,000 . each unit consisted of 10,000 common shares and 5,000 share purchase warrants . each whole share purchase warrant is exercisable at $ 0.60 per common share until the one-year anniversary of the first day that the common stock is traded on the otcqb marketplace . 6. share purchase warrants each selling shareholder has a warrant to purchase up to 50 % of the shares owned with an exercise price of $ 0.60 per shares with the warrant termination on the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . a summary of the changes in the company 's common share purchase warrants is presented below : replace_table_token_10_th as at september 30 , 2016 , the following common share purchase warrants were outstanding and exercisable : number of warrants exercise price expiry date 692,525 $ 0.60 one year from the first day that the common stock is traded on the otcqb marketplace f- 11 7. income taxes the company has net operating losses carried forward of $ 391,794 available to offset taxable income in future years which expire beginning in fiscal 2035. the company is subject to united states federal and state income taxes at an approximate rate of 35 % . the tax years open for internal revenue service review are fiscal years ended september 30 , 2015 and 2016. the reconciliation of the provision for income taxes at the united states federal statutory rate compared to the company 's income tax expense as reported is as follows : 2016 2015 $ $ income tax recovery at statutory rate ( 46,502 ) ( 81,433 ) valuation allowance change 46,502 81,433 provision for income taxes - - the significant components of deferred income tax assets and liabilities at september 20 , 2016 and september 30 , 2015 : replace_table_token_11_th 8. subsequent event subsequent to september 30 , 2016 , the company issued 300,000 common shares for services . f- 12 story_separator_special_tag forward-looking statements the following is management 's discussion and analysis of the consolidated financial condition and results of operations of iho-agro international , inc. for the fiscal years ended september 30 , 2016 and 2015.the following should be read in conjunction with the audited consolidated financial statements for the period ending september 30 , 2016 and notes thereto appearing elsewhere in the form 10-k. plan of operation during the next 12 months , we plan to be profitable . profitability will be accomplished by the following : increase in revenue as a result of increased sales and distribution partners , increased advertising and marketing across all media areas , increased product certification and registration in targeted countries , states and jurisdictions around the world . we also plan to tightly monitor all expenses , decrease expenses where story_separator_special_tag the company makes advance payments to this entity to cover future sales orders . as of september 30 , 2016 and 2015 ; respectively , the aggregate prepaid balance to this related party was $ 45,505 and $ 70,433 ; respectively . ( f ) in august 2015 , the company issued to mircea georgescu , a 5 % beneficial owner of the company , 425,000 shares of common stock in exchange for consulting services . 5. common stock the company has 40,000,000 common shares authorized with a par value of $ 0.0001 per share . during the year ended september 30 , 2015 , the company had the following issuances : ( a ) 68,300 units for total proceeds of $ 20,490 . each unit consisted of one common share and one-half of one share purchase warrant . each whole share purchase warrant is exercisable at $ 0.60 per common share until the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . ( b ) 9 units for total proceeds of $ 27,000 . each unit consisted of 10,000 common shares and 5,000 share purchase warrants . each share purchase warrant is exercisable at $ 0.60 per common share until the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . ( c ) 544,200 shares of common stock for services valued in total at $ 163,260 . ( d ) 50,000 units for services valued in total at $ 15,000 . each unit consisted of one common share and one-half of one share purchase warrant . each whole share purchase warrant is exercisable at $ 0.60 per common share until the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . f- 10 effective january 30 , 2015 , the company amended the subscription agreements pursuant to which the company had issued 1,095,050 shares of common stock from inception to december 31 , 2014 for gross proceeds of $ 328,515 . pursuant to the amended subscription agreements , the company granted the investors an additional 5 % of the total amount of common shares each shareholder purchased . the aggregate amount of additional shares issued was 54,752 shares with a total value of $ 16,426 , which was recorded as stock-based compensation during the period . during the year ended september 30 , 2015 , the company received $ 22,005 of the subscriptions receivable at september 30 , 2014. during the year ended september 30 , 2016 , the company had the following issuances : ( a ) during september 30 , 2016 , the company issued 422,500 shares of common stock for services valued at 0.30 per common share for a total expense of $ 126,750 . of the 422,500 shares issued 22,500 common shares have not yet been issued by the transfer agent ; however , the company has accounted for these as issued and outstanding as of september 30 , 2016 . ( b ) in november 2015 , the company issued an aggregate of 15 units for total proceeds of $ 45,000 . each unit consisted of 10,000 common shares and 5,000 share purchase warrants . each whole share purchase warrant is exercisable at $ 0.60 per common share until the one-year anniversary of the first day that the common stock is traded on the otcqb marketplace . 6. share purchase warrants each selling shareholder has a warrant to purchase up to 50 % of the shares owned with an exercise price of $ 0.60 per shares with the warrant termination on the one year anniversary of the first day that the common stock is traded on the otcqb marketplace . a summary of the changes in the company 's common share purchase warrants is presented below : replace_table_token_10_th as at september 30 , 2016 , the following common share purchase warrants were outstanding and exercisable : number of warrants exercise price expiry date 692,525 $ 0.60 one year from the first day that the common stock is traded on the otcqb marketplace f- 11 7. income taxes the company has net operating losses carried forward of $ 391,794 available to offset taxable income in future years which expire beginning in fiscal 2035. the company is subject to united states federal and state income taxes at an approximate rate of 35 % . the tax years open for internal revenue service review are fiscal years ended september 30 , 2015 and 2016. the reconciliation of the provision for income taxes at the united states federal statutory rate compared to the company 's income tax expense as reported is as follows : 2016 2015 $ $ income tax recovery at statutory rate ( 46,502 ) ( 81,433 ) valuation allowance change 46,502 81,433 provision for income taxes - - the significant components of deferred income tax assets and liabilities at september 20 , 2016 and september 30 , 2015 : replace_table_token_11_th 8. subsequent event subsequent to september 30 , 2016 , the company issued 300,000 common shares for services . f- 12 story_separator_special_tag forward-looking statements the following is management 's discussion and analysis of the consolidated financial condition and results of operations of iho-agro international , inc. for the fiscal years ended september 30 , 2016 and 2015.the following should be read in conjunction with the audited consolidated financial statements for the period ending september 30 , 2016 and notes thereto appearing elsewhere in the form 10-k. plan of operation during the next 12 months , we plan to be profitable . profitability will be accomplished by the following : increase in revenue as a result of increased sales and distribution partners , increased advertising and marketing across all media areas , increased product certification and registration in targeted countries , states and jurisdictions around the world . we also plan to tightly monitor all expenses , decrease expenses where
| results of operations for the years ended september 30 , 2016 and 2015 our company had the following comparative results from operations for the fiscal years ended september 30 , 2016 and 2015 : 1. gross revenue of $ 62,861 in 2016 as compared with gross revenue of $ 3,562 in 2015. this increase in revenue is due to an increase in sales to distributors . 2. operating expenses of $ 323,828 in 2016 as compared with operating expenses of $ 432,256 in 2015. this decrease in operating expenses is due to a decrease in fees related to professional services , travel and expenses . 3. net loss of $ 260,967 in 2016 as compared to a loss of $ 428,694 in 2015. this decrease in net loss is due to an increase in gross revenue and a decrease in operating expenses . liquidity and capital resources our financial condition as of september 30 , 2016 and 2015 is summarized as follows : working capital deficit : replace_table_token_1_th cash flows : replace_table_token_2_th 8 we had working capital of $ 4,960 and an accumulated deficit of $ 719,186 at september 30 , 2016. we have generated minimal revenue since inception and losses are anticipated in the development of our business . these factors indicate substantial doubt as to our ability to continue as a going concern . significant accounting policies and new pronouncements the following is the most significant accounting policies that has a substantive impact on the underlying discussions and analysis : revenue recognition the company 's revenue is derived from sales of fertilizer product .
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the components of these lease receivables were as follows on december 31 : replace_table_token_32_th future minimum lease payments to be received subsequent to december 31 , 2015 are as follows : replace_table_token_33_th credit quality of financing receivables and allowance for credit losses the following table is a roll-forward of the allowance for financing credit losses for the years ended december 31 , 2015 and 2014 : replace_table_token_34_th the company 's financing receivables are comprised of a single portfolio segment , as the balances are all derived from short-term payment plan arrangements and sales-type leasing arrangements within our target market of rural and community story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the `` selected financial data '' and our financial statements and the related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under `` risk factors '' and elsewhere in this annual report . background cpsi , founded in 1979 , is a leading provider of healthcare information technology ( `` it '' ) solutions and services for rural and community hospitals and post-acute care facilities . with our january 2016 acquisition of healthland holding inc. ( `` hhi '' ) , cpsi is now the parent of five companies - evident , llc ( `` evident '' ) , trubridge , llc ( `` trubridge '' ) , healthland inc. ( `` healthland '' ) , american healthtech , inc. ( `` aht '' ) , and rycan technologies , inc. ( `` rycan '' ) . our combined companies are focused on helping improve the health of the communities we serve , connecting communities for a better patient care experience , and improving the financial operations of our customers . the individual contributions of each of our five wholly-owned subsidiaries towards this combined focus is as follows : evident , formed in april 2015 , provides comprehensive electronic health record ( `` ehr '' ) solutions and services for rural and community hospitals , including those solutions previously sold under the cpsi name as well as an expanded range of offerings targeted specifically at rural and community healthcare organizations . trubridge focuses exclusively on providing business management , consulting and managed it services to rural and community healthcare organizations , regardless of their it vendor . healthland , acquired in the acquisition of hhi , provides integrated technology solutions and services to small rural and critical access hospitals . aht , acquired in the acquisition of hhi , is one of the nation 's largest providers of financial and clinical technology solutions and services for post-acute care facilities . rycan , acquired in the acquisition of hhi , provides revenue cycle management workflow and automation software to hospitals , healthcare systems , and skilled nursing organizations . the combined company currently supports approximately 1,300 acute care facilities and over 3,300 post-acute care facilities with a geographically diverse customer mix within the domestic rural and community healthcare market . our customers primarily consist of rural and community hospitals with 300 or fewer acute care beds , with hospitals having 100 or fewer beds comprising approximately 95 % of our hospital ehr customer base . as the acquisition of hhi did not occur until january 2016 , the historical financial results presented below do not reflect the results of hhi . management overview historically we have primarily sought revenue growth through sales of healthcare it systems and related services to existing and new customers within our target market . despite an overall decline in revenues during 2015 , our strategy has produced consistent revenue growth over the long term , as reflected in five- and ten-year compounded annual growth rates in revenues of approximately 3.5 % and 5.3 % , respectively . important to our potential for continued long-term revenue growth is our ability to sell new and additional products and services to our existing customer base , including cross-selling opportunities presented with the acquisition of hhi . we believe that as our combined customer base grows , the demand for additional products and services , including business management , consulting and managed it services , will also continue to grow , supporting further increases in recurring revenues . we also expect to drive revenue growth from new product development that we may generate from our research and development activities . in january 2013 , we announced the formation of trubridge , a wholly-owned subsidiary of cpsi . trubridge provides the business management , consulting and managed it services that historically had been provided by cpsi , with the expectation of expanding both our service offerings and our footprint in this particular marketplace in the future . we expect this strategic initiative to allow us to more fully take advantage of the market opportunities in providing such services by facilitating the 35 index to financial statements expansion of our target market to include the entire rural and community hospital market , no longer limiting the market for our services to hospitals where cpsi already serves as the primary it vendor . in april 2015 , we announced the formation of evident , a wholly-owned subsidiary of cpsi . evident provides electronic health record solutions previously sold under the cpsi name as well as an expanded range of offerings targeted specifically at rural and community healthcare organizations . our objectives with the creation of evident are to further define system and support differentiation in our core target market , broaden the positioning of our ehr solution and offer a new range of solutions to address current and upcoming needs of rural and community healthcare providers . with the formation of evident came the introduction of our ehr solution under the name thrive and our unique collaborative support model under the name likemind . story_separator_special_tag despite these narrowing markets , we expect to continue to benefit from the arra 's ehr incentive program in the medium-to-long term as the expanded requirements for continued eligibility for incentive payments and related payment adjustments for those healthcare providers not in compliance with meaningful use rules are expected to result in both an expanded replacement market for ehrs and additional orders from our existing customer base to purchase incremental applications necessary to satisfy such expanded requirements , particularly as the stage three meaningful use rules become effective . the stage three requirements will be optional for 2017 , with all providers required to comply with the stage three requirements beginning in 2018. however , as the ehr replacement market is not likely to develop rapidly and the market for add-on sales to existing customers for incremental stage three-related applications is not likely to significantly expand until the related stage three rules become effective , our system sales revenues and profitability are expected to be materially and adversely impacted during the short-term . although we are pursuing other strategic initiatives designed to result in system sales revenue growth in the future in the form of selective expansion into english-speaking international markets , selective expansion within the 100 to 300 bed hospital market and targeted expansion for our ambulatory solutions , there can be no guarantee that such initiatives will prove successful or will benefit the company in a sufficiently timely fashion to offset the short-term effects of the afore-mentioned narrowing markets . health care reform in march 2010 , president obama signed into law the patient protection and affordable care act and the health care and education reconciliation act of 2010 , collectively referred to as the `` health reform laws . '' this sweeping legislation implements changes to the healthcare and health insurance industries from 2010 through 2015 , requiring substantially all u.s. citizens and legal residents to have qualifying health insurance coverage starting in 2014 and providing the means by which it will be made available to them . the health reform laws have had little direct impact on our internal operation and do not appear to have had a significant impact on the businesses of our hospital customers to date . however , we have not been able to determine at this point whether the ultimate impact will be positive , negative or neutral ; it is likely that the health reform laws will affect hospitals differently depending upon the populations they service . rural and community hospitals typically service higher uninsured populations than larger urban hospitals and rely more heavily on medicare and medicaid for reimbursement . it remains to be seen whether the increase in the insured populations for rural and community hospitals , as well as the increase in medicare and medicaid reimbursements under the arra for hospitals that implement ehr technology , will be enough to offset cuts in medicare and medicaid reimbursements contained in the health reform laws or as a result of sequestration or other federal legislation . we believe healthcare initiatives will continue during the foreseeable future . if adopted , some aspects of previously proposed reforms , such as further reductions in medicare and medicaid payments , could adversely affect the businesses of our customers and thereby harm our business . 2015 financial overview the aforementioned narrowing markets for new customer installations and add-on sales to existing customers for incremental stage two applications had a significant impact on our revenues , profitability , and cash generating abilities for 2015 , as our gross revenues declined 11.0 % , net income decreased 44.3 % , and cash flow from operations decreased 20.7 % from the record levels achieved in 2014. the impact of these narrowing markets has been further exacerbated by the operating assumption utilized during the majority of 2015 by many hospitals and eligible providers of a full-year reporting period for 2015 for continued participation in the ehr incentive program . although a three-month reporting period was permitted by cms for all hospitals and eligible providers to report compliance with meaningful use requirements for federal fiscal 2014 , hospitals and eligible providers were originally required to report compliance with meaningful use standards for full federal fiscal 2015. although cms finalized a rule in october 2015 shortening the 2015 reporting period to 90 days , the original rule influenced the capital expenditure budgets and purchasing decisions of many hospitals and eligible providers throughout the majority of 2015 , resulting in many healthcare providers delaying the purchase of incremental applications necessary to comply with the 2015 meaningful use requirements as the opportunity to attest for the 2015 reporting year had effectively lapsed on october 1 , 2014 . 37 index to financial statements as mentioned above , our operations have been significantly affected by the ehr incentives offered under the arra and the related reduction in medicare reimbursement rates for those providers that failed to demonstrate meaningful use of ehr by october 1 , 2014 . `` meaningful use '' of ehr under the arra refers to a set of core criteria that medical providers must meet in order to prove that they are using their ehr as an effective tool in their practice , plus additional a la carte menu items . meaningful use is measured in three stages , with each stage representing a level of adoption of ehr . ehr incentive payments to eligible hospitals meeting the stage one criteria began in 2011. eligible hospitals that did not meet the stage one criteria by october 1 , 2013 have begun to experience a decrease in the overall incentive payments for which they are eligible under the incentive program . providers that began participation in the incentive program in 2011 are required to meet three consecutive years of meaningful use under the stage one criteria before advancing to the stage two criteria in their fourth year , with all other providers being required to meet two years of meaningful use under the stage one criteria before advancing to the stage two criteria in their third year .
| results of operations the following table sets forth certain items included in our results of operations for each of the three years in the period ended december 31 , 2015 , expressed as a percentage of our total revenues for these periods ( dollar amounts in thousands ) : replace_table_token_3_th 2015 compared to 2014 revenues . total revenues decreased 11.0 % , or $ 22.6 million . this was largely attributed to a $ 32.1 million decrease in system sales revenues due to the aforementioned narrowing markets for new system installations and add-on sales to existing customers for stage two-related incremental applications , further exacerbated by the aforementioned delayed purchasing decisions caused by the original ( pre-october 2015 ) requirement for a full-year reporting period for 2015 meaningful use attestation . the decrease in system sales revenues was partially offset by a combined $ 9.5 million increase in support and maintenance revenues and business management , consulting and managed it services revenues due to a larger customer base and increased applications within that customer base requiring support and maintenance services , as well as increased demand for and market acceptance of our business management , consulting and managed it services , coupled with selective expansion of our service offerings within these service categories . system sales revenues decreased by 42.8 % , or $ 32.1 million . the accelerated adoption of ehrs resulting from the arra 's ehr incentive program has resulted in a narrowing market for new system installations and has accelerated the purchase of incremental applications by our existing customer base to satisfy the current meaningful use rules , thereby narrowing the market for add-on sales to existing customers for stage two-related incremental applications .
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61 brooks automation , inc. notes to consolidated financial statements ( continued ) 9. earnings ( loss ) per share below is a reconciliation of weighted average common shares outstanding for purposes of calculating basic and diluted earnings ( loss ) per share ( in thousands , except per share data ) : replace_table_token_29_th approximately 387,000 , 888,000 and 1,456,000 options to purchase common stock and 413,000 , 187,000 and 1,101,000 shares of restricted stock were excluded from the computation of diluted earnings ( loss ) per share attributable to brooks automation , inc. common stockholders for the years ended september 30 , 2011 , 2010 and 2009 , respectively , as their effect would be anti-dilutive . 10. income taxes the components of the income tax provision ( benefit ) are as follows ( in thousands ) : replace_table_token_30_th 62 brooks automation , inc. notes to consolidated financial statements ( continued ) the components of income ( loss ) before income taxes and equity in earnings ( losses ) of joint ventures are as follows ( in thousands ) : replace_table_token_31_th the differences between the income tax provision and income taxes computed using the applicable u.s. statutory federal tax rate is as follows ( in thousands ) : replace_table_token_32_th the company does not provide for u.s. income taxes applicable to undistributed earnings of its foreign subsidiaries since these earnings are indefinitely reinvested . the significant components of the net deferred tax assets and liabilities are as follows ( in thousands ) story_separator_special_tag certain statements in this form 10-k constitute forward-looking statements which involve known risks , uncertainties and other factors which may cause the actual results , our performance or our achievements to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements such as estimates of future revenue , gross margin , and expense levels as well as the performance of the semiconductor industry as a whole . such factors include the risk factors set forth in part i , item 1a . precautionary statements made herein should be read as being applicable to all related forward-looking statements whenever they appear in this report . story_separator_special_tag current and anticipated worldwide economic conditions both in general and specifically in relation to the semiconductor industry , 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 . as discussed in the year over year comparisons below , actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenues product revenues are associated with the sale of hardware systems , components and spare parts as well as product license revenue . service revenues are associated with service contracts , repairs , upgrades and field service . shipping and handling fees , if any , billed to customers are recognized as revenue . the related shipping and handling costs are recognized in cost of sales . revenue from product sales that does not include significant customization is recorded upon delivery and transfer of risk of loss to the customer provided there is evidence of an arrangement , fees are fixed or determinable , collection of the related receivable is reasonably assured and , if applicable , customer acceptance criteria have been successfully demonstrated . customer acceptance provisions include final testing and acceptance carried out prior to shipment . these pre-shipment testing and acceptance procedures ensure that the product meets the published specification requirements before the product is shipped . when significant on site customer acceptance provisions are present in the arrangement , revenue is recognized upon completion of customer acceptance testing . revenue from product sales that does include significant customization , which primarily include life science automation systems , is recorded using the percentage of completion method whereby revenue is recorded as work progresses based on a percentage that incurred costs to date bear to total estimated costs . in addition , contracts are 22 reviewed on a regular basis to determine whether a loss exists . a loss will be accrued in the period in which estimated contract revenue is less than the current estimate of total contract costs . revenue associated with service agreements is generally recognized ratably over the term of the contract . revenue from repair services or upgrades of customer-owned equipment is recognized upon completion of the repair effort and upon the shipment of the repaired item back to the customer . in instances where the repair or upgrade includes installation , revenue is recognized when the installation is completed . intangible assets , goodwill and other long-lived assets as a result of our acquisitions , we have identified intangible assets other than goodwill and generated significant goodwill . general intangible assets other than goodwill are valued based on estimates of future cash flows and amortized over their estimated useful life . goodwill is subject to annual impairment testing as well as testing upon the occurrence of any event that indicates a potential impairment . general intangible assets other than goodwill and other long-lived assets are subject to an impairment test if there is an indicator of impairment . we conduct our annual goodwill impairment test as of our fiscal year end , or september 30th . under u.s. generally accepted accounting principles ( gaap ) , the testing of goodwill for impairment is to be performed at a level referred to as a reporting unit . a reporting unit is either the operating segment level or one level below , which is referred to as a component . the level at which the impairment test is performed requires an assessment as to whether the operations below the operating segment constitute a self-sustaining business , testing is generally required to be performed at this level . story_separator_special_tag we perform periodic reviews of all inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand , based upon sales and marketing inputs through our planning systems . if estimates of demand diminish further or actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required . deferred taxes we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized . we have considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance . in the event we determine that we would be able to realize our deferred tax assets in excess of their net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , should we subsequently determine that we would not be able to realize all or part of our net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . management has considered the weight of all available evidence in determining whether a valuation allowance continues to be required against its deferred tax assets . we continued to provide a full valuation allowance for our net deferred tax assets at september 30 , 2011 , as we believe it is more likely than not that the future tax benefits from accumulated net operating losses and other temporary differences will not be realized . we will continue to assess the need for a valuation allowance in future periods . if we continue to generate profits in most of our jurisdictions , it is reasonably possible that there will be a significant reduction in the valuation allowance in the next twelve months . reduction of the valuation allowance , in whole or in part , would result in a non-cash income tax benefit during the period of reduction . 24 pension plans we sponsor a defined benefit pension plan in the u.s. and two non-u.s. defined benefit pension plans . the cost and obligations of these arrangements are calculated using many assumptions to estimate the benefits that the employee earns while working , the amount of which can not be completely determined until the benefit payments cease . major assumptions used in the accounting for these employee benefit plans include the discount rate , expected return on plan assets and rate of increase in employee compensation levels . assumptions are determined based on company data and appropriate market indicators in consultation with third-party actuaries , and are evaluated each year as of the plans ' measurement date . net periodic pension costs for our pension plans totaled $ 0.7 million for fiscal year 2011. our unfunded benefit obligation totaled $ 7.9 million at september 30 , 2011 , as compared to $ 5.9 million at september 30 , 2010. should any of our assumptions change , they would have an effect on net periodic pension costs and the unfunded benefit obligation . we expect to contribute approximately $ 0.7 million to our defined benefit pension plans during fiscal year 2012. stock-based compensation we measure compensation cost for all employee stock awards at fair value on date of grant and recognize compensation expense over the service period for awards expected to vest . the fair value of restricted stock is determined based on the number of shares granted and the excess of the quoted price of our common stock over the exercise price of the restricted stock on the date of grant , if any , and the fair value of stock options is determined using the black-scholes valuation model . such value is recognized as expense over the service period , net of estimated forfeitures . the estimation of stock awards that will ultimately vest requires significant judgment . we consider many factors when estimating expected forfeitures , including types of awards , employee class , and historical experience . in addition , for stock-based awards where vesting is dependent upon achieving certain operating performance goals , we estimate the likelihood of achieving the performance goals . actual results , and future changes in estimates , may differ from our current estimates . restricted stock with market-based vesting criteria is valued using a lattice model . year ended september 30 , 2011 , compared to year ended september 30 , 2010 revenues we reported revenues of $ 688.1 million for fiscal year 2011 , compared to $ 593.0 million in the previous year , a 16 % increase . the total increase in revenues of $ 95.1 million is the result of increased demand for our products and services which resulted in $ 88.8 million of increased revenues from our brooks product solutions segment and $ 13.9 million of higher revenues from our brooks global services segment . in addition , the acquisitions of rts and nexus provided $ 10.6 million of increased revenues from our brooks life science systems segment . these increases were partially offset by an $ 18.2 million decrease in contract manufacturing revenues , due to the sale of that segment at the end of our third fiscal quarter . recent order rates from semiconductor companies have moderated and we anticipate that revenues for our first quarter of fiscal year 2012 will be 7 % to 12 % lower than those achieved for the fourth quarter of fiscal year 2011. our brooks product solutions segment reported revenues of $ 451.3 million for fiscal year 2011 , an increase of 24 % from $ 362.5 million in the prior year .
| overview we are a leading provider of automation , vacuum and instrumentation solutions for multiple markets and are a valued business partner to original equipment manufacturers ( oems ) and equipment users throughout the world . we serve markets where equipment productivity and availability is a critical factor for our customers ' success , typically in demanding temperature and or pressure environments . our largest served market is the semiconductor capital equipment industry , which represented approximately 65 % and 71 % of our consolidated revenues for fiscal years 2011 and 2010 , respectively . we have targeted certain non-semiconductor revenue opportunities and made recent acquisitions and a divestiture which has led to an increase in the non-semiconductor portion of our revenues . for the fourth quarter of fiscal year 2011 , the semiconductor capital equipment portion of our revenues declined to 47 % . the non-semiconductor markets served by us include life sciences , industrial capital equipment , and other adjacent markets which includes clean energy . the demand for semiconductors and semiconductor manufacturing equipment is cyclical , resulting in periodic expansions and contractions . demand for our products has been impacted by these cyclical industry conditions . we expect the semiconductor equipment market will continue to be a key end market for our products , however , we intend to acquire and develop technologies that will create opportunities outside of the semiconductor equipment market . on april 1 , 2011 , we acquired rts life sciences ( rts ) , a united kingdom-based provider of automation solutions to the life sciences markets . the purchase price was approximately $ 3.4 million , net of cash on hand . on july 25 , 2011 , we acquired nexus biosystems , inc. ( nexus ) , a u.s.-based provider of automation solutions and consumables to the life sciences markets , specifically biobanking and compound sample management .
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the forward-looking statements contained in this report are made as of the date hereof and the company assumes no obligation to update or supplement any forward-looking statements . you should read the following management 's discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report . business overview the company the first international house of pancakes restaurant opened in 1958 in toluca lake , california . shortly thereafter , the company 's predecessor began developing and franchising additional restaurants . the company was incorporated under the laws of the state of delaware in 1976 with the name ihop corp. in november 2007 , the company completed the acquisition of applebee 's international , inc. , which became a wholly-owned subsidiary of the company . effective june 2 , 2008 , the name of the company was changed to dineequity , inc. ( “ dineequity , ” “ we ” or “ our ” ) . through various subsidiaries ( see exhibit 21 , subsidiaries of dineequity , inc. ) we own , franchise and operate two restaurant concepts : applebee 's neighborhood grill & bar ® ( “ applebee 's ® ” ) , in the bar and grill segment within the casual dining category of the restaurant industry , and international house of pancakes ® ( “ ihop ® ” ) , in the family dining category of the restaurant industry . references herein to applebee 's and ihop restaurants are to these two restaurant concepts , whether operated by franchisees , area licensees or us . domestically , ihop restaurants are located in all 50 states and the district of columbia , while applebee 's restaurants are located in every state except hawaii . internationally , ihop restaurants are located in two united states territories and eight foreign countries ; applebee 's restaurants are located in one united states territory and 15 foreign countries . with over 3,600 restaurants combined , we believe we are the largest full-service restaurant company in the world . our vision to become the preferred franchisor of choice and deliver maximum franchisee and shareholder value . our mission to unite great franchisees , iconic brands and team members to create the world 's leading restaurant company - one guest at a time . to achieve this mission , our strategies are designed to ensure strong brands ; drive profitable , organic growth ; identify and exploit complementary concepts and extensions ; and create and monetize new value-added services . 2013 highlights 2013 marked our first full year of operation with both of our brands 99 % franchised . we believe this highly franchised business model requires less capital investment and general and administrative overhead , generates higher gross profit margins and reduces the volatility of free cash flow performance , as compared to a model based on owning a significant number of company-operated restaurants . on february 26 , 2013 , our board of directors approved a capital allocation strategy that contemplates the return of a significant portion of our free cash flow to our stockholders . the board of directors also approved a stock repurchase authorization of up to $ 100 million of our common stock . pursuant to this strategy , we returned cash of $ 87.1 million to our stockholders in 2013 in the form of : four quarterly dividends , each $ 0.75 per share of our common stock , declared and paid totaling $ 57.4 million , and repurchases of over 412,000 shares of our common stock totaling $ 29.7 million , with authorization remaining to repurchase an additional $ 70.3 million . 28 other highlights of our fiscal 2013 performance include : increased ihop 's domestic systemwide same-restaurant sales by 2.4 % during 2013 , the first full year of growth in domestic systemwide same-restaurant sales since fiscal 2008 and the highest yearly increase since 2006 ; generated cash from operating activities of greater than $ 100 million for the fourth time in the last five years ; opened 58 new restaurants worldwide by ihop franchisees and area licensees and 26 new restaurants by applebee 's franchisees ; expanded our international footprint with restaurant openings by ihop franchisees in the philippines , kuwait and the kingdom of saudi arabia and by an applebee 's franchisee in egypt and the dominican republic ; remodeled over 500 restaurants system-wide during 2013. applebee 's and its franchisees remodeled 289 restaurants during 2013 , while ihop and its franchisees remodeled 215 restaurants . over the past three years , approximately 70 % of applebee 's restaurants and 40 % of ihop restaurants have been remodeled ; and named to fast company 's annual list of most innovative companies , ranking number two in the category of “ the world 's most innovative companies in food. ” key performance indicators in evaluating the performance of each dining concept , we consider the key performance indicators to be net franchise restaurant development and the percentage change in domestic system-wide same-restaurant sales . since we are a 99 % franchised company , expanding the number of franchise restaurants is an important driver of revenue growth . we currently do not plan to open any new applebee 's or ihop company-operated restaurants . revenue from our rental and financing operations , legacies from the previous ihop business model we operated under prior to 2003 , is subject to progressive decline over time as interest-earning balances are repaid . therefore , growth in both the number of franchise restaurants and sales at those restaurants will drive franchise revenues in the form of higher royalty revenues , additional franchise fees and , in the case of ihop restaurants , sales of proprietary pancake and waffle dry mix . story_separator_special_tag since the acquisition in 2007 , more than 90 % of applebee 's menu now consists of either new offerings or improved offerings with high quality ingredients ; continued our unique healthy food offerings by refreshing our “ under 550 ” calorie menu in january 2013 with roma pepper chicken and napa chicken and portabellos . since its launch in 2011 , our “ under 550 ” calorie menu combined with our weight watchers menu has established us as a category leader in providing healthy dining options to our guests ; broadened our commitment to healthy dining by introducing a new kids menu featuring 10 new kids live well-approved meals . the new menu , which has received very positive guest feedback , offers a variety of new entrées and sides that are both healthy and kid-approved . this allows parents to concentrate on engaging with their family knowing their growing kids can get a fun , healthy meal at applebee 's ; and focused on late-night business through beverage and appetizer innovation and local restaurant marketing efforts . invest in process and product innovation we continue to invest in and drive innovation at applebee 's from both a product and process perspective . we maintain a significant test and implementation focus to both develop and discover new trends and opportunities within the casual dining segment and beyond . our history of innovation is readily apparent in our continual evolution of limited-time product offerings as well as core menu items . we take a similar approach to evaluation of media strategies and consumer touch points . transform the business in june 2010 , we rolled out “ connections , ” the new comprehensive restaurant revitalization program involving people , place and promotional aspects . the people aspect involves re-training and re-certification for kitchen staff and team members . the place aspect involves exterior and interior modifications to the restaurant to signal change . the promotional aspect involves a local public relations and marketing plan to re-connect with the neighborhood . our franchisees have embraced this initiative and by year-end 2013 , over 70 % of the restaurants in the domestic system have been revitalized . along with our historical focus on food innovation , the completion of our refranchising transition in 2012 has allowed applebee 's to place additional focus on development and implementation of innovative technology solutions . we realize that customers ' tastes are constantly changing and as a brand , applebee 's continues to learn and grow with our customers , evolving into a brand of the future . improve franchisee margins and restaurant level economics we have continued to build upon process and system improvements deployed in prior years by ongoing improvement efforts in operating metrics for our franchise partners . our franchisees continue to reap the benefits of our supply chain co-op by leveraging our scale to manage through commodity cost inflation , which was also mitigated by the realignment of our distribution centers in 2010. we continue to monitor our franchisees through our franchisee operations rating system , which provides visibility concerning their performance in relation to guest experience , food safety and training . with our transition to a 99 % franchised system , restaurant operating margin at the remaining 23 applebee 's company-operated restaurants is not significant to our results of operations . given that the primary focus of these restaurants in the future will be to test new products and processes , their operating margin as a percentage of sales is expected to decline . however , we will continue to invest in product and process innovation to help our franchisees maintain and improve their restaurant level economics for the overall financial well-being of the applebee 's system . in a challenging economic environment and a highly competitive casual dining category , there can be no assurance that the strategies described above , when implemented , will achieve the intended results . ihop 's key strategies to re-ignite growth we have been pursuing key initiatives within the three pillars of our strategic framework : ( 1 ) re-energize and grow the ihop brand ; ( 2 ) improve operations performance ; and ( 3 ) optimize franchise development . 31 re-energize and grow the ihop brand to re-energiz e and grow the ihop brand , we have continued our efforts to drive new and existing consumers to our restaurants by : 1 ) continuously strengthening our advertising message ; 2 ) maximizing our media effectiveness across both traditional and new media outlets ; and 3 ) transforming the ihop menu to reflect evolving consumer tastes . to ensure our advertisements resonate with consumers , we have continued to employ “ everything you love about breakfast ” as our tagline and theme , leveraging our substantial brand equity in breakfast . we have further refined our message by incorporating in our advertising consumer testimonials that show a wide range of ages and demographics enjoying our freshly made items . these testimonials have been effective in reinforcing the welcoming environment at our restaurants . while national advertising remains core to our strategy , we recognize that media consumption is evolving and we must reach consumers through a range of media channels to drive traffic to our restaurants . gaining the attention of consumers in a highly competitive and diverse media market requires that we constantly update where and how we reach consumers . we continue to successfully build and increase consumer engagement with the ihop brand in digital and social media , recognizing the importance of these channels to a significant segment of the population . we continuously evolve our menu to deliver appealing items to our wide range of consumers presented in an easy-to-use style that is consistent with our brand message . our new brioche french toast is a recent example that was met with high consumer interest . in addition , we recently launched the latest menu revision with a new layout that is easier to read and navigate .
| summary replace_table_token_24_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above our 2012 financial results compared to 2011 were significantly impacted by : the successful refranchising of 154 applebee 's company-operated restaurants during 2012 that resulted in increased gains on the disposition of the restaurants partially offset by lower segment profit ; lower impairment and closure charges due to non-recurring costs of $ 27.5 million related to the 2011 termination of the sublease of applebee 's restaurant support center ; lower interest expense due to the ongoing early retirement of debt with both proceeds from the asset dispositions and excess cash flow ; g & a expenses increased $ 7.4 million , primarily due to a $ 9.1 million charge for settling certain litigation that commenced prior to our 2007 acquisition of applebee 's ; and an increased effective tax rate . the 2011 effective tax rate was lower than the statutory federal tax rate of 35 % primarily due to tax credits , changes in tax rates and the release of liabilities for unrecognized tax benefits . the tax benefits are primarily fica tip and other compensation-related credits associated with applebee 's company-operated restaurants . as company-operated restaurants are refranchised the amount of these credits declines . 44 revenue replace_table_token_25_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above revenues decreased to $ 849.9 million in 2012 from $ 1.1 billion in 2011 . the decline was primarily due to the net effect of refranchising 286 company-operated applebee 's restaurants in 2012 and 2011 , and a 1.6 % decrease in ihop domestic system-wide same-restaurant sales , partially offset by a 2.7 % increase in ihop effective franchise restaurants and a 1.2 % increase in applebee 's domestic system-wide same-restaurant sales .
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for our 2014 bonus plan , our adjusted ebitda target was $ 18.3 million at 100 % of our adjusted ebitda , and $ 20.7 million at 150 % of our adjusted ebitda , excluding expenses incurred in connection with our initial public offering and following on offering costs . the 2014 bonus plan reached maximum payout for all executive officers of 150 % of target and was approved by the compensation , nominating and governance committee on april 24 , 2015 for payment may 1 , 2015 . 2013 non—equity incentive plan payments for 2013 , the target incentive amounts for our named executive officers were story_separator_special_tag the following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included elsewhere in this annual report on form 10-k. audit committee investigation as previously disclosed , during the first quarter of 2015 , management discovered certain potential accounting matters , prompting the audit committee , with the assistance of independent advisors , to commence an internal investigation . specifically , management found that certain direct-to-consumer sales representatives submitted modified documentation in violation of inogen policies . the audit committee 's investigation is now complete . its principal finding is that five inogen direct-to-consumer sales representatives falsified or improperly modified sales and rental order documentation and circumvented inogen 's order entry process . revenue in the fourth quarter of 2014 was reduced by $ 0.3 million including prior period adjustments . the net income impact was a reduction of $ 0.1 million in the fourth quarter of 2014. substantially all of this revenue will be recognized when the corrected documentation is finalized in 2015. the employees responsible for this conduct have been terminated . the investigation found that the company 's senior executives did not know of or participate in this conduct . the audit committee 's investigation did not reveal systemic falsification or alteration of sales and rental order documentation by other sales representatives . the company expects additional general and administrative costs due to the audit committee investigation of approximately $ 1.0 to $ 1.5 million , primarily in the first quarter of 2015 overview we are a medical technology company that primarily develops , manufactures and markets innovative portable oxygen concentrators used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions . traditionally , these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use . the tanks and cylinders must be delivered regularly and have a finite amount of oxygen , which limits patient mobility and requires patients to plan activities outside of their homes around delivery schedules . additionally , patients must attach long , cumbersome tubing to their stationary concentrators simply to enable mobility within their homes . we refer to this traditional delivery approach as the delivery model . our proprietary inogen one systems are devices that concentrate the air around them to offer a single source of supplemental oxygen anytime , anywhere . using our portable systems , patients can eliminate their dependence on stationary concentrators and tank and cylinder deliveries , thereby improving quality-of-life and fostering mobility . in may 2004 , we received 510 ( k ) clearance from the u.s. food and drug administration , or the fda , for our inogen one g1 . from our launch of the inogen one g1 in 2004 , through 2008 , we derived our revenue almost exclusively from sales to healthcare providers and distributors . in december 2008 , we acquired comfort life medical supply , llc in order to secure access to the medicare rental market and began accepting medicare reimbursement for our oxygen solutions in certain states . at the time of the acquisition , comfort life medical supply , llc had an active medicare billing number but few other assets and limited business activities . in january 2009 , following the acquisition of comfort life medical supply , llc , we initiated our direct-to-consumer marketing strategy and began selling inogen one systems directly to patients and building our medicare rental business in the united states . in april 2009 , we became a durable , medical equipment , prosthetics , orthotics , and supplies accredited medicare supplier by the accreditation commission for health care for our goleta , california facility for home/durable medical equipment services for oxygen equipment and supplies . we believe we are the only portable oxygen concentrator manufacturer that employs a direct-to-consumer marketing strategy in the united states , meaning we advertise directly to patients , process their physician paperwork , provide clinical support as needed and bill medicare or insurance on their behalf . revenue we derive a majority of our revenue from the sale and rental of our inogen one systems and related accessories to patients , insurance carriers , home healthcare providers and distributors . we sell multiple configurations of our inogen one systems with various batteries , accessories , warranties , power cords , and language settings . we also rent our products to medicare beneficiaries and patients with other insurance coverage to support their oxygen needs as prescribed by a physician as part of a care plan . our goal is to 50 design , build and market oxygen solutions that redefine how oxygen therapy is delivered . to accomplish this goal and to grow our revenue , we intend to continue to : ● expand our sales and marketing channels . we will continue to hire additional internal sales representatives to drive our direct-to-consumer marketing efforts . story_separator_special_tag approximately 5 % to 10 % of patients who purchase a system for cash return the system during this 30-day trial period . our business-to-business efforts are focused on selling to home medical equipment distributors , oxygen providers and resellers who are based inside and outside of the united states . this process involves interactions with various key customer stakeholders , including sales , purchasing , product testing , and clinical personnel . businesses that have patient demand that can be met with our portable oxygen concentrator systems place purchase orders to secure product deployment . this may be influenced based on outside factors , including the result of tender offerings , changes in insurance plan coverage , and overall changes in the net oxygen therapy patient population . products are shipped fob inogen domestically , and based on financial history and profile , businesses may either prepay or receive extended terms . products are shipped both fob ( freight on board ) inogen dock and ddp ( delivery duty paid ) for international shipments depending on the shipper used . ddp shipments are inogen 's property until title has changed which is upon duty being paid . as a result of these factors , product purchases can be subject to changes in demand by customers . we sold approximately 33,200 systems in 2014 , approximately 19,200 systems in 2013 and approximately 11,900 in 2012. management focuses on system sales as an indicator of current business success . rental revenue our rental process involves numerous interactions with the individual patient , the physician and the physician 's staff . the process includes an in-depth analysis and review of our product , the patient 's diagnosis and oxygen needs , and their medical history to confirm the appropriateness of our product for the patient 's oxygen therapy and compliance with medicare and private payor billing requirements , which often necessitates additional physician evaluation and or testing as well as a certificate of medical necessity . once the product is deployed , the patient receives direction on product use and receives a clinical titration from our licensed staff to confirm the product meets the patient 's needs prior to billing . as a result , the time from initial contact with a customer to billing can vary significantly and be up to one month or longer . we plan to grow our rental revenue in the coming years through multiple strategies , including expanding our direct-to-consumer marketing efforts through hiring additional sales representatives and investing in patient awareness and physician-based sales , securing additional insurance contracts and continuing to enhance our product offerings through additional product launches . in addition , patients may come off of our services due to death , a change in their condition , a change in location , a change in provider or other factors . in each case , we maintain asset ownership and can redeploy assets as appropriate following such events . given the length and uncertainty of our patient acquisition cycle and potential returns we have in the past experienced , and likely will in the future experience , there may be fluctuations in our net new patient setups on a period-to-period basis . as the rental patient base increases , this rental model generates recurring revenue with minimal additional sales and general and administrative expenses . a portion of rentals include a capped rental period when no additional reimbursement will be allowed unless additional criteria are met . in this scenario , the ratio of billable patients to patients on service is critical to maintaining rental revenue growth as patients on service increases . medicare has noted that a small percentage of beneficiaries , approximately 25 % , based on their review of medicare claims , reach the 36th-month and enter the capped rental period . as of december 31 , 2014 , in our patient population approximately 13.5 % of patients on service were capped . we were unable to calculate the number of capped patients as of december 31 , 2013 or for other prior periods . as the rental base expands , we expect our rental revenue to increase , partially offset by declining reimbursement rates . over time , we believe that our rental revenue should be subject to less period-to-period fluctuation than our sales revenue . as of december 31 , 2014 , we had over 28,400 oxygen rental patients , an increase from approximately 21,300 oxygen rental patients as of december 31 , 2013 and approximately 13,500 in 2012. management focuses on rental revenue as an indicator of current business success and a leading indicator of likely future rental revenue ; however , actual rental revenue recognized is subject to a variety of other factors , including reimbursement levels by patient zip code , the number of capped patients , and adjustments for patients in transition . reimbursement we rely heavily on reimbursement from medicare , and secondarily from private payors and medicaid , for our rental revenue . for the year ended december 31 , 2014 , approximately 75.6 % of our rental revenue was derived from medicare . the u.s. list price for our stationary oxygen rentals ( hcpcs e1390 ) is $ 260 per month and for our oxygen generating portable equipment ( ogpe ) rentals ( hcpcs e1392 ) is $ 70 per month . the current standard medicare allowable effective january 1 , 2015 for stationary oxygen rentals 52 ( e1390 ) is $ 180.92 per month and for ogpe rentals ( e1392 ) is $ 51.63 per month . these are the two primary codes that we bill to medicare and other payors for our product rentals . as of january 1 , 2011 , medicare has phased in a program called competitive bidding . competitive bidding impacts the amount medicare pays suppliers of durable medical equipment , including portable oxygen concentrators . the program is defined geographically , with suppliers submitting bids to provide medical equipment for a specific product category within that geography .
| result of operations comparison of years ended december 31 , 2014 and 2013 revenue replace_table_token_13_th sales revenue increased $ 28.2 million for the year ended december 31 , 2014 from $ 44.9 million for the year ended december 31 , 201 3 to $ 73.1 million for the year ended december 31 , 2014 , or an increase of 62.8 % over the comparable year . the increase was attributable to an increase in the number of systems sold primarily related to expansion of the inogen one g3 product line , an increase in direct-to-consumer sales in the united states due to increased sales and marketing efforts , and an increase in business-to-business sales worldwide as the adoption of portable oxygen concentrators improved . as we expected , the growth in sales revenue was not materially impacted by the reduced reimbursement rates resulting from competitive bidding . rental revenue increased $ 8.9 million for the year ended december 31 , 2014 from $ 30.5 million for the year ended december 31 , 2013 to $ 39.4 million for the year ended december 31 , 2014 , or an increase of 29.2 % over the comparable year . the increase was attributable to the increase in rental patients from over 21,300 as of december 31 , 2013 to over 28,400 as of december 31 , 2014 due to additional marketing efforts and increased sales personnel . this increase was partially offset by the reduced reimbursement rates resulting from round two competitive bidding that became effective on july 1 , 2013 and round one re-compete competitive bidding that became effective january 1 , 2014. cost of revenue and gross profit replace_table_token_14_th 57 we manufacture our products in our goleta , california and richardson , texas facilities . our manufacturing process includes final assembly , testing , and packaging to customer specifications .
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the company assumes no obligation to update any of these forward-looking statements . our fiscal year ends the last saturday in august . our fiscal years 2020 and 2018 ended august 29 , 2020 and august 25 , 2018 , respectively , and were each fifty-two week periods . our fiscal year 2019 ended august 31 , 2019 was a fifty-three week period . our fiscal quarters are comprised of thirteen weeks each , except for fifty-three week fiscal periods for the which the fourth quarter is comprised of fourteen weeks , and end on the thirteenth saturday of each quarter ( fourteenth saturday of the fourth quarter , when applicable ) . our fiscal quarters for fiscal 2020 ended on november 30 , 2019 , february 29 , 2020 , may 30 , 2020 and august 29 , 2020 . unless the context requires otherwise in this report , the terms “ we , ” “ us , ” “ our , ” the “ company ” and “ simply good foods ” refer to the simply good foods company and its subsidiaries . overview the simply good foods company is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient , innovative , great-tasting , better-for-you snacks and meal replacements . our nutritious snacking platform consists of the following core brands that specialize in providing products for consumers that follow certain nutritional philosophies , dietary approaches and or health-and-wellness trends : atkins® for those following a low-carb lifestyle ; and quest® for consumers seeking to partner with a brand that makes the foods they crave work for them , not against them , through a variety of protein-rich foods and beverages that also limit sugars and simple carbs . we distribute our products in major retail channels , primarily in north america , including grocery , club and mass merchandise , as well as through e-commerce , convenience , specialty and other channels . our portfolio of nutritious snacking brands gives us a strong platform with which to introduce new products , expand distribution , and attract new consumers to our products . our platform also positions us to continue to selectively pursue acquisition opportunities of brands in the nutritious snacking category . to that end , in november 2019 , we completed the acquisition of quest nutrition , llc ( “ quest ” ) , a healthy lifestyle food company , for a cash purchase price of approximately $ 1.0 billion ( subject to customary adjustments ) ( the “ acquisition of quest ” ) . for more information , please see “ liquidity and capital resources-acquisition of quest. ” effective september 24 , 2020 , we sold the assets exclusively related to our simplyprotein® brand of products for approximately $ 8.8 million of consideration , including cash of $ 5.8 million and a note receivable for $ 3.0 million , to a newly formed entity led by our canadian-based management team who had been responsible for this brand prior to the sale transaction . in addition to purchasing these assets , the buyer assumed certain liabilities related to the simplyprotein brand 's business . the transaction enables management to focus its full time and our resources on its core atkins® and quest® branded businesses and other strategic initiatives . effects of covid-19 in december 2019 , a novel coronavirus disease , or covid-19 , was reported and in january 2020 , the world health organization , or who , declared it a public health emergency of international concern . on february 28 , 2020 , the who raised its assessment of the covid-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries , and on march 11 , 2020 , the who characterized covid-19 as a pandemic . on march 27 , 2020 , the coronavirus aid , relief , and economic security ( “ cares ” ) act was signed into law . the cares act provided a substantial stimulus and assistance package intended to address the effect of the covid-19 pandemic , including tax relief and government loans , grants and investments . additionally , various federal , state and local government-imposed movement restrictions and initiatives have been implemented to reduce the global transmission of covid-19 , including reduced or eliminated food services , the closure of retailing establishments , the promotion of social distancing and the adoption of remote working policies . during the third quarter of 2020 , we actively engaged with the various elements of our value chain , including our customers , contract manufacturers , and logistics and transportation providers , to meet demand for our products and to remain informed of any challenges within our value chain . given the unpredictable nature of the covid-19 pandemic and the initial surge in consumption , we increased finished goods inventory of some of our key products . based on information available to us as of the end of our fiscal year , we believe we will be able to deliver our products to meet customer orders on a timely basis , and therefore , we expect our products will continue to be available for purchase 33 to meet consumer meal replacement and snacking needs for the foreseeable future . we continue to monitor customer and consumer demand , and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving covid-19 situation . additionally , in march 2020 , we borrowed $ 25.0 million under our $ 75.0 million revolving credit facility , as a precautionary measure to ensure ample financial flexibility in light of the spread of covid-19 and the initial surge in demand . the company used the proceeds of the revolving credit facility to meet initial elevated customer orders , build finished goods inventory of some of our high velocity items , to support working capital and to support general corporate purposes . story_separator_special_tag the operating segments are also similar in the following areas : ( a ) the nature of the products ; ( b ) the nature of the production processes ; ( c ) the methods used to distribute products to customers , ( d ) the type of customer for the products , and ( e ) the nature of the regulatory environment . the recently announced restructuring and new organization design creates an efficient and fully integrated organization that will continue to support and build multi-category nutritional snacking brands . key financial definitions net sales . net sales consists primarily of product sales less the cost of promotional activities , slotting fees and other sales credits and adjustments , including product returns . cost of goods sold . cost of goods sold consists primarily of the costs we pay to our contract manufacturing partners to produce the products sold . these costs include the purchase of raw ingredients , packaging , shipping and handling , warehousing , depreciation of warehouse equipment , and a tolling charge for the contract manufacturer . cost of goods sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders . operating expenses . operating expenses consist primarily of selling and marketing , general and administrative , depreciation and amortization , and business transaction costs . the following is a brief description of the components of operating expenses : selling and marketing . selling and marketing expenses are comprised of broker commissions , customer marketing , media and other marketing costs . general and administrative . general and administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business , including employee salaries , professional services , integration costs , restructuring costs , insurance and other general corporate expenses . depreciation and amortization . depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets . business transaction costs . business transaction costs are comprised of legal , due diligence , consulting and accounting firm expenses associated with the process of actively pursuing potential and completed business combinations , including the acquisition of quest . loss on impairment . loss on impairment consist of impairment charges related to our brand intangible asset . loss ( gain ) in fair value change of contingent consideration - tra liability . loss or gain in fair value change of contingent consideration - tra liability charges relate to fair value adjustments of the tax receivable agreement ( the “ tra ” ) liability . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; padding-left:72px ; font-size:10pt ; '' > loss on impairment . during the fourth quarter of fiscal 2020 , we determined there were indicators of impairment related to the simplyprotein brand intangible asset . after performing a quantitative assessment of the brand intangible asset , which indicated its fair value exceeded its carrying value , we recorded a loss on impairment of $ 3.0 million in the fifty-two week period ended august 29 , 2020 . loss in fair value change of contingent consideration - tra liability . the fifty-three week period ended august 31 , 2019 included a loss in fair value change of contingent consideration of $ 0.5 million . the income tax receivable agreement ( the “ tra ” ) liability was settled in full in the first quarter of fiscal 2019. interest income . interest income decreased $ 2.3 million for the fifty-two week period ended august 29 , 2020 compared to the fifty-two week period ended august 29 , 2020 primarily due to $ 195.3 million of cash on hand being utilized for the acquisition of quest in the first quarter of fiscal year 2020. interest expense . interest expense increase d $ 19.2 million for the fifty-two week period ended august 29 , 2020 compared to the fifty-three week period ended august 31 , 2019 primarily due to first quarter term loan funding of $ 460.0 million to partially finance the acquisition of quest . gain on settlement of tra liability . we recorded a $ 1.5 million gain in connection with the settlement of the tra liability in the fifty-three week period ended august 31 , 2019 . the tra settlement is discussed in note 10 , income taxes , of our consolidated financial statements included in this report . gain ( loss ) on foreign currency transactions . a gain of $ 0.7 million in foreign currency transactions was recorded for the fifty-two week period ended august 29 , 2020 compared to a foreign currency loss of $ 0.5 million for the fifty-three week period ended august 31 , 2019 . the variance relates to changes in foreign currency rates related to our international operations . income tax expense . income tax expense decreased $ 3.4 million for the fifty-two week period ended august 29 , 2020 compared to the fifty-three week period ended august 31 , 2019 . the decrease in our income tax expense was primarily driven by lower pre-tax book income , offset by the tax effects of foreign earnings and the one-time tax effect of the settlement of the tra liability during the fifty-three week period ended august 31 , 2019 , and other permanent differences . net income . net income was $ 34.7 million for the fifty-two week period ended august 29 , 2020 , a decrease of $ 12.8 million , or 27.0 % , compared to net income of $ 47.5 million for the fifty-three week period ended august 31 , 2019 . adjusted ebitda . adjusted ebitda increased $ 55.2 million , or 55.9 % , for the fifty-two week period ended august 29 , 2020 compared to the fifty-three week period ended august 31 , 2019 . the increase was primarily due to the acquisition of quest and modest volume growth on the atkins brand .
| results of operations in assessing the performance of our business , we consider a number of key performance indicators used by management and typically used by our competitors , including the non-gaap measures of adjusted ebitda and adjusted diluted earnings per share . because not all companies use identical calculations , this presentation of adjusted ebitda and adjusted diluted earnings per share may not be comparable to other similarly titled measures of other companies . see “ reconciliation of adjusted ebitda ” below for a reconciliation of adjusted ebitda to net income for each applicable period . see “ reconciliation of adjusted diluted earnings per share ” below for a reconciliation of adjusted diluted earnings per share to diluted earnings per share for each applicable period . 35 comparison of results for the fifty-two weeks ended august 29 , 2020 and the fifty-three weeks ended august 31 , 2019 the following table presents , for the periods indicated , selected information from our consolidated financial results , including information presented as a percentage of net sales : replace_table_token_3_th ( 1 ) adjusted ebitda is a non-gaap financial metric . see “ reconciliation of adjusted ebitda ” below for a reconciliation of adjusted ebitda to net income for each applicable period . net sales . net sales of $ 816.6 million represented an increase of $ 293.3 million , or 56.0 % , for the fifty-two week period ended august 29 , 2020 compared to the fifty-three week period ended august 31 , 2019 . the net sales increase of 56.0 % was primarily attributable to the acquisition of quest , which drove 54.8 % of the increase .
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we have a diversified business model with a focus on small and middle-market companies and provide : investment banking , including corporate finance , mergers and acquisitions and other strategic advisory services , to corporate clients ; sales and trading , and related brokerage services to institutional investors ; proprietary equity research in our four target industries ; asset management products and services to institutional investors , high net-worth individuals and for our own account ; and management of collateralized loan obligations and a specialty finance company . our business , by its nature , does not produce predictable earnings . our results in any given period can be materially affected by conditions in global financial markets and economic conditions generally . for a further discussion of the factors that may affect our future operating results , see “ risk factors ” in part i , item 1a of this annual report on form 10-k. components of revenues we derive revenues primarily from fees earned from our investment banking business , net commissions on our trading activities in our sales and trading business , asset management fees and incentive fees in our asset management business and interest income on collateralized loan obligations and small business loans we manage . we also generate revenues from principal transactions , interest , dividends , and other income . investment banking we earn investment banking revenues from underwriting securities offerings , arranging private capital market placements and providing advisory services in mergers and acquisitions and other strategic advisory assignments . underwriting revenues we earn underwriting revenues from securities offerings in which we act as an underwriter , such as initial public offerings and follow-on equity offerings . underwriting revenues include management fees , underwriting fees , selling concessions and realized and unrealized net gains and losses on equity positions held in inventory for a period of time to facilitate the completion of certain underwritten transactions . we record underwriting revenues , net of related syndicate expenses , at the time the underwriting is completed . in syndicated underwritten transactions , management estimates our share of transaction-related expenses incurred by the syndicate , and we recognize revenues net of such expense . on final settlement by the lead manager , typically 90 days from the trade date of the transaction , we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee . we receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager . strategic advisory revenues our strategic advisory revenues primarily include success fees on closed merger and acquisition transactions , as well as retainer fees earned in connection with advising both buyers ' and sellers ' transactions . we also earn fees for related advisory work and other services such as providing fairness opinions and valuation analyses . we record strategic advisory revenues when the transactions or the services ( or , if applicable , separate components thereof ) to be performed are substantially completed , the fees are determinable and collection is reasonably assured . 32 private capital market and other revenues we earn agency placement fees in non-underwritten transactions such as private placements of equity securities , private investments in public equity ( “ pipe ” ) transactions , rule 144a private offerings and trust preferred securities offerings . we record private placement revenues on the closing date of these transactions . since our investment banking revenues are generally recognized at the time of completion of each transaction or the services to be performed , these revenues typically vary between periods and may be considerably affected by the timing of the closing of significant transactions . brokerage revenues our brokerage revenues include commissions paid by customers from brokerage transactions in exchange-listed and over-the-counter ( “ otc ” ) equity securities . commissions are recognized on a trade date basis . brokerage revenues also include net trading gains and losses that result from market-making activities and from the commitment of capital to facilitate customer orders . our brokerage revenues may vary between periods , in part depending on commission rates , trading volumes and our ability to continue to deliver research and other value-added services to our clients . the ability to execute trades electronically , through the internet and through other alternative trading systems has increased pressure on trading commissions and spreads . we expect this trend toward alternative trading systems and pricing pressures in our brokerage business to continue . we are , to some extent , compensated through brokerage commissions for the value of research and other value added services we deliver to our clients . these “ soft dollar ” practices have been the subject of discussion among regulators , the investment banking community and our sales and trading clients . in particular , commission sharing arrangements have been adopted by some large institutional investors . in these arrangements , institutional investors concentrate their trading with fewer “ execution ” brokers and pay a fixed amount for execution with an additional amount set aside for payments to other firms for research or other brokerage services . accordingly , we may experience reduced ( or eliminated ) trading volume with such investors but may be compensated for our research and sales efforts through allocations of the designated amounts . depending on the extent to which we adopt this practice and depending on our ability to reach arrangements on terms acceptable to us , this trend would likely impair the revenues and profitability of our commission business by negatively affecting both volumes and trading commissions in our commission business . asset management fees asset management fees for hedge funds , hedge funds of funds , private equity funds , hcc llc ( through may 2 , 2013 ) , and hcc include base management fees and incentive fees earned from managing our family of investment partnerships and a publicly-traded specialty finance company . earned base management fees are generally based on the fair value of assets under management or aggregate capital commitments and the fee schedule for each fund and account . story_separator_special_tag twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) hop ii , has , and htp include managed accounts in which the company has neither equity investment nor control . these are included as they follow the respective funds ' strategy and earn fees . ( 3 ) revenues earned from hgc , hgc ii , hcc llc , and the clos are consolidated and then eliminated in consolidation in the company 's statements of operations , net of non-controlling interest . 35 replace_table_token_12_th ( 1 ) twr for the hedge funds and funds of funds . twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) hop ii , has , and htp include managed accounts in which the company has neither equity investment nor control . these are included as they follow the respective funds ' strategy and earn fees . ( 3 ) revenues earned from hgc , hgc ii , hcc llc , and clo i are consolidated and then eliminated in consolidation in the company 's statements of operations , net of non-controlling interest . replace_table_token_13_th ( 1 ) twr for the hedge funds and funds of funds . twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) hop ii , has , and htp include managed accounts in which the company has neither equity investment nor control . these are included as they follow the respective funds ' strategy and earn fees . ( 3 ) revenues earned from hgc , hcc llc , and the clos are consolidated and then eliminated in consolidation in the company 's statements of operations , net of non-controlling interest . ( 4 ) the clo within “ other ” initiated liquidation proceedings in december 2011. the remaining assets were distributed in 2012 . 36 principal transactions principal transaction revenues includes realized and unrealized net gains and losses resulting from our principal investments , which include investments in equity and other securities for our own account and as the general partner of funds managed by us , warrants we may receive from certain investment banking assignments , as well as limited partner investments in private funds managed by third parties . in addition , we invest a portion of our capital in a portfolio of equity securities managed by hcs and in side-by-side investments in the funds managed by us . in certain cases , we also co-invest alongside our institutional clients in private transactions resulting from our investment banking business . principal transaction revenues also include unrealized gains and losses on the private equity securities owned by hgc and hgc ii , two private equity funds managed by hcs which are consolidated in our financial statements , as well as unrealized gains and losses on the investments in private companies sponsored by hcs and jmp capital , and unrealized gains and losses on the warrants , options and equity securities owned by hcc llc ( through may 2 , 2013 ) . gain on sale , payoff and mark-to-market of loans gain on sale , payoff and mark-to-market of loans consists of gains from the sale and payoff of loans collateralizing asset-backed securities at jmp credit and small business loans at hcc llc ( through may 2 , 2013 ) . gains are recorded when the proceeds exceed the carrying value of the loan . gain on sale , payoff and mark-to-market of loans also consists of lower of cost or market adjustments arising from loans held for sale and fair value market adjustments of the small business loans . losses are recorded for the loan held for sale when the carrying value exceeds fair value . changes to the fair value of the small business loans were recorded to this line item , when hcc llc was consolidated . net dividend income net dividend income comprises dividends from our investments offset by dividend expense for paying short positions in our principal investment portfolio . other income other income includes loan restructuring fees at jmp credit , revenues from equity method investments , and revenues from fee-sharing arrangements with , and fees earned to raise capital for third-party investment partnerships , or funds . in 2012 , other income also includes non-recurring revenues associated with the conclusion of hcs 's advisory relationship with nymt . interest income interest income primarily consists of interest income earned on loans collateralizing asset-backed securities issued , small business loans , and loans held for investment . interest income on loans comprises the stated coupon as a percentage of the face amount receivable as well as accretion of accretable or purchase discounts and deferred fees . interest income is recorded on the accrual basis in accordance with the terms of the respective loans unless such loans are placed on non-accrual status . interest expense interest expense primarily consists of interest expense incurred on asset-backed securities issued and note payable , and the amortization of bond issuance costs . interest expense on asset-backed securities is the stated coupon payable as a percentage of the principal amount as well as amortization of the liquidity discount which was recorded at the acquisition date of cratos . interest expense is recorded on the accrual basis in accordance with the terms of the respective asset-backed securities issued and note payable .
| historical results of operations the following table sets forth our historical results of operations for the years ended december 31 , 2013 , 2012 and 2011 and is not necessarily indicative of the results to be expected for any future period . replace_table_token_14_th 40 overview year ended december 31 , 2013 , compared to year ended december 31 , 2012 total net revenues after provision for loan losses increased $ 48.3 million , or 47.9 % , from $ 100.9 million for the year ended december 31 , 2012 to $ 149.2 million for the year ended december 31 , 2013 , resulting from an increase in total non-interest revenues of $ 38.4 million , and an increase in net interest income of $ 10.3 million , partially offset by an increase in provision for loan losses of $ 0.4 million . total non-interest revenues increased $ 38.4 million , or 34.8 % , primarily due to increases in investment banking revenues of $ 23.2 million , an increase of asset management fees of $ 10.2 million , an increase of principal transactions of $ 10.2 million , partially offset by a decrease in gain on sale , payoff and mark-to-market of loans of $ 5.5 million .
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f- 13 revenue recognition the company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement , delivery has occurred or contractual services rendered , the sales price is fixed or determinable , and collection is reasonably assured in conformity with asc 605 , revenue recognition . the company story_separator_special_tag forward-looking statements this “ management 's discussion and analysis of financial condition and results of operation ” section and other sections of this annual report on form 10-k contain forward-looking statements that are based on current expectations , estimates , forecasts and projections about the industry and markets in which the company operates and on management 's beliefs and assumptions . in addition , other written or oral statements , which constitute forward-looking statements , may be made by or on behalf of the company . words such as “ expects , ” “ anticipates , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” variations of such words and similar expressions are intended to identify such forward-looking statements . these statements are not guarantees of future performance , and involve certain risks , uncertainties and assumptions , which are difficult to predict . see “ item 1a : risk factors ” above . therefore , actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements . the company undertakes no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . company overview strategic overview teligent , inc. , or the company , is a specialty generic pharmaceutical company . our mission is to become a leader in the specialty generic pharmaceutical market . under our own label , we currently market and sell generic topical and branded generic injectable pharmaceutical products in the united states and canada . in the united states we are currently marketing eight generic topical pharmaceutical products and four branded generic pharmaceutical products . through the completion of an acquisition , we now sell a total of seventeen generic and branded generic injectable products and medical devices in canada . generic pharmaceutical products are bioequivalent to their brand name counterparts . we also provide development , formulation , and manufacturing services to the pharmaceutical , over-the-counter , or otc , and cosmetic markets . we operate our business under one segment . effective october 23 , 2015 , we changed our name from igi laboratories , inc. to teligent , inc. on october 26 , 2015 , our common stock , which was previously listed on the nyse mkt , began trading on the nasdaq global select market under the trading symbol “ tlgt. ” our office , laboratories and manufacturing facilities are located at 105 lincoln avenue , buena , new jersey . currently , we have two platforms for growth : · developing , manufacturing and marketing a portfolio of generic pharmaceutical products in our own label in topical , injectable , complex and ophthalmic dosage forms ; and · managing our current contract manufacturing and formulation services business . we have been in the contract manufacturing and development of topical products business since the early 1990s , but our strategy since 2010 has been focused on the growth of our own generic pharmaceutical business . since 2010 , we have focused on transitioning our business to include more customers in the topical pharmaceutical industry . in 2014 , we broadened our target product focus from topical pharmaceuticals to include a wider specialty pharmaceutical approach . we believe that expanding our development and commercial base beyond topical generics , historically the cornerstone of our expertise , to include injectable generics , complex generics and ophthalmic generics ( what we call our “ tico strategy ” ) , will leverage our existing expertise and capabilities , and broaden our platform for more diversified strategic growth . 42 as of the date of this report , we have acquired 25 drug products that have been previously approved by the fda . our pipeline includes 31 abbreviated new drug applications , or andas filed with the united states food and drug administration , or fda , for additional pharmaceutical products . in addition , we have four abbreviated new drug submissions , or ands , on file with health canada . we have an additional 39 product candidates at various stages of our development pipeline , ten of which are on stability testing . in december 2015 , we announced the approval by the fda of cefotan® ( cefotan for injection ) . this was our first product approved from the portfolio of discontinued and withdrawn new drug applications , or ndas , and andas that we purchased from astra zeneca on september 25 , 2014. we have also experienced an increased rate of review by the fda of applications filed in generic drug user fee amendments , or gdufa , year 3 and year 4 , which began october 1 , 2014 , and october 1 , 2015 , respectively . we submitted fifteen topical andas in 2015. we expect to continue to expand our presence in the generic topical pharmaceutical market through the filing of additional andas with the fda and the subsequent launch of products as these applications are approved . our target is to file at least fifteen andas in total in 2016 through our internal product development program , and we plan to file at least eight andss with health canada in 2016. we will also seek to license or acquire further products , intellectual property , or pending applications to expand our portfolio . effective october 26 , 2015 , we transferred the listing of our common stock from the nyse mkt to the nasdaq global select market . story_separator_special_tag we also recorded a $ 2.3 million change in the fair value of the derivative liability as a result in the change in the fair value of our derivative liability , caused primarily by the decrease in the price of our common stock in december 2014. net income ( loss ) : replace_table_token_12_th net income for the year ended december 31 , 2014 as compared to net loss for the year ended december 31 , 2013 is due to the increase in revenues partially offset by the increase in costs and expenses noted above . net income ( loss ) attributable to common stockholders ( in thousands , except per share numbers ) : replace_table_token_13_th the net income attributable to common stockholders for the year ended december 31 , 2014 as compared to the net loss attributable to common stockholders for the year ended december 31 , 2013 is due to the increase in revenues partially offset by the increase in costs and expenses noted above . for the year ended december 31 , 2013 , there was a preferred stock dividend recorded on december 6 , 2013 in connection with the mandatory conversion of our series c preferred stock . this dividend of $ 1,308,000 was recorded upon conversion of our series c preferred stock into common stock . 46 liquidity and capital resources our principal sources of liquidity were cash and cash equivalents of approximately $ 87 million at december 31 , 2015 , $ 10 million available under the $ 10 million general electric capital corporation credit facility and cash from operations . we had working capital of $ 106.0 million at december 31 , 2015. we may require additional funding and this funding will depend , in part , on the timing and structure of potential business arrangements . if necessary , we may continue to seek to raise additional capital through the sale of our equity or through a strategic alliance with a third party . there may also be additional acquisition and growth opportunities that may require external financing . there can be no assurance that such financing will be available on terms acceptable to us , or at all . we believe that our existing capital resources will be sufficient to support our current business plan beyond march 2017. on december 10 , 2014 , we entered into a purchase agreement , pursuant to which we agreed to sell $ 125 million aggregate principal amount of our 3.75 % convertible senior notes due 2019 , or the notes , to deutsche bank securities inc. and j.p. morgan securities llc , as the initial purchasers ( see note 21 to the company 's consolidated financial statements ) . in addition , we granted the initial purchasers a 30-day option to purchase up to an additional $ 18.75 million aggregate principal amount of the notes on the same terms and conditions . the notes were sold in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act of 1933 , as amended . on november 18 , 2014 , we entered into a $ 10 million line of credit with general electric capital corporation ( see note 7 to the company 's consolidated financial statements ) . as of december 31 , 2015 , the outstanding principal balance on the line of credit was $ 0. the company terminated the line in february 2016. on june 27 , 2014 , we announced the pricing of our underwritten public offering of 4,650,000 shares of our common stock at a price to the public of $ 5.00 per share ( see note 19 to the company 's consolidated financial statements ) . the offering closed on july 2 , 2014 , and , after giving effect to the underwriters ' exercise of the over-allotment option in full , we sold an aggregate of 5,347,500 shares of common stock . the net proceeds of the offering were approximately $ 24.9 million , after deducting the underwriters ' commission and offering expenses . our operating activities used $ 15.5 million , $ 3.9 million and $ .6 million of cash during the years ended december 31 , 2015 , 2014 and 2013 , respectively . the use of cash for the year ended december 31 , 2015 was a result of $ 5.2 million paid related to canadian goods and services tax ( gst ) and the harmonized sales tax ( hst ) , which we expect to be refunded in 2016. we also paid interest expense in the amount of $ 6.7 million related to our notes . in connection with the acquisition of alveda , we paid $ 2.2 million in acquisition costs . the remaining use of cash was primarily a result of the $ 3.8 million in changes in operating assets and liabilities , which included a $ 6.0 million payment related to the astrazeneca assets acquired in september of 2015 , offset by the net income for the year . the use of cash for the year ended december 31 , 2014 was substantially a result of the changes in operating assets and liabilities offset by the net income for the year . the use of cash for the year ended december 31 , 2013 was substantially a result of the net loss for the period offset by non-cash expense items . our investing activities used $ 53.1 million during the year ended december 31 , 2015 compared to $ 3.8 million of cash used in the year ended december 31 , 2014 and $ 2.1 million of cash used in the year ended december 31 , 2013. we paid $ 35.4 million in cash to acquire the assets of alveda in november 2015. we completed the acquisition of five products , which used $ 11.7 million in cash in 2015. we also used $ 6.0 million for the purchase of capital expenditures related to additional scientific and manufacturing equipment and costs related to the planning phase of our expansion .
| results of operations fiscal year 2015 compared to fiscal year 2014 we had net income of $ 6,668,000 in 2015 compared to net income of $ 5,251,000 in 2014. net income attributable to common stockholders was $ 6,668,000 , or $ 0.13 per basic share in 2015 , and net income applicable to common stockholders was $ 5,251,000 , or $ 0.11 per share , in 2014 : revenues ( in thousands ) : replace_table_token_5_th the increase in product sales for the year ended december 31 , 2015 as compared to the same period in 2014 was primarily due to the increased revenue from our own generic pharmaceutical product line that was launched in the first quarter of 2013 , the launch of an additional company label product in july 2015 , the purchase of three commercialized injectable products in october 2015 and the launch of two additional company label products in june 2014. there was a decrease in product sales in our contract services business to three of our pharmaceutical customers and one cosmetic customer , which was only partially offset by increased sales to three of our pharmaceutical customers . research and development income will not be consistent and will vary , from period to period , depending on the required timeline of each development project . licensing , royalty and other revenue decreased slightly due to a decrease in other revenue , while licensing and royalty revenue remained the same . 43 costs and expenses ( in thousands ) : replace_table_token_6_th cost of sales increased for the year ended december 31 , 2015 as compared to the same period in 2014 as a result of the increase in total revenue .
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under accounting standards update 2015-02 , consolidation ( topic 810 ) : amendments to the consolidation analysis ( “ asu 2015-02 ” ) , a limited partnership is a variable interest entity unless a story_separator_special_tag as discussed in part 1 , some of the information in this annual report on form 10-k includes “ forward-looking statements ” within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 ( the “ exchange act ” ) , as amended . all statements other than statements of historical facts included in this form 10-k , including , without limitation , certain statements under “ management 's discussion and analysis of financial condition and results of operations ” , may constitute forward-looking statements . in some cases , you can identify these “ forward-looking statements ” by the specific words , including but not limited to “ may , ” “ should , ” “ expects , ” “ plans , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ potential ” or “ continue ” or the negative of those words and other comparable words . these forward-looking statements involve risks and uncertainties . the following discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto included elsewhere in this document . in the following discussion and analysis , the term net income refers to net income attributable to ncm , inc. overview we are america 's movie network . as the # 1 weekend network for millennials ( age 18-34 ) in the u.s. , we are the connector between brands and movie audiences . we currently derive revenue principally from the sale of advertising to national , regional and local businesses in firstlook , our cinema advertising and entertainment pre-show seen on movie screens across the u.s. we also sell advertising on our len , a series of strategically-placed screens located in movie theater lobbies , as well as other forms of advertising and promotions in theater lobbies . in addition , we sell online and mobile advertising through our cinema accelerator digital product to reach entertainment audiences beyond the theater . we have long-term esas ( over 20 years remaining as of december 29 , 2016 ) and multi-year agreements with network affiliates , which expire at various dates between july 14 , 2017 and july 22 , 2031. the weighted average remaining term ( based on attendance ) of the esas and the network affiliate agreements is 18.1 years as of december 29 , 2016. the esas and network affiliate agreements grant ncm llc exclusive rights in their theaters to sell advertising , subject to limited exceptions . our firstlook pre-show and len programming are distributed predominantly via satellite through our proprietary dcn . approximately 98 % of the aggregate founding member and network affiliate theater attendance is generated by theaters connected to our dcn ( the remaining screens receive advertisements on usb drives ) and 100 % of the firstlook pre-show is projected on digital projectors ( 90 % digital cinema projectors and 10 % lcd projectors ) . management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business , determine how we are performing versus our internal goals and targets , and against the performance of our competitors and other benchmarks in the marketplace in which we operate . senior executives hold meetings at least once per quarter with officers , managers and staff to discuss and analyze operating results and address significant variances to budget and prior year in an effort to identify trends and changes in our business . we focus on many operating metrics including changes in revenue , oibda , adjusted oibda and adjusted oibda margin , as defined and discussed in “ notes to the selected historical financial and operating data ” above , as some of our primary measurement metrics . in addition , we monitor our monthly advertising performance measurements , including advertising inventory utilization , national and local advertising pricing ( cpm ) , local and regional advertising rate per screen per week , local and regional and total advertising revenue per attendee . we also monitor free cash flow , the dividend coverage ratio , financial leverage ( net debt divided by adjusted oibda ) , cash balances and revolving credit facility availability to ensure debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our board of directors . recent transactions on may 5 , 2014 , ncm , inc. entered into an agreement and plan of merger ( the “ merger agreement ” ) to merge with screenvision . on november 3 , 2014 , the doj filed a lawsuit seeking to enjoin the merger . on march 16 , 2015 , ncm , inc. announced the termination of the merger agreement and the lawsuit was dismissed . after the merger agreement was terminated , ncm llc reimbursed ncm , inc. for certain expenses pursuant to an indemnification agreement among ncm llc , ncm , inc. and the founding members . on march 17 , 2015 , ncm llc paid screenvision an approximate $ 26.8 million termination payment on behalf of ncm , inc. during the year ended december 31 , 2015 , ncm llc also either paid directly or reimbursed ncm , inc. for the legal and other merger-related costs of approximately $ 15.0 million ( $ 7.5 million 33 incurred by ncm , inc. during th e year ended january 1 , 2015 and approximately $ 7.5 million incurred by ncm llc during the year ended december 31 , 2015 ) . story_separator_special_tag total non-operating expenses increased $ 10.3 million , or 15.5 % , from $ 66.5 million for the year ended december 31 , 2015 to $ 76.8 million for the year ended december 29 , 2016. the following table shows the changes in non-operating expense for the years ended december 29 , 2016 and december 31 , 2015 ( in millions ) : replace_table_token_13_th the increase in non-operating expense was due primarily to a $ 10.4 million loss on early retirement of debt recorded in the year ended december 29 , 2016 as a result of the redemption of our notes due 2021. the loss on early retirement of debt included an approximate $ 7.9 million redemption premium and the write-off of approximately $ 2.5 million in unamortized debt issuance costs . the interest on borrowings increased approximately $ 1.8 million in 2016 compared to 2015 due to the one-month period between the issuance of the notes due 2026 in august 2016 and the redemption of the notes due 2021 in september 2016 , whereby interest was paid on both notes for one month , as well as , a higher libor rate on our term loans during 2016 compared to 2015. these increases in non-operating expenses were partially offset by a $ 1.6 million decrease in the amortization of terminated derivatives as the amortization period ended in february 2015. net income . net income increased $ 10.0 million from $ 15.4 million for the year ended december 31 , 2015 to $ 25.4 million for the year ended december 29 , 2016. the increase in net income was primarily due to an increase of $ 25.0 million in operating income , as described above , and a decrease of $ 8.6 million in income tax expense due primarily to a change of $ 7.8 million for a reserve for uncertain tax positions as $ 4.9 million of reserve was added during 2015 and $ 2.9 million was reversed during 2016 as the statute of limitations expired in the period . these increases to net income were partially offset by an increase of $ 10.3 million in non-operating expense , as described above , and a $ 13.3 million increase in income attributable to noncontrolling interests . fiscal years 2015 and 2014 revenue . total revenue increased $ 52.5 million , or 13.3 % , from $ 394.0 million for the year ended january 1 , 2015 to $ 446.5 million for the year ended december 31 , 2015. the following is a summary of revenue by category ( in millions ) : replace_table_token_14_th 37 the following table shows data on revenue per attendee for the years ended december 31 , 2015 and january 1 , 2015 ( in millions ) : replace_table_token_15_th ( 1 ) represents the total attendance within ncm llc 's advertising network , excluding screens and attendance associated with certain amc rave and cinemark rave theaters for all periods presented . refer to note 4 to the audited consolidated financial statements included elsewhere in this document . national advertising revenue . the $ 51.1 million , or 20.0 % , increase in national advertising revenue ( excluding beverage revenue from the founding members ) was due primarily to a 14.2 % increase in impressions sold during the year ended december 31 , 2015 , compared to the year ended january 1 , 2015 and a 6.7 % increase in national advertising cpms ( excluding beverage ) during the year ended december 31 , 2015 , compared to the year ended january 1 , 2015. the increase in impressions sold was driven by an increase in national inventory utilization from 115.7 % for the year ended january 1 , 2015 to 128.3 % for the year ended december 31 , 2015 , due to an expansion of our client base and increased spending by certain existing clients , related in part to the success of our strategy to compete in the national television upfront marketplace . inventory utilization is calculated as utilized impressions divided by total advertising impressions , which is based on eleven 30-second salable national advertising units in our firstlook pre-show , which can be expanded , should market demand dictate . this increase in impressions sold was also driven by an increase in our network theater attendance of 0.9 % related to an overall increase in cinema industry attendance resulting from a stronger film release schedule and the addition of new network screens . the increase in cpms relates primarily to our successful upfront sales campaign and strong scatter market . local and regional advertising revenue . the $ 9.8 million , or 9.8 % , increase in local and regional advertising revenue was driven by an increase of $ 6.9 million , or 21.7 % , in revenue from larger regional contracts ( greater than $ 100,000 ) . the volume of contracts greater than $ 100,000 increased 33.9 % , partially offset by a decrease of 9.1 % in average contract value of contracts greater than $ 100,000. the increase in volume of contracts greater than $ 100,000 was due to the stronger film release schedule and higher sales to agencies responsible for larger regional advertising budgets . revenue from local contracts under $ 100,000 increased 4.8 % during the year ended december 31 , 2015 , compared to the year ended january 1 , 2015. founding member beverage revenue . the $ 8.4 million , or 21.9 % , decrease in national advertising revenue from the founding members ' beverage concessionaire agreements was due to a 14.4 % decrease in beverage revenue cpms and a decrease of 0.4 % in founding member attendance during the year ended december 31 , 2015 , compared to the year ended january 1 , 2015. the 2015 beverage revenue cpm is based on the change in cpm during segment one of the firstlook pre-show from 2013 to 2014 , which decreased 14.4 % .
| results of operations fiscal years 2016 and 2015 revenue . total revenue increased $ 1.1 million , or 0.2 % , from $ 446.5 million for the year ended december 31 , 2015 to $ 447.6 million for the year ended december 29 , 2016. the following is a summary of revenue by category ( in millions ) : replace_table_token_10_th the following table shows data on revenue per attendee for the years ended december 29 , 2016 and december 31 , 2015 : replace_table_token_11_th ( 1 ) represents the total attendance within ncm llc 's advertising network , excluding screens and attendance associated with certain amc rave and cinemark rave theaters for all periods presented . refer to note 4 to the audited consolidated financial statements included elsewhere in this document . national advertising revenue . the $ 4.9 million , or 1.6 % , increase in national advertising revenue ( excluding beverage revenue from the founding members ) was due primarily to a 9.6 % increase in national advertising cpms ( excluding beverage ) during the year ended december 29 , 2016 compared to the year ended december 31 , 2015 and a $ 5.4 million increase in online , mobile and other revenue not included in the inventory measured by impressions sold or by cpms . the increase in national advertising cpms was due primarily to higher cpms on upfront commitments year over year and to a lesser extent higher cpms in the scatter market as well .
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cancellable interest rate swap agreement the fund has entered into a cancellable interest rate swap agreement to manage the fund 's exposure to change in interest rates on its expected borrowings under its debt facility , as the fund originates fixed rate loans ( see note 9 ) . cancellable interest rate swaps are primarily valued on the basis of quotes obtained from banks , brokers and dealers and adjusted for counterparty risk and the optionality to terminate the swap early . the valuation of the swap agreement also considers the future expected interest rates on the notional principal balance remaining which is comparable to what a prospective acquirer would pay on the measurement date . valuation pricing models consider inputs such as forward rates , anticipated interest rate volatility relating to the reference rate , as well as time value and other factors underlying swap instruments . the fund is a party to a master netting arrangement with mufg union bank , n.a . , however , the fund has elected not to offset assets and liabilities under these arrangements for financial statement presentation purposes . the contract is recorded at gross fair value in either derivative asset - interest rate swap or derivative liability - interest rate swap in the statements of assets and liabilities , depending on whether the value of the contract is in favor of the fund or the counterparty . the changes in fair value are recorded in net change in unrealized gain ( loss ) from derivative instruments in the statements of operations and the quarterly interest received or paid on the interest rate swap contract , if any , is recorded in net realized gain ( loss ) from derivative instruments in the statements of operations . the interest rate swap agreement is contractually scheduled to terminate on december 1 , 2020. the fund has the option to terminate the swap early on june 1 , 2020 . 50 recent accounting pronouncements in august 2018 , the financial accounting standards board ( “ fasb ” ) issued asu 2018-13 , “ fair value measurement ( topic 820 ) - disclosure framework - changes to the disclosure requirements for fair value measurement . ” the asu modifies the disclosure requirement on fair value measurements in topic 820 , fair value measurement , by eliminating , modifying , and adding to those requirements . asu 2018-13 also modifies the disclosure objective paragraphs of topic 820 to eliminate ( 1 ) “ at a minimum ” from the phrase “ an entity shall disclose at a minimum ” and ( 2 ) other similar “ open ended ” disclosure requirements to promote appropriate exercise of discretion story_separator_special_tag story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > the actual value of the loans may differ from management 's estimates , which would affect net change in net assets resulting from operations as well as assets . results of operations – for the years ended december 31 , 2019 and 2018 the fund commenced investment operation on december 18 , 2012 . for the most recent discussion on the results of operations for the year ended december 31 , 2017 , refer to the management discussion and analysis on the annual report , form 10-k , filed on march 14 , 2019 . total investment income for the years ended december 31 , 2019 and 2018 was $ 22.5 million and $ 49.0 million , respectively , which primarily consisted of interest on the venture loans outstanding . the remaining income consisted of interest and dividends on the temporary investment of cash , and other income from commitment fees and warrants . total investment income decreased through the years primarily due to the decrease in average outstanding balance of performing loans calculated on a monthly basis of $ 124.4 million and $ 274.5 million for the years ended december 31 , 2019 and 2018 , respectively . the weighted-average interest rate on performing loans was 17.76 % and 17.61 % for the same periods , respectively . also for the same periods , the weighted-average interest rate on all loans was 16.00 % and 17.06 % respectively . interest is calculated using the effective interest method , and rates earned by the fund will fluctuate based on many factors including early payoffs , volatility of values ascribed to warrants , and new loans funded during the year . expenses for the years ended december 31 , 2019 and 2018 , were $ 6.6 million and $ 14.0 million , respectively . management fees for the fund were $ 3.1 million and $ 7.0 million for the years ended december 31 , 2019 and 2018 , respectively . management fees were calculated as 2.5 % of the fund 's total assets and decreased in 2019 due to a decrease in the fund 's total assets . interest expense for the years ended december 31 , 2019 and 2018 was $ 2.8 million and $ 6.2 million , respectively . interest expense was comprised of amounts related to interest on debt amounts drawn down , unused credit line fees and amounts amortized from deferred fees incurred in conjunction with the loan facility . interest expense decreased in 2019 primarily due to the reduction in average debt outstanding from $ 117.4 million in 2018 to $ 47.5 million in 2019. banking and professional fees were $ 0.5 million and $ 0.6 million for the years ended december 31 , 2019 and 2018 , respectively . the banking and professional fees were comprised of legal , audit , banking and other professional fees . the banking and professional fees decreased slightly for 2019 due to decreased in legal fees , which were commensurate with the decrease in the fund 's investment activities . story_separator_special_tag other operating expenses were $ 0.2 million and $ 0.2 million for the years ended december 31 , 2019 and 2018 , respectively . these expenses included director fees , custody fees , tax fees and other expenses related to the operations of the fund . the other operating expenses decreased slightly for 2019 was primarily due to a decrease in expenses related to collection costs on certain non-accrual loans . net investment income for the years ended december 31 , 2019 and 2018 , was $ 15.9 million and $ 35.0 million , respectively . net realized loss from loans was $ 13.2 million $ 8.2 million for the years ended december 31 , 2019 and 2018 , respectively . the primary reason for the increase in 2019 was due to several loan write offs during the year . net realized gain ( loss ) from derivative instruments was $ 0.2 million and less than $ ( 0.1 ) million for the years ended december 31 , 2019 and 2018 , respectively . the gain in 2019 was due to the rising interest rate environment in the first half of the year , which led to the receipt of interest payments from the derivative instrument , but was offset by interest paid on the derivative instrument in the final quarter of the year as interest rates started to decline . net change in unrealized gain ( loss ) from loans was $ 4.6 million and $ 2.0 million for the years ended december 31 , 2019 and 2018 , respectively . the net change in unrealized gain consisted of fair value adjustments to loans and the reversal of fair value adjustments previously taken against loans written off . net change in unrealized gain ( loss ) from derivative instruments was $ ( 0.4 ) million and $ 0.4 million for the years ended december 31 , 2019 and 2018 , respectively . the net change in unrealized gain and loss from derivative instruments consisted of fair market value adjustments to the derivative interest rate cap or swap . the decrease in 2019 was primarily due to the change in expectations of libor interest rates during the year . net increase in net assets resulting from operations for the years ended december 31 , 2019 and 2018 was $ 7.1 million and $ 29.0 million , respectively . on a per share basis , the net increase in net assets resulting from operations was $ 71.02 and $ 290.47 for the years ended december 31 , 2019 and 2018 , respectively . 20 liquidity and capital resources -- december 31 , 2019 and 2018 for the most recent discussion on the liquidity and capital resources for the year ended december 31 , 2017 , refer to the management discussion and analysis on the annual report , form 10-k , filed on march 14 , 2019 . the fund is owned entirely by the company . as of both december 31 , 2019 and 2018 , the company had subscriptions for capital in the amount of $ 375.0 million , of which all had been called and received as of both periods . total capital contributed to the fund was $ 323.2 million and $ 322.6 million as of december 31 , 2019 and 2018 , respectively . effective june 30 , 2017 , the fund was no longer permitted to enter new commitments to borrowers ; however , the fund was permitted to fund existing commitments . the fund 's last commitment expired on july 31 , 2018 . the change in cash held by the funds for the years ended december 31 , 2019 and 2018 was as follows : replace_table_token_1_th as of december 31 , 2019 and 2018 , 0.50 % and 2.22 % , respectively , of the fund 's net assets consisted of cash and cash equivalents . on july 18 , 2013 , the fund established a secured , syndicated revolving loan facility in an initial amount of up to $ 125.0 million led by wells fargo , n.a . and mufg union bank , n.a . in november 2014 , the borrowing availability thereunder was increased to $ 255.0 million . all of the assets of the fund collateralize borrowings by the fund . the fund pays interest on its borrowings and a fee on the unused portion of the facility . the facility was renewed and amended on october 30 , 2017 . the amended facility has a term of three years and terminates on october 30 , 2020 , but can be accelerated in the event of default , such as failure by the fund to make timely interest or principal payments . the borrowing availability thereunder was reduced to $ 200.0 million . since then , the borrowing availability was reduced to $ $ 23.0 million as of december 31 , 2019 . beginning march 29 , 2019 , the lenders ' commitments automatically and permanently reduce each fiscal quarter by an amount equal to 12.5 % of the aggregate amount of such commitments . as of december 31 , 2019 , $ 15.4 million was outstanding under the facility . the fund anticipates continued reduction of the facility as the borrowing base continues to decline . for the years ended december 31 , 2019 and 2018 , the fund invested its assets in venture loans . amounts disbursed under the fund 's loan commitments were $ 0 and $ 51.0 million for the years ended december 31 , 2019 and 2018 , respectively . net loan amounts outstanding after amortization and valuation adjustments were decreased by $ 124.7 million for the year ended december 31 , 2019 . replace_table_token_2_th because venture loans are privately negotiated transactions , investments in these assets are relatively illiquid . the fund seeks to maintain the requirements to qualify for the special pass-through status available to rics under the code , and thus to be
| overview the fund is 100 % owned by the company . the fund 's shares of common stock , at $ 0.001 par value , were sold to its sole shareholder , the company , under a stock purchase agreement . the fund has issued 100,000 of the fund 's 10,000,000 authorized shares . the company may make additional capital contributions to the fund . the fund provides financing and advisory services to a variety of carefully selected venture-backed companies primarily throughout the united states , with a focus on growth oriented companies . the fund 's portfolio consists of companies in the communications , information services , media , technology ( including software and technology-enabled business services ) , biotechnology , and medical devices industry sectors , among others . the fund 's capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital . on december 18 , 2012 , the company completed its first closing of capital contributions and the fund made its first investment and became a non-diversified , closed-end investment company that elected to be treated as a bdc under the 1940 act . while the fund intends to operate as a non-diversified investment company within the meaning of section 5 ( b ) ( 2 ) of the 1940 act , from time to time the fund may act as a diversified investment company within the meaning of section 5 ( b ) ( 1 ) of the 1940 act . the fund elected to be treated for federal income tax purposes as a ric under the code with the filing of its federal corporate income tax return for 2013. pursuant to this election , the fund generally will not have to pay corporate-level taxes on any income distributed to its shareholder as dividends , allowing the company to substantially reduce or eliminate its corporate-level tax liability .
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as a result of many factors , such as those set forth under “ risk factors ” and elsewhere in this form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` special note regarding forward-looking statements . '' overview we are the nation 's largest independent broker-dealer , a top custodian for registered investment advisors ( `` rias '' ) , and a leading independent consultant to retirement plans . we provide an integrated platform of brokerage and investment advisory services to more than 13,600 independent financial advisors including financial advisors at more than 700 financial institutions ( our `` advisors '' ) across the country , enabling them to provide their retail investors ( their `` clients '' ) with objective financial advice through a low-risk model . we also support approximately 4,500 financial advisors who are affiliated and licensed with insurance companies with customized clearing , advisory platforms and technology solutions . fortigent holdings company , inc. and its subsidiaries ( `` fortigent '' ) are a leading provider of solutions and consulting services to rias , banks and trust companies servicing high-net-worth clients , while the private trust company , n.a . ( `` ptc '' ) manages trusts and family assets for high-net-worth clients . our singular focus is to provide our advisors with the front- , middle- and back-office support they need to serve the large and growing market for independent investment advice . we believe we are the only company that offers advisors the unique combination of an integrated technology platform , comprehensive self-clearing services and open architecture access to leading financial products , all delivered in an environment unencumbered by conflicts from product manufacturing , underwriting or market-making . for over 20 years , we have served the independent advisor market . we currently support the largest independent advisor base and we believe we have the fourth largest overall advisor base in the united states based on the information available as of the date this annual report on form 10-k has been issued . through our advisors , we are also one of the largest distributors of financial products in the united states . our scale is a substantial competitive advantage and enables us to more effectively attract and retain advisors . our unique business model allows us to invest in more resources for our advisors , increasing their revenues and creating a virtuous cycle of growth . we have 3,185 employees with primary offices in boston , charlotte and san diego . our sources of revenue our revenues are derived primarily from fees and commissions from products and advisory services offered by our advisors to their clients , a substantial portion of which we pay out to our advisors , as well as fees we receive from our advisors for the use of our technology , custody , clearing , trust and reporting platforms . we also generate asset-based revenues through our platform of over 11,000 financial products from a broad range of product manufacturers . under our self-clearing platform , we custody the majority of client assets invested in these financial products , for which we provide statements , transaction processing and ongoing account management . in return for these services , mutual funds , insurance companies , banks and other financial product manufacturers pay us fees based on asset levels or number of accounts managed . we also earn interest from margin loans made to our advisors ' clients . we track recurring revenue , a characterization of net revenue and a statistical measure , which we define to include our revenues from asset-based fees , advisory fees , trailing commissions , cash sweep programs and certain other fees that are based upon accounts and advisors . because certain recurring revenues are associated with asset balances , they will fluctuate depending on the market values and current interest rates . these asset balances , specifically related to advisory and asset-based revenues , have a correlation of approximately 60 % to the fluctuations of the overall market , as measured by the s & p 500. accordingly , our recurring revenue can be negatively impacted by adverse external market conditions . however , recurring revenue is meaningful to us despite these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues , which are more difficult to predict , particularly in declining or volatile markets . 39 the table below summarizes the sources of our revenue , the primary drivers of each revenue source and the percentage of each revenue source that represents recurring revenue , a characterization of revenue and a statistical measure : replace_table_token_9_th commission and advisory revenues . commission and advisory revenues both represent advisor-generated revenue , generally 85-90 % of which is paid to advisors . commission revenues . we generate two types of commission revenues : transaction-based sales commissions and trailing commissions . transaction-based sales commission revenues , which occur whenever clients trade securities or purchase various types of investment products , primarily represent gross commissions generated by our advisors , primarily from commissions earned on purchases by clients of various financial products such as mutual funds , variable and fixed annuities , alternative investments , equities , fixed income , insurance , group annuities , and options and commodities . the levels of transaction-based commissions can vary from period to period based on the overall economic environment , number of trading days in the reporting period and investment activity of our advisors ' clients . we earn trailing commission revenues ( a commission that is paid over time , such as 12 ( b ) -1 fees ) on mutual funds and variable annuities held by clients of our advisors . trailing commissions are recurring in nature and are earned based on the current market value of investment holdings in trail-eligible assets . advisory revenues . story_separator_special_tag payout characterized as non-gdc sensitive includes share-based compensation expense from equity awards granted to advisors and financial institutions based on the fair value of the awards at each reporting period , and mark-to-market gains or losses on amounts designated by advisors as deferred commissions in a non-qualified deferred compensation plan . non-gdc sensitive payout is correlated either to market movement or to the value of our stock . we believe that discussion of production payout , viewed in addition to , and not in lieu of , our production expenses , provides useful information to investors regarding our payouts to advisors . the following table illustrates production expenses and production payout as components of our total payout ratio for the year ended december 31 , 2013 : base payout rate 84.04 % production based bonuses 2.69 % gdc sensitive payout 86.73 % non-gdc sensitive payout 0.51 % total payout ratio 87.24 % see `` results of operations '' for analysis of the production payout ratio for the comparable periods in 2012 and 2011 . compensation and benefits expense . compensation and benefits expense includes salaries and wages and related employee benefits and taxes for our employees ( including share-based compensation ) , as well as compensation for temporary employees and consultants . general and administrative expenses . general and administrative expenses include promotional fees , occupancy and equipment , communications and data processing , regulatory fees , professional services and other expenses . general and administrative expenses also include expenses for our hosting of certain advisor conferences that serve as training , sales and marketing events . depreciation and amortization expense . depreciation and amortization expense represents the benefits received for using long-lived assets . those assets consist of significant intangible assets established through our acquisitions , as well as fixed assets which include internally developed software , hardware , leasehold improvements and other equipment . restructuring charges . restructuring charges primarily represent expenses incurred as a result of our expansion of our service value commitment announced in 2013 ( see note 4 . restructuring , within the notes to consolidated financial statements ) . restructuring charges also include costs arising from our 2011 consolidation of uvest financial services group , inc. ( `` uvest '' ) and our 2009 consolidation of mutual service corporation , associated financial group , inc. , associated securities corp. , associated planners investment advisory , inc. and waterstone financial group , inc. ( collectively referred to herein as the “ affiliated entities ” ) . other expenses . other expenses represent charges incurred arising from the shutdown of our subsidiary nestwise , which ceased operations in the third quarter of 2013 ( the `` nestwise closure '' ) . in connection with the nestwise closure , we determined that a majority of the assets held at nestwise , consisting primarily of goodwill and fixed assets stemming from the 2012 acquisition of veritat advisors inc. ( `` veritat '' ) , had no future economic benefit and were derecognized beginning in the third quarter of 2013. additionally , we revised our estimate of the potential payment obligation that we may be required to pay the former shareholders of veritat , which resulted in a reduction of the contingent consideration obligation . 42 how we evaluate our business we focus on several business and key financial metrics in evaluating the success of our business relationships and our resulting financial position and operating performance . our business and key financial metrics as of and for the years ended december 31 , 2013 , 2012 and 2011 are as follows : replace_table_token_10_th ( 1 ) advisors are defined as those independent financial advisors and financial advisors at financial institutions who are licensed to do business with the company 's broker-dealer subsidiary . during 2012 , an institutional client 's parent company consolidated its operations onto the broker-dealer platform of an affiliate within its organization , which resulted in a loss of 181 advisors . excluding the attrition of the institutional client 's advisors , we added 686 net new advisors during the twelve months ended december 31 , 2012. we consolidated the operations of uvest with lpl financial that resulted , as expected , in the attrition of 146 advisors during the year ended december 31 , 2011. excluding attrition from the integration of the uvest platform , we added 549 net new advisors during the twelve months ended december 31 , 2011 . ( 2 ) advisory and brokerage assets are comprised of assets that are custodied , networked and non-networked and reflect market movement in addition to new assets , inclusive of new business development and net of attrition . set forth below are other client assets for the years ended december 31 , 2013 and 2012 , including retirement plan assets , and certain trust and high-net-worth assets , that are custodied with third-party providers and therefore excluded from advisory and brokerage assets ( in billions ) : replace_table_token_11_th _ ( a ) retirement plan assets are held in retirement plans that are supported by advisors licensed with lpl financial . at december 31 , 2013 and 2012 , our retirement plan assets represent assets that are custodied with 30 third-party providers and 26 third-party providers , respectively , of retirement plan 43 administrative services who provide reporting feeds . we estimate the total assets in retirement plans supported to be between $ 95.0 billion and $ 105.0 billion at december 31 , 2013 and between $ 70.0 billion and $ 85.0 billion at december 31 , 2012 . if we receive reporting feeds in the future from providers for whom we do not currently receive feeds , we intend to include and identify such additional assets in this metric . during 2013 , we began receiving reporting feeds from four such providers , which accounted for $ 1.7 billion of the $ 14.2 billion increase in retirement plan assets . data regarding these assets was not available at or prior to december 31 , 2011 .
| results of operations the following discussion presents an analysis of our results of operations for the years ended december 31 , 2013 , 2012 and 2011 . where appropriate , we have identified specific events and changes that affect comparability or trends , and where possible and practical , have quantified the impact of such items . replace_table_token_15_th * not meaningful 53 revenues commission revenues the following table sets forth our commission revenue , by product category , included in our consolidated statements of income for the periods indicated ( dollars in thousands ) : replace_table_token_16_th the following table sets forth our commission revenue , by sales-based and trailing commission revenue ( dollars in thousands ) : replace_table_token_17_th commission revenue increased by $ 257.0 million , or 14.1 % , for 2013 compared with 2012 , due primarily to an increase in sales-based activity for alternative investments , equities and mutual funds and increases in trail revenues for mutual funds and variable annuities . this growth reflects improved investor engagement , strong market conditions and growth of the underlying assets . additionally , commission revenues from fixed income , primarily driven by unit investment trusts and 529 college savings plans , and insurance products also contributed to the overall growth in commission revenue . such overall growth reflects market-wide growth and increased investor engagement that has driven advisor productivity . the increase in commission revenues associated with alternative investments reflects investors ' preferences for diversification , as income-producing alternative strategies continue to grow in popularity and investors continue to seek opportunities to earn return outside of the traditional equity and fixed income markets .
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the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . we consider accounting estimates to be critical to reported financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain and ( ii ) different estimates that management reasonably could have used for the accounting estimate in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , could have a material impact on our financial statements . the accounting policies that we view as critical to us are those relating to estimates and judgments regarding ( a ) the determination of the adequacy of the allowance for loan losses , ( b ) acquisition accounting and valuation of covered loans and related indemnification asset , ( c ) the valuation of goodwill and the useful lives applied to intangible assets , ( d ) the valuation of employee benefit plans and ( e ) income taxes . allowance for loan losses on loans not acquired the allowance for loan losses is management 's estimate of probable losses in the loan portfolio . loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the allowance is calculated monthly based on management 's assessment of several factors such as ( 1 ) historical loss experience based on volumes and types , ( 2 ) volume and trends in delinquencies and nonaccruals , ( 3 ) lending policies and procedures including those for loan losses , collections and recoveries , ( 4 ) national , state and local economic trends and conditions , ( 5 ) concentrations of credit within the loan portfolio , ( 6 ) the experience , ability and depth of lending management and staff and ( 7 ) other factors and trends that will affect specific loans and categories of loans . we establish general allocations for each major loan category . this category also includes allocations to loans which are collectively evaluated for loss such as credit cards , one-to-four family owner occupied residential real estate loans and other consumer loans . general reserves have been established , based upon the aforementioned factors and allocated to the individual loan categories . allowances are accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan , including accrued interest , exceeds the discounted amount of expected future collections of interest and principal or , alternatively , the fair value of loan collateral . our evaluation of the allowance for loan losses is inherently subjective as it requires material estimates . the actual amounts of loan losses realized in the near term could differ from the amounts estimated in arriving at the allowance for loan losses reported in the financial statements . acquisition accounting , acquired loans we account for our acquisitions under asc topic 805 , business combinations , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk . loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in asc topic 820. the fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . we evaluate loans acquired in accordance with the provisions of asc topic 310-20 , nonrefundable fees and other costs . the fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method . these loans are not considered to be impaired loans . we evaluate purchased impaired loans in accordance with the provisions of asc topic 310-30 , loans and debt securities acquired with deteriorated credit quality . purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected . all loans acquired , whether or not previously covered by fdic loss share agreements , are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected . 22 for impaired loans accounted for under asc topic 310-30 , we continue to estimate cash flows expected to be collected on purchased credit impaired loans . we evaluate at each balance sheet date whether the present value of our purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so , recognize a provision for loan loss in our consolidated statement of income . for any significant increases in cash flows expected to be collected , we adjust the amount of accretable yield recognized on a prospective basis over the remaining life of the purchased credit impaired loan . covered loans and related indemnification asset during the third quarter of 2015 , the bank entered into an agreement with the fdic to terminate all of its remaining loss-sharing agreements . as a result , all fdic-acquired assets are now classified as non-covered . all acquired loans are recorded at their discounted net present value ; therefore , they are excluded from the computations of the asset quality ratios for the legacy loan portfolio , except for their inclusion in total assets . story_separator_special_tag with the operational system conversions completed with simmons bank , we are able to provide customers with innovative products , exceptional customer service and convenience throughout the combined service area and across all lines of business products . we are very pleased with the core earnings results in 2015. we reported record core earnings and record core earnings per share for 2015. as a result of acquisitions and efficiency initiatives in recent reporting periods , we have and will continue to recognize one-time revenue and expense items which may skew our short-term core business results but provide long-term performance benefits . our focus continues to be improvement in core operating income . we are also very pleased with the positive trends in our balance sheet , as reflected in our organic loan growth during the past year as well as our growth from acquisitions , which enabled us to produce a net interest margin of 4.55 % . stockholders ' equity as of december 31 , 2015 was $ 1.1 billion , book value per share was $ 34.55 and tangible book value per share was $ 21.97. our ratio of common stockholders ' equity to total assets was 13.8 % and the ratio of tangible common stockholders ' equity to tangible assets was 9.3 % at december 31 , 2015. the company 's tier i leverage ratio of 11.2 % , as well as our other regulatory capital ratios , remain significantly above the “ well capitalized ” . see table 18 – risk-based capital for regulatory capital ratios . during the third quarter of 2015 , the bank entered into an agreement with the fdic to terminate all of its remaining loss-sharing agreements . as a result , all fdic-acquired assets are now classified as non-covered . under the early termination , all rights and obligations of the bank and the fdic under the fdic loss share agreements , including the clawback provisions and the settlement of loss share and expense reimbursement claims , have been resolved and terminated . total loans , including loans acquired , were $ 4.9 billion at december 31 , 2015 , an increase of $ 2.2 billion , or 80.5 % , from the same period in 2014. acquired loans increased by $ 990 million , net of discounts , while legacy loans ( all loans excluding acquired loans ) grew $ 1.2 billion , or 58.1 % . excluding the $ 391 million in loan balances that migrated from acquired loans , legacy loans grew $ 801 million , or 41.0 % . we are encouraged by the continued growth in our legacy loan portfolio throughout 2015. we have had very good legacy loan growth again this year , particularly from the new lenders we have attracted in our targeted growth markets . their production has exceeded our expectations for 2014 and 2015. we continue to have good asset quality . at december 31 , 2015 , the allowance for loan losses for legacy loans was $ 31.4 million , with an additional $ 1.0 million allowance for acquired loans . the loan discount credit mark was $ 55.7 million , for a total of $ 88.1 million of coverage . this equates to a total coverage ratio of 1.8 % of gross loans . the ratio of credit mark and related allowance to acquired loans was 3.3 % . the company 's allowance for loan losses on legacy loans as a percent of total loans was 0.97 % at december 31 , 2015. in the legacy portfolio , non-performing loans equaled 0.58 % of total loans . non-performing assets were 0.85 % of total assets . the allowance for loan losses on legacy loans was 166 % of non-performing loans . the company 's net charge-offs for 2015 were 0.24 % of total loans . excluding credit cards , net charge-offs for 2015 were 0.16 % of total loans . total assets were $ 7.6 billion at december 31 , 2015 compared to $ 4.6 billion at december 31 , 2014 , an increase of $ 2.9 billion primarily due to the community first and liberty acquisitions . 24 subsidiary bank consolidation we completed the consolidation of our subsidiary banks into simmons bank , headquartered in pine bluff , arkansas in august of 2014. the elimination of the separate bank charters increased the company 's efficiency and assisted us in more effectively meeting the increased regulatory burden currently facing banking institutions . there are many operational functions that we previously performed separately for each of our seven banks ; with the consolidation , these tasks only need to be performed once . we believe our customers have experienced a positive impact from this change . all of our banking and financial services continue to be available in the same locations as before the consolidation . our local management and community boards of directors are committed to maintaining our nearby and neighborly service and this change allowed them more opportunity to meet the needs of our customers and the communities we serve . net interest income net interest income , our principal source of earnings , is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets . factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities , yields earned and rates paid , the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets . net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis . the adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 39.225 % . the frb sets various benchmark rates , including the federal funds rate , and thereby influences the general market rates of interest , including the deposit and loan rates offered by financial institutions .
| quarterly results selected unaudited quarterly financial information for the last eight quarters is shown in table 22. table 22 : quarterly results replace_table_token_27_th ( 1 ) eps are computed independently for each quarter and therefore the sum of each quarterly eps may not equal the year-to-date eps . as a result of the large stock issuances during 2015 as part of the company 's acquisitions , the computed independent quarterly average common shares outstanding and the computed year-to-date average common shares differ significantly . the difference is based on the direct result of the varying denominator for each period presented . item
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the company 's objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge them , thereby reducing volatility of earnings or protecting fair values of assets . none of the company 's derivative instruments contain credit-risk related contingent features , story_separator_special_tag of operations this annual report on form 10-k contains “ forward-looking statements ” that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . such forward-looking statements include our expectations regarding earnings , revenue , gross margin , expenses , cash flows and other financial items ; any statements of the plans , strategies and objectives of management for future operations and personnel ; factors that may affect our operating results ; anticipated customer activity ; statements concerning new products or services , including new product costs , delivery dates and revenue ; statements related to capital expenditures ; statements related to future economic conditions , performance , market growth or our sales cycle ; statements related to our convertible senior notes ; statements related to the effects of litigation on our financial position , results of operations or cash flows ; statements related to the timing and impact of transfer pricing reserves ; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing . these statements are often identified by the use of words such as `` anticipate , '' `` believe , '' `` continue , '' `` could , '' `` estimate , '' `` expect , '' `` intend , '' `` may , '' or `` will , '' and similar expressions or variations . these statements are based on the beliefs and assumptions of our management based on information currently available to management . 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 below , and those discussed in the section titled “ risk factors ” included in item 1a of this annual report on form 10-k. you should review these risk factors for a more complete understanding of the risks associated with an investment in our securities . such forward-looking statements speak only as of the date of this report . we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . the following discussion and analysis should be read in conjunction with our “ selected consolidated financial data ” and consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. background we provide optical transport networking equipment , software and services to service providers across the globe . optical transport networks are deployed by service providers facing significant demands for transmission capacity prompted by increased use of high-speed internet access , mobile broadband , high-definition video streaming services , business ethernet services and cloud-based services . our technologies and platforms enable service providers to deliver vast amounts of bandwidth with greater ease . we leverage our unique pics to deliver innovative optical networking solutions for the most demanding network environments . the infinera intelligent transport network is an architecture that enables service providers to automate , converge and scale their data center , metro , long-haul and subsea optical networks . this architectural approach helps service providers to rapidly deploy reliable , differentiated services while reducing their operating costs through scale , multi-layer convergence and automation . we manufacture large-scale indium phosphide pics , which are used as a key differentiating component inside our intelligent transport network platforms . our first and second generation pics transmit and receive 100 gbps of wdm transmission capacity and incorporate the functionality of over 60 discrete optical functions into a pair of pics approximately the size of a fingernail . our third generation pics , commercially available since 2012 , transmit and receive 500 gbps , incorporating over 600 discrete optical functions into a pair of pics . our pics are combined with the flexcoherent processors to deliver coherent optical transmission and with high-performance otn switching capabilities to offer service providers a unique combination of highly-scalable transmission capacity and easy to use bandwidth management tools to simplify transport network operations . the infinera dtn-x platform supports 100 gbps wdm transmission capacity with 500 gbps super-channels and also integrates 5 tbps of otn switching in a single bay . the infinera dtn-x platform leverages the unique capabilities of our 500 gbps pics to deliver our high-capacity intelligent transport networks that reduce power , cooling and space requirements while simplifying transport network operations . the infinera dtn platform currently supports 10 gbps wdm transmission capacity combined with integrated switching capabilities . in addition to service providers that are looking for network architectures to respond to continued demand for bandwidth across their long-haul and subsea networks , service providers are now starting to build networks to support data center interconnections across metro cloud and campus environments . our recently introduced cloud 34 xpress platform is optimized to help service providers scale cloud networks with hyper-scale density , simplified operations and low power . we are headquartered in sunnyvale , california , with employees located throughout the americas , europe , and the asia pacific region . we expect to continue to add some personnel in the united states and internationally to develop our products and provide additional geographic sales and technical support coverage . we primarily sell our products through our direct sales force , with a small portion sold indirectly through resellers . story_separator_special_tag these increases were partially offset by a decrease in prototype and non-recurring engineering expense of $ 2.0 million due to timing of certain projects and decreased stock-based compensation expense of $ 2.0 million due to lower equity activity as compared to 2013 . 2013 compared to 2012. research and development expenses increased $ 7.6 million , or 6 % , in 2013 from 2012. this increase was primarily due to increases in compensation expenses of $ 8.7 million and professional outside services and other costs of $ 1.3 million as we continued to add software engineering resources to support 38 the development of our future products . these increases were offset by decreased stock-based compensation expenses of $ 2.4 million . sales and marketing expenses 2014 compared to 2013. sales and marketing expenses increased $ 6.2 million , or 9 % , in 2014 from 2013 primarily due to increased compensation expenses of $ 3.6 million from higher headcount to support the continued expansion of our business and higher sales commissions associated with revenue growth that was higher than our plan for the year . we also had increased travel , trade show and other marketing related expenses of $ 2.0 million and other discretionary spending of $ 0.9 million in order to support our growing business . these increases were partially offset by lower lab trial and related expenses of $ 0.3 million . 2013 compared to 2012. sales and marketing expenses decreased $ 3.1 million , or 4 % , in 2013 from 2012 primarily due to decreased infinera dtn-x platform related customer lab trial expenses of $ 4.9 million , stock-based compensation of $ 2.8 million , and outside services and related expenses of $ 2.1 million . these reductions were offset by increased compensation and personnel-related expenses of $ 6.7 million related to higher sales commissions and incremental sales headcount . general and administrative expenses 2014 compared to 2013 . general and administrative expenses increased $ 3.2 million , or 7 % , in 2014 from 2013 primarily due to higher compensation expenses of $ 2.7 million due to an increase in headcount as we continue to expand our team to support our growing business . in addition , we had increased equipment and software expenses and other discretionary spending of $ 1.0 million . these increases were partially offset by decreased depreciation expense of $ 0.5 million . 2013 compared to 2012 . general and administrative expenses decreased $ 2.2 million , or 5 % , in 2013 from 2012 primarily due to decreased stock-based compensation expense of $ 3.6 million , and lower consulting services and other costs of $ 1.0 million , offset by increased compensation and personnel-related expenses of $ 2.4 million . other income ( expense ) , net replace_table_token_10_th 2014 compared to 2013. interest income increased mainly due to a higher average investment balance due to having the proceeds from the notes for the full year and cash generated from the business . interest expense for 2014 and 2013 consisted of amortization of debt discount costs , debt issuance costs and contractual interest expense related to the notes issued in may 2013. see note 9 , “ convertible senior notes , ” to the notes to consolidated financial statements for more information . other gain ( loss ) , net for 2014 was mainly comprised of $ 1.4 million of losses due to foreign currency exchange . other gain ( loss ) , net for 2013 included $ 1.4 million of losses due to foreign currency exchange , partially offset by a gain of $ 0.2 million from auction rate securities ( “ ars ” ) sold . 2013 compared to 2012. interest income increased by an insignificant amount in 2013 compared to 2012 mainly due to higher interest income earned on our foreign cash balance partially offset by a lower return on domestic investments , despite the higher average investment balance as a result of the proceeds from the notes . interest expense for 2013 consisted of contractual interest expense and amortization of debt discount and debt issuance costs related to the notes issued in may 2013. see note 9 , “ convertible senior notes , ” to the notes to consolidated financial statements for more information . other gain ( loss ) , net for 2013 included $ 1.4 million of losses due to foreign currency exchange , partially offset by a gain of $ 0.2 million from ars sold . other gain ( loss ) , net for 2012 includes $ 1.5 million of losses due to foreign currency exchange , partially offset by a gain of $ 0.5 million from ars called at par value . 39 income tax provision we recognized income tax expense of $ 2.8 million on income before income taxes of $ 16.4 million , $ 1.7 million on loss before income taxes of $ 30.5 million and $ 2.2 million on loss before income taxes of $ 83.1 million in fiscal years 2014 , 2013 and 2012 , respectively . the 2014 effective tax rate differs from the expected statutory rate of 35 % based upon the utilization of unbenefited u.s. loss carryforwards , offset by state income taxes and foreign taxes provided on foreign subsidiary earnings . the 2013 and 2012 effective tax rates reflect unbenefited current u.s. losses and foreign taxes provided on our profitable foreign subsidiaries . the increase in 2014 tax expense compared to 2013 tax expense relates primarily to higher state income taxes because of the profitable position of our u.s. operations , additional tax reserves and an increase in taxable foreign profits . the decrease in 2013 tax expense compared to 2012 tax expense relates primarily to the release of tax reserves due to the lapsing of the statute of limitations . the valuation allowance for deferred tax assets as of december 27 , 2014 and december 28 , 2013 was $ 199.7 million and $ 202.7 million , respectively .
| results of operations revenue the following table sets forth , for periods presented , certain consolidated statements of operations information ( in thousands , except percentages ) : replace_table_token_3_th replace_table_token_4_th 2014 compared to 2013. total revenue increased by $ 124.0 million , or 23 % , in 2014 from 2013. total product revenue increased by $ 106.9 million , or 23 % , in 2014 from 2013. this increase was primarily driven by the continued strong market adoption of the infinera dtn-x platform as our customers continued to deploy our products to meet the growing bandwidth needs of their networks . the increase in infinera dtn-x platform revenue was partially offset by a reduction in sales of the infinera dtn platform . total services revenue increased by $ 17.1 million , or 22 % , in 2014 from 2013 due to higher levels of deployment services as customers built new networks utilizing our teams ' expertise as well as higher on-going support services as we continued to grow our installed base . 2013 compared to 2012. total revenue increased by $ 105.7 million , or 24 % , in 2013 from 2012. revenue was positively impacted by increased revenue from sales of the infinera dtn-x platform in 2013. revenue included sales to existing customers transitioning their higher-capacity network deployments to the infinera dtn-x platform and new customers purchasing our intelligent transport network solutions for the first time . this increase in infinera dtn-x platform revenue was partially offset by a reduction in sales of our dtn platform . total product revenue increased by $ 85.4 million , or 22 % , in 2013 from 2012 reflecting increased sales of our infinera dtn-x platform . total services revenue increased by $ 20.3 million , or 35 % , in 2013 from 2012 primarily due to increased deployment services due to the introduction and deployment of new networks based on the infinera dtn-x platform .
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the three levels of the fair value hierarchy are described below : level 1 unadjusted quoted prices in active markets that are accessible at the measurement date for identical , unrestricted assets or liabilities ; level 2 quoted prices in markets that are not active , or inputs that are observable , either directly or indirectly , for substantially the full term of the asset or liability ; and level 3 prices or story_separator_special_tag introduction the following discussion updates our plan of operation as of march 9 , 2015 for the foreseeable future . it also summarizes what management believes is relevant to our results of operations for three fiscal years ended december 31 , 2014 and our financial condition at december 31 , 2014 and 2013 , with a particular emphasis on the year ended december 31 , 2014. with regard to properties or projects that are not in production , we provide some details of our plan of operation . the discussion also presents certain non-gaap financial performance measures , such as earnings from mining operations , adjusted net loss , total cash costs , total cash cost per ounce , all-in sustaining costs , all-in sustaining cost per ounce , all-in costs , all-in cost per ounce , and average realized price per ounce , that are important to management in its evaluation of our operating results and which are used by management to compare our performance to what we perceive to be peer group mining companies and relied on as part of management 's decision-making process . management believes these measures may also be important to investors in evaluating our performance . for a detailed description of each of the non-gaap financial performance measures and certain limitations inherent in such measures , please see the discussion under `` non-gaap financial performance measures '' below , beginning on page 69. the information in this section should be read in conjunction with our consolidated financial statements and the notes thereto included in this annual report . reliability of information : msc , the owner of the san josé mine , is responsible for and has supplied to us all reported results from the san josé mine . the technical information contained herein is , with few exceptions as noted , based entirely on information provided to us by msc . our joint venture partner , a subsidiary of hochschild mining plc , and its affiliates other than msc do not accept responsibility for the use of project data or the adequacy or accuracy of this document . 50 selected financial and operating results replace_table_token_12_th ( 1 ) includes production attributable to us from our 49 % owned san josé mine . ( 2 ) silver production is presented as a gold equivalent . gold equivalent ounces calculations are based on prevailing spot prices at the beginning of the year . the silver to gold ratio used for 2014 was 60:1 , while the ratio for 2013 and prior was 52:1. for 2015 , the silver to gold ratio has been set to 75:1 . ( 3 ) earnings from mining operations , adjusted net loss , total cash costs , all-in sustaining costs , all-in costs , and average realized prices are non-gaap financial performance measures with no standardized definition under u.s. gaap . see `` non-gaap financial performance measures '' beginning on page 69 for additional information , including definitions of these terms . ( 4 ) in 2013 , the company revised its allocation of general and administrative expenses to total cash costs to conform to the gold institute production cost standard . 2012 figures have been adjusted to conform to the current methodology . ( 5 ) in 2013 , the company adopted the new guidance on all-in sustaining and all-in costs published by the world gold council on june 27 , 2013 . 2012 figures have been adjusted to conform to the current methodology . 51 operating and financial highlights both the san josé and el gallo 1 mines met 2014 production guidance . gold equivalent production in the year 2014 totaled 137,612 ounces , which includes 98,969 gold equivalent ounces attributable to us from our 49 % interest in the san josé mine ( compared to 2014 guidance of 97,180 gold equivalent ounces ) , and 38,643 gold equivalent ounces from the el gallo 1 mine ( compared to guidance of 37,500 gold equivalent ounces ) . the production challenges experienced in the third quarter of 2014 at el gallo 1 due to severe rainfall were compensated by the mining and processing of high grade ore in the fourth quarter of 2014. processing capacity in the fourth quarter of 2014 was also increased through the use of a portable crusher to process ore in stockpile . both the san josé and el gallo 1 mines met or were below 2014 cost guidance . total cash costs , all-in sustaining costs and all-in costs per gold equivalent ounce sold for the year ended december 31 , 2014 for all of our operations on a consolidated basis totaled $ 817 , $ 1,198 and $ 1,368 per ounce , respectively . total cash costs and all-in sustaining costs at the san josé mine for the year 2014 were $ 795 and $ 1,086 per gold equivalent ounce , respectively , which compare favorably to the 2014 cost guidance of $ 750- $ 850 and $ 1,100- $ 1,200 per gold equivalent ounce , respectively . total cash costs and all-in sustaining cash costs at our el gallo 1 mine totaled $ 875 and $ 1,194 per gold equivalent ounce , respectively . these also compare favorably to the updated 2014 guidance we published as part of our results for the third quarter of 2014 , of $ 950- $ 1,050 and $ 1,200- $ 1,300 per gold equivalent ounce , respectively . story_separator_special_tag el gallo 2 we received the final environmental permit required for the potential construction and operation of the mine . the final environmental permit , relating to the change of land use was received from 53 the semarnat in january 2014. further , we submitted two additional permits in 2014. the first permit is in relation to the mining of the palmarito deposit , which represents approximately 15 % of the projected annual silver production at el gallo 2. the second permit relates to the right-of-way for a 4.6-mile ( 7.5 km ) 115 kv electric transmission line that would connect the el gallo 2 processing plant to the national power grid . in the meantime , construction of the mine could begin with power provided by generators with the option of connecting to the grid when the permit is received . delays in receiving either of these two these permits would not be expected to delay eventual construction from proceeding . a final decision to proceed with the construction of el gallo 2 has not been made . any decision to proceed would be based on silver price expectations and securing financing on terms that are more favorable than those that were available to us at the time of filing this report . we believe approximately $ 150 million in financing would be required in order to construct the mine . in order to prepare for a possible construction decision in the future , we have been evaluating possible debt financing alternatives and advancing the construction of the ball mill , which is the longest lead time item associated with the mine . the ball mill is now substantially complete . pending a decision to proceed with the development of el gallo 2 , we are storing the mill at the manufacturer 's facilities . we expect to disburse the final payment of $ 1.0 million for the ball mill in the first half of 2015. we are also conducting cost-saving studies to identify opportunities that would allow us to reduce the initial capital investment required while minimizing the impact on potential production . potential changes include reducing the number of leach tanks and transformers , building a smaller process plant / refinery , and using modular crushers . the el gallo 2 feasibility study , which provided an estimate of $ 180 million for initial capital expenditures , has not been updated to reflect these possible changes . for the year ended december 31 , 2014 , we spent $ 1.8 million on mine development costs . for 2015 , budgeted costs primarily relate to the storage of the ball mill at the manufacturer 's facilities and test work . exploration in 2014 , approximately 76,530 ft. ( 23,326 m ) of drilling was completed . this included 69,114 ft. ( 21,066 m ) at the el gallo 1 mine , where exploration and geotechnical holes were drilled in the samaniego pit , lupita , central and veta nueva area , before moving to the san josé del alamo project approximately 9 miles ( 14 km ) to the north for infill drilling on the existing resource . further infill drilling on the preliminary resource at twin domes , 7 miles ( 11 km ) to the west is being carried out with the objective of adding to the overall el gallo 1 mineralized material base . additional exploration activities included continuing the blast hole program in conjunction with rock and soil sampling at prospects within our existing license grounds . drilling efforts were also focused within other areas of the broader el gallo tenement including carrisalejo and mina grande with the objective of increasing the mineralized material base within the el gallo 2 area , where we drilled 7,411 ft. ( 2,259 m ) . as of the date of this report , one core drill has continued to operate , with plans to add an additional drill in 2015. for 2015 , we have budgeted $ 5.5 million in total exploration costs at el gallo , which includes drilling of approximately 88,580 ft. ( 27,000 m ) . the exploration program will be focused on core drilling , blast hole drilling and surface mapping , which will include rock and soil sampling . gold bar project , nevada , u.s. gold bar is located primarily on public lands managed by the blm . during 2014 , we continued to advance the gold bar project by completing baseline studies in support of the blm and state of nevada permitting required for mine development and construction . we also drilled and pump-tested one potential water well location for future mining operations . 54 we submitted our plan of operations ( `` poo '' ) permit application during the fourth quarter of 2013. the poo was determined complete and the blm has determined that an environmental impact statement ( `` eis '' ) is necessary to fulfill the requirements under the national environmental policy act ( `` nepa '' ) . upon completion of the eis , the blm will be able to proceed with the approval determination of the poo . a third-party consulting firm has been contracted to assist the blm in the preparation of an eis for the gold bar project . due to reduced staffing levels and personnel turnover at the blm mount lewis field office , final permit approval , which was previously scheduled for the second quarter of 2014 , is expected for the third quarter of 2016. for 2015 , we have budgeted $ 1.4 million in for the gold bar project , primarily for the advancement of the eis , as well as a drill program of approximately 10,000 ft ( 3,050 m ) . los azules copper project , argentina the 2013-2014 exploration season started in december 2013 and was completed in march 2014. no significant exploration work was conducted during this 2013-2014 season .
| results of consolidated operations year ended december 31 , 2014 compared to 2013 general . for the year ended december 31 , 2014 , our net loss was $ 311.9 million or $ 1.05 per share , compared to $ 147.7 million or $ 0.50 per share in 2013. although we produced and sold higher quantities of gold and silver from our el gallo 1 mine in the year 2014 than in 2013 , there was a slight decrease in revenues due to lower average realized prices , which did not compensate for the increase in production costs applicable to sales . further , significant impairment charges relating to our mineral property interests were recorded in both 2014 and 2013 , of $ 353.7 million and $ 63.0 million , respectively . impairments recorded in the year ended december 31 , 2014 related to all of our exploration properties across nevada and argentina , including gold bar and los azules , while those recorded in the year 2013 related to the argentina exploration properties and certain nevada properties . impairments of $ 21.2 million and $ 95.8 million were also recorded on our investment in msc in 2014 and 2013 , respectively . in the year 2014 , we also recorded a non-recurring expense of $ 6.8 million relating to registration taxes payable for intercompany financing agreements with certain of our subsidiaries . revenue . gold and silver sales in the year ended december 31 , 2014 totaled $ 45.3 million . this compares to $ 46.0 million in 2013. the decrease was driven by the decrease in average realized metals prices , which more than offset the increase in ounces sold from our el gallo 1 mine . costs and expenses .
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story_separator_special_tag text-align : justify '' > we design , develop and sell exoskeletons that have applications in healthcare , industrial , military , and consumer markets . our exoskeletons systems are worn over the user 's clothing and augment human strength , endurance and mobility . these systems serve multiple markets and can be used both by able-bodied users as well as by persons with physical disabilities . we or our partners have sold , rented or leased devices that ( a ) enable individuals with neurological conditions affecting gait ( e.g. , spinal cord injury or stroke ) to rehabilitate and to walk again ; ( b ) allow industrial workers to perform heavy duty work for extended periods ; and ( c ) permit soldiers to carry heavy loads for long distances while mitigating lower back , knee , and ankle injuries . our long-term goal is to have one million persons stand and walk in ekso exoskeletons by february 2022. the first step to achieving that goal is for us to focus on selling our medical exoskeletons to rehabilitation centers and hospitals in the united states and europe . ekso bionics began that effort with the february 2012 sale of ekso , an exoskeleton for complete spinal cord injuries ( “ sci ” ) . we have expanded that effort with the launch of our variable assist software and the announcement of our newest hardware platform , ekso gt . the variable assist software enables users with any amount of lower extremity strength to contribute their own power for either leg to achieve self-initiated walking . the ekso gt builds on the experience of the ekso and incorporates variable assist , allowing us to expand our sales and marketing efforts beyond sci-focused centers to centers supporting stroke and related neurological patients . in the u.s. there are about 5.9 million stroke and sci rehabilitation sessions conducted on about 680,000 stroke and sci patients at 16,900 facilities . globally , there are an estimated 50,000 rehabilitation facilities . in parallel to the development and early commercialization of medical exoskeletons , we have begun to work on the commercialization of exoskeletons for able-bodied users , specifically for industrial and construction applications . 42 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 assets and 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 , our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones . 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 assets and liabilities . these estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known , even for estimates and judgments that are not deemed critical . revenue and cost of revenue when collaboration , other research arrangements and product sales include multiple-element revenue arrangements , we account for these transactions by determining the elements , or deliverables , included in the arrangement and determining which deliverables are separable for accounting purposes . we consider delivered items to be separable if the delivered item ( s ) have stand-alone value to the customer and delivery or performance of the undelivered item is considered probable and substantially in control of the vendor . we recognize revenue when the four basic criteria of revenue recognition are met : · persuasive evidence of an arrangement exists . customer contracts and purchase orders are generally used to determine the existence of an arrangement . · the transfer of technology or products has been completed or services have been rendered . customer acceptance , when applicable , is used to verify delivery . · the sales price is fixed or determinable . we assess whether the cost is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . · collectability is reasonably assured . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis as well as the customer 's payment history . beginning in 2012 , with the commercialization of the ekso , we began to recognize revenue from the sales of the ekso and related services , in addition to our historical revenue streams including collaborative research and development service arrangements , technology license agreements , and government grants . medical device revenue and cost of revenue we build medical device robotic exoskeletons for commercial sale and capitalize into inventory materials , direct and indirect labor and overhead in connection with manufacture and assembly of these units . through december 31 , 2015 , the sale of an exoskeleton , associated software , training , support and maintenance were deemed as a single unit of accounting due to the uncertainty of follow up maintenance service agreements which were forecast to extend to three years . accordingly , the sales amount of an exoskeleton and its associated cost , were deferred at the time of shipment . upon completion of training , such amounts were recognized as revenue and cost of revenue over a three year period on a straight line basis . story_separator_special_tag we account for convertible instruments when we have determined that the embedded conversion options should not be bifurcated from their host instruments , in accordance with asc 470-20 , debt with conversion and other options ( “ asc 470-20 ” ) . under asc 470-20 , we record , when necessary , discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note . we account for convertible instruments ( when we have determined that the embedded conversion options should be bifurcated from their host instruments ) in accordance with asc 815. under asc 815 , a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative . the derivative is subsequently marked to market at each reporting date based on current fair value , with the changes in fair value reported in results of operations . we also follow asc 480-10 , distinguishing liabilities from equity ( “ asc 480-10 ” ) in its evaluation of the accounting for a hybrid instrument . a financial instrument that embodies an unconditional obligation , or a financial instrument other than an outstanding share that embodies a conditional obligation , that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability ( or an asset in some circumstances ) if , at inception , the monetary value of the obligation is based solely or predominantly on any one of the following : ( a ) a fixed monetary amount known at inception ( for example , a payable settleable with a variable number of the issuer 's equity shares ) ; ( b ) variations in something other than the fair value of the issuer 's equity shares ( for example , a financial instrument indexed to the standard and poor 's s & p 500 index and settleable with a variable number of the issuer 's equity shares ) ; or ( c ) variations inversely related to changes in the fair value of the issuer 's equity shares ( for example , a written put option that could be net share settled ) . hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives , and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying consolidated statements of operations . common stock warrant liability for warrants where there is a possibility that we may have to settle the warrants in cash , we record the fair value of the issued warrants as a liability at each reporting date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations . the fair values of these warrants have been determined using the binomial lattice ( “ lattice ” ) valuation model , and the changes in the fair value are recorded in the consolidated statements of operations . the lattice model provides for assumptions regarding volatility , call and put features and risk-free interest rates within the total period to maturity . these values are subject to a significant degree of judgment on the part of us . 45 warrants issued in connection with financings we generally account for warrants issued in connection with debt and equity financings as a component of equity , unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that we may need to settle the warrants in cash . for warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement , we record the fair value of the warrants as a liability at each balance sheet date and record changes in fair value in other income ( expense ) in the consolidated statements of operations . business combinations we account for business combinations under the acquisition method of accounting in accordance with 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 earnings from operations . the purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill . 46 comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 ( dollars in thousands ) : replace_table_token_4_th revenue medical device revenue increased $ 1.3 million , or 45 % , during the year ended december 31 , 2015 compared to the year ended december 31 , 2014 primarily due to a 50 % increase in the recognition of revenue resulting from the amortization of deferred revenue associated with medical device sales . engineering services revenue increased $ 2.0 million , or 83 % , primarily due to an overall increase in revenue generating projects . gross profit gross profit decreased $ 0.4 million , or 24 % , during the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due to a decrease in our medical device segment of $ 0.6 million , or 63 % .
| overview capitalization and ownership structure the following discussion highlights the company 's results of operations and the principal factors that have affected our consolidated 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 consolidated financial condition and results of operations presented herein . the following discussion and analysis is based on the company 's audited financial statements contained in this report , 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 . we were incorporated in nevada as pn med group inc. on january 30 , 2012. on december 16 , 2013 , we completed a 3.462-for-1 forward split of our common stock in the form of a dividend , with the result that the 6,350,000 shares of common stock outstanding immediately prior to the stock split became 21,983,700 shares of common stock outstanding immediately thereafter . on december 18 , 2013 , ( i ) we changed our name from pn med group inc. to ekso bionics holdings , inc. , and ( ii ) we increased our authorized capital stock from 75,000,000 shares of common stock , par value $ 0.001 , to 500,000,000 shares of common stock and 10,000,000 shares of “ blank check ” preferred stock . on january 15 , 2014 , our wholly-owned subsidiary , ekso acquisition corp. , a corporation formed in the state of delaware on january 3 , 2014 , merged with and into ekso bionics , inc. , a corporation incorporated in the state of delaware on january 19 , 2005 ( the “ merger ” ) . ekso bionics was the surviving corporation in the merger and became our wholly-owned subsidiary .
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the following management 's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report . in addition to historical information , the following discussion contains certain forward-looking information . see special note regarding forward looking statements above for certain information concerning those forward looking statements . our financial statements are prepared in u.s. dollars and in accordance with u.s. gaap . overview we are engaged in the developing , manufacturing and selling of new energy high power lithium batteries , which are mainly used in the following applications : electric vehicles ( ev ) , such as electric cars , electric buses , hybrid electric cars and buses ; light electric vehicles ( lev ) , such as electric bicycles , electric motors , sight-seeing cars ; and electric tools , energy storage , uninterruptible power supply , and other high power applications . on january 16 , 2017 , the board of directors of the company approved a change in the company 's fiscal year end from september 30 to december 31. as a result of the change , the transition period between fiscal year 2016 and 2017 was from october 1 , 2016 to december 31 , 2016 and our 2017 fiscal year began on january 1 , 2017 and ended on december 31 , 2017. the following table sets forth our selected financial data for the periods and as of the dates indicated . the statement of operations data for the year ended december 31 , 2017 , three months ended december 31 , 2016 and 2015 , and the year ended september 30 , 2016 , respectively , are derived from our financial statements . ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_5_th 32 we generated revenues from the manufacture and sale of high power lithium batteries of $ 10.4 million and $ 58.4 million for the fiscal years ended september 30 , 2016 and december 31 , 2017 , and $ 5.5 million and $ 3.5 million for the three months ended december 31 , 2015 and 2016 , respectively . we incurred net loss from operations of $ 12.7 million and $ 21.5 million during the fiscal years ended september 30 , 2016 and december 31 , 2017 , and $ 2.1 million and $ 2.2 million during the three months ended december 31 , 2015 and 2016 , respectively . we believe that our operations will yield long-term growth of revenues with the expected expansion of our manufacturing capabilities in the coming years . we have completed the construction of a cylindrical power battery manufacturing plant and a power battery packing plant of our dalian facilities which started commercial production in july 2015. we are in the progress to construct a prismatic power battery manufacturing plant and a power battery packing plant of our dalian facilities which we estimate to complete and commence commercial production by the end of 2018. we have received and been utilizing most of bak tianjin 's operating assets relocated to our dalian facilities , including its machinery and equipment for battery production and battery pack production , customers , management team and technical staff , patents and technologies . we have also purchased and will purchase more machinery and equipment to expand our manufacturing capabilities . during the fiscal year ended september 30 , 2016 , we received advances of approximately $ 5.5 million from certain investors and on july 28 , 2016 , we entered into securities purchase agreements with these investors and converted such loans into equity interests by issuing 2.2 million shares of our common stock to these investors on august 17 , 2016. on february 17 , 2017 , we signed a letter of understanding with each of eight individual investors , who are also our current shareholders , including our ceo , mr. yunfei li , whereby these shareholders agreed in principle to subscribe for new shares of our common stock totaling $ 10 million . the issue price will be determined with reference to the market price prior to the issuance of new shares in january 2017 , the shareholders paid us a total of $ 2.1 million as refundable deposits , among which , mr. yunfei li agreed to subscribe new shares totaling $ 1.12 million and pay a refundable deposit of $ 0.2 million . the issuance of the shares to the investors is expected to be made in reliance on the exemption provided by section 4 ( a ) ( 2 ) of the securities act of 1933 , as amended , for the offer and sale of securities not involving a public offering , and regulation s promulgated thereunder . in april and may 2017 , we received cash of $ 9.6 million from these shareholders . on may 31 , 2017 , we entered into a securities purchase agreement with these investors , pursuant to which we agreed to issue an aggregate of 6,403,518 shares of common stock , par value $ 0.001 per share to these investors , at a purchase price of $ 1.50 per share , for an aggregate price of $ 9.6 million , including 746,018 shares were issued to mr. yunfei li , our ceo . on june 22 , 2017 , we issued the shares to the investors . the issuance of the shares to the investors was made in reliance on the exemption provided by section 4 ( a ) ( 2 ) of the securities act of 1933 , as amended , for the offer and sale of securities not involving a public offering , and regulation s promulgated thereunder . story_separator_special_tag pursuant to the provisional regulation of china on value added tax and its implementing rules , all entities and individuals that are engaged in the sale of goods , the provision of repairs and replacement services and the importation of goods in china are generally required to pay vat at a rate of 17 % of the gross sales proceeds received , less any deductible vat already paid or borne by the taxpayer . further , when exporting goods , the exporter is entitled to some or all of the refund of vat that it has already paid or borne . our imported raw materials that are used for manufacturing exported products and deposited in bonded warehouses are exempt from import vat . cost of revenues . cost of revenues consists primarily of material costs , employee remuneration for staff engaged in production activity , share-based compensation , depreciation and related expenses that are directly attributable to the production of products . cost of revenues also includes write-downs of inventory to lower of cost or market . research and development expenses . research and development expenses primarily consist of remuneration for r & d staff , share-based compensation , depreciation and maintenance expenses relating to r & d equipment , and r & d material costs . 34 sales and marketing expenses . sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts , including staff engaged in the packaging of goods for shipment , warranty expenses , advertising cost , depreciation , share-based compensation and travel and entertainment expenses . we do not pay slotting fees to retail companies for displaying our products , engage in cooperative advertising programs , participate in buy-down programs or similar arrangements . general and administrative expenses . general and administrative expenses consist primarily of employee remuneration , share-based compensation , professional fees , insurance , general office expenses , depreciation , liquidated damage charges and bad debt expenses . government grant income . we present the government subsidies received as income unless the subsidies received are earmarked to compensate a specific expense , which have been accounted for by offsetting the specific expense , such as research and development expense , interest expenses and removal costs . unearned government subsidies received are deferred for recognition until the criteria for such recognition could be met . grants applicable to land are amortized over the life of the depreciable facilities constructed on it . for research and development expenses , we match and offset the government grants with the expenses of the research and development activities as specified in the grant approval document in the corresponding period when such expenses are incurred . finance costs , net . finance costs consist primarily of interest income and interest on bank loans and other short term loans , net of capitalized interest . income tax expenses . our subsidiaries in prc are subject to an income tax rate of 25 % . our hong kong subsidiary bak asia is subject to profits tax at a rate of 16.5 % . however , because we did not have any assessable income derived from or arising in hong kong , bak asia had not paid any such tax . story_separator_special_tag align= '' justify '' > net revenues . net revenues were $ 3.5 million for the three months ended december 31 , 2016 , as compared to $ 5.5 million for the same period in 2015 , representing a decrease of $ 2.0 million , or 36.4 % . the following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries . ( all amounts , other than percentage , in thousands of u.s. dollars ) replace_table_token_9_th net revenues from sales of batteries for electric vehicles were $ 0.7 million for the three months ended december 31 , 2016 as compared to $ 3.7 million in the same period of 2015. we started producing batteries for electric vehicles in dalian facilities at the end of fiscal year 2015. the significant drop of sales in the three months ended december 31 , 2016 compared to the same quarter in prior year was mainly attributable to the delay of the announcement of government subsidy policy for electric vehicle manufactures . net revenues from sales of batteries for light electric vehicles was $ 0.2 million for the three months ended december 31 , 2016 , compared to $ 0.1 million in the same period of 2015. net revenues from sales of batteries for uninterruptable power supplies was $ 2.6 million in the three months ended december 31 , 2016 , as compared with $ 1.7 million in the same period in 2015 , representing a increase of $ 0.9 million , or 49.4 % . this change resulted from an increase of 159.6 % in average selling price mainly , despite a 42.4 % decrease in units sold . we sold uninterruptable power supplies with more cells packed in them at a relatively higher selling price in the three months ended december 31 , 2016 , compared with the same period last year . cost of revenues . cost of revenues decreased to $ 4.0 million for the three months ended december 31 , 2016 , as compared to $ 5.7 million for the same period in 2015 , a decrease of $ 1.7 million , or 29.8 % . included in cost of revenues were write down of obsolete inventories of $ 0.4 million for three months ended december 31 , 2016 , while it was $ 0.1 million for the same period in 2015. we write down the inventory value whenever there is an indication that it is impaired . however , further write-down may be necessary if market conditions continue to deteriorate . gross loss .
| results of operations comparison of years ended september 30 , 2016 and december 31 , 2017 the following table sets forth key components of our results of operations for the years indicated , both in dollars and as a percentage of our revenue . ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_6_th net revenues . net revenues were $ 58.4 million for the fiscal year ended december 31 , 2017 , as compared to $ 10.4 million for the fiscal year ended september 30 , 2016 , an increase of $ 48.0 million , or 463.0 % . the following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries . 35 ( all amounts , other than percentage , in thousands of u.s. dollars ) replace_table_token_7_th net revenues from sales of batteries for electric vehicles were $ 55.0 million for the fiscal year ended december 31 , 2017 , as compared to $ 6.5 million for the fiscal year ended september 30 , 2016 , an increase of $ 48.5 million , or 747.8 % . as the chinese government noted irregularities on the part of certain electric vehicle manufacturers in obtaining government subsidy at the end of year 2015 , it delayed to release the year 2016 subsidy policy for electric vehicle manufactures . most of our new orders were stranded by our electric vehicle customers in fiscal year 2016. after the announcement of the subsidy policy at the end of calendar year 2016 , we received more orders from electric vehicle manufacturers in calendar year 2017. in year 2017 , we also reached strategic cooperation agreements with certain automakers , such as dongfeng auto and dayun auto , to provide them substantial battery module used in the electric vehicles .
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the persons we refer to in this discussion as our “ named executive officers ” are the following : kelcy l. warren , chairman and chief executive officer ; thomas e. long , chief financial officer ; marshall s. ( mackie ) mccrea , iii , president and chief commercial officer ; matthew s. ramsey , chief operating officer ; thomas p. mason , executive vice president , general counsel and president — lng ; and john w. mcreynolds , former president ( currently special advisor to story_separator_special_tag and results of operations ( tabular dollar and unit amounts , except per unit data , are in millions ) energy transfer lp is a delaware limited partnership whose common units are publicly traded on the nyse under the ticker symbol “ et. ” et was formed in september 2002 and completed its initial public offering in february 2006. the following is a discussion of our historical consolidated financial condition and results of operations , and should be read in conjunction with our historical consolidated financial statements and accompanying notes thereto included in “ item 8. financial statements and supplementary data ” of this report . this discussion includes forward-looking statements that are subject to risk and uncertainties . actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed in “ item 1a . risk factors ” of this report . unless the context requires otherwise , references to “ we , ” “ us , ” “ our , ” the “ partnership ” and “ et ” mean energy transfer lp and its consolidated subsidiaries , which include eto , etp gp , etp llc , panhandle , sunoco lp and lake charles lng . references to the “ parent company ” mean energy transfer lp on a stand-alone basis . overview energy transfer lp directly and indirectly owns equity interests in eto , sunoco lp and usac , all of which are limited partnerships engaged in diversified energy-related services . sunoco lp and usac have publicly traded common units . the parent company 's principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in eto . eto 's earnings and cash flows are generated by its subsidiaries , including eto 's investments in sunoco lp and usac . the amount of cash that eto , sunoco lp and usac distribute to their respective partners , including the parent company , each quarter is based on earnings from their respective business activities and the amount of available cash , as discussed below . in order to fully understand the financial condition and results of operations of the parent company on a stand-alone basis , we have included discussions of parent company matters apart from those of our consolidated group . general our primary objective is to increase the level of our distributable cash flow to our unitholders over time by pursuing a business strategy that is currently focused on growing our subsidiaries ' natural gas and liquids businesses through , among other things , pursuing certain construction and expansion opportunities relating to our subsidiaries ' existing infrastructure and acquiring certain strategic operations and businesses or assets . the actual amounts of cash that we will have available for distribution will primarily depend on the amount of cash our subsidiaries generate from their operations . our reportable segments are as follows : intrastate transportation and storage ; interstate transportation and storage ; midstream ; ngl and refined products transportation and services ; crude oil transportation and services ; investment in sunoco lp ; investment in usac ; and all other . the general partner of eto has separate operating management and boards of directors . we control eto through our owner ship of its respective general partners . recent developments et series a convertible preferred units in may 2018 , the partnership converted its 329.3 million series a convertible preferred units into approximately 79.1 million et common units in accordance with the terms of et 's partnership agreement . 73 et class a units in connection with the energy transfer merger , the partnership issued 647,745,099 class a units ( “ et class a units ” ) representing limited partner interests in the partnership to the general partner . the number of et class a units issued allows the general partner and its affiliates to retain a voting interest in the partnership that is identical to their voting interest in the partnership prior to the completion of the merger . eto 2019 senior notes offering and redemption in january 2019 , eto issued $ 750 million aggregate principal amount of 4.50 % senior notes due 2024 , $ 1.50 billion aggregate principal amount of 5.25 % senior notes due 2029 and $ 1.75 billion aggregate principal amount of 6.25 % senior notes due 2049 . the $ 3.96 billion net proceeds from the offering were used to repay in full et 's outstanding senior secured term loan , to redeem outstanding senior notes , to repay a portion of the borrowings under the partnership 's revolving credit facility and for general partnership purposes . energy transfer merger in october 2018 , we completed the merger of eto with a wholly-owned subsidiary of et in a unit-for-unit exchange ( the “ energy transfer merger ” ) . in connection with the transaction , eto unitholders ( other than et and its subsidiaries ) received 1.28 common units of et for each common unit of eto they owned . immediately prior to the closing of the energy transfer merger , the following also occurred : the idrs in eto were converted into 1,168,205,710 eto common units ; and the general partner interest in eto was converted to a non-economic general partner interest and eto issued 18,448,341 eto common units to etp gp . story_separator_special_tag the usac class b units have substantially all of the rights and obligations of a usac common unit , except the usac class b units will not participate in distributions for the first four quarters following the closing date of april 2 , 2018. each usac class b unit will automatically convert into one usac common unit on the first business day following the record date attributable to the quarter ending june 30 , 2019. new ethane export facility joint venture in march 2018 , eto and satellite petrochemical usa corp. ( “ satellite ” ) entered into definitive agreements to form a joint venture , orbit gulf coast ngl exports , llc ( “ orbit ” ) , with the purpose of constructing a new export terminal on the united states gulf coast to provide ethane to satellite for consumption at their ethane cracking facilities in china . at the terminal , orbit will construct an 800 mbbls refrigerated ethane storage tank , a 175 mbbls/d ethane refrigeration facility and a 20 -inch ethane pipeline originating at eto 's mont belvieu fractionators that will make deliveries to the terminal as well as domestic markets in the region . eto will be the operator of the orbit assets , provide storage and marketing services for satellite and provide satellite with approximately 150 mbbls/d of ethane under a long-term , demand-based agreement . additionally , eto will construct and wholly own the infrastructure that is required to both supply ethane to the pipeline and to load the ethane on to very large ethane carriers destined for satellite 's newly constructed ethane crackers in china 's jiangsu province . subject to chinese governmental approval , it is anticipated that the orbit export terminal will be ready for commercial service in the fourth quarter of 2020. sunoco lp retail store and real estate sales on april 1 , 2018 , sunoco lp completed the conversion of 207 retail sites located in certain west texas , oklahoma and new mexico markets to a single commission agent . under the commission agent model , sunoco lp owns , prices and sells fuel at the sites , paying the commission agent a fixed cents-per-gallon commission and receives rental income from the commission agent . the commission agent conducts all operations related to the retail stores and related restaurant locations . on january 23 , 2018 , sunoco lp closed on an asset purchase agreement with 7-eleven and sei fuel services , inc. , a texas corporation and wholly-owned subsidiary of 7-eleven . under the agreement , sunoco lp sold a portfolio of approximately 1,030 75 company-operated retail fuel outlets in 19 geographic regions , together with ancillary businesses and related assets , including the proprietary laredo taco company brand , for an aggregate purchase price of $ 3.2 billion . on january 18 , 2017 , with the assistance of a third-party brokerage firm , sunoco lp launched a portfolio optimization plan to market and sell 97 real estate assets . real estate assets included in this process are company-owned locations , undeveloped greenfield sites and other excess real estate . properties are located in florida , louisiana , massachusetts , michigan , new hampshire , new jersey , new mexico , new york , ohio , oklahoma , pennsylvania , rhode island , south carolina , texas and virginia . the properties are being sold through a sealed-bid . of the 97 properties , 51 have been sold , one is under contract to be sold , and four continue to be marketed by the third-party brokerage firm . additionally , 32 were sold to 7-eleven and nine are part of the approximately 207 retail sites located in certain west texas , oklahoma , and new mexico markets which are operated by a commission agent . sunoco lp series a preferred units on january 25 , 2018 , sunoco lp redeemed all outstanding sunoco lp series a preferred units held by et for an aggregate redemption amount of approximately $ 313 million . the redemption amount includes the original consideration of $ 300 million and a 1 % call premium plus accrued and unpaid quarterly distributions . sunoco lp senior notes offering on january 23 , 2018 , sunoco lp completed a private offering of $ 2.2 billion of senior notes , comprised of $ 1.0 billion in aggregate principal amount of 4.875 % senior notes due 2023 , $ 800 million in aggregate principal amount of 5.500 % senior notes due 2026 and $ 400 million in aggregate principal amount of 5.875 % senior notes due 2028. sunoco lp used the proceeds from the private offering , along with proceeds from its retail divestment , to : i ) redeem in full its existing senior notes , comprised of $ 800 million in aggregate principal amount of 6.250 % senior notes due 2021 , $ 600 million in aggregate principal amount of 5.500 % senior notes due 2020 and $ 800 million in aggregate principal amount of 6.375 % senior notes due 2023 ; ii ) repay in full and terminate its term loan ; iii ) pay all closing costs in connection with its retail divestment ; iv ) redeem the outstanding sunoco lp series a preferred units ; and v ) repurchase 17,286,859 sunoco lp common units owned by eto . on december 3 , 2018 , sunoco lp completed an exchange of the notes for registered notes with substantially identical terms . sunoco lp common unit repurchase in february 2018 , after the record date for sunoco lp 's fourth quarter 2017 cash distributions , sunoco lp repurchased 17,286,859 sunoco lp common units owned by eto for aggregate cash consideration of approximately $ 540 million . eto used the proceeds from the sale of the sunoco lp common units to repay amounts outstanding under its revolving credit facility .
| consolidated results replace_table_token_21_th see the detailed discussion of segment adjusted ebitda below . depreciation , depletion and amortization . depreciation , depletion and amortization increased primarily due to additional depreciation and amortization from assets recently placed in service . interest expense , net of interest capitalized . interest expense increased primarily due to the following : an increase of $ 48 million of expense recognized by sunoco lp primarily due to increased term loan borrowings and the issuance of senior notes ; an increase of $ 48 million of expense recognized by eto primarily due to 2017 debt issuances by eto and its consolidated subsidiaries ; and an increase of $ 20 million of expense recognized by the parent company primarily due to increased borrowings . gains on acquisitions . the partnership recorded gains of $ 83 million in connection with recent acquisitions during 2016 , including $ 41 million related to the acquisition of the remaining interest in sunvit . 90 impairment losses . during the year ended december 31 , 2017 , the partnership recorded goodwill impairments of $ 223 million related to the compression business of $ 223 million , $ 229 million related to panhandle , $ 262 million related to the interstate transportation and storage segment and $ 79 million related to the ngl and refined products transportation and services segment . sunoco lp recognized goodwill impairments of $ 387 million in 2017 , of which $ 102 million was allocated to continuing operations . in addition , during the year ended december 31 , 2017 , the partnership recorded an impairment to the property , plant and equipment of sea robin of $ 127 million . during the year ended december 31 , 2016 , the partnership recorded goodwill impairments of $ 638 million in the interstate transportation and storage segment and $ 32 million in the midstream segment .
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the most significant areas involving estimates , judgments and assumptions used in the preparation of our consolidated financial statements are as follows : revenue recognition ; contingent liabilities ; share-based compensation ; valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) ; valuation of contingent consideration ; and income taxes . f-10 alexion pharmaceuticals , inc. notes to consolidated financial statements for the years ended december 31 , 2019 , 2018 and 2017 ( amounts in millions except per share amounts ) foreign currency translation the financial statements of our subsidiaries with functional currencies other than the u.s. dollar are translated into u.s. dollars using period-end exchange rates for assets and liabilities , historical exchange rates for stockholders ' equity and weighted average exchange rates for operating results . translation gains and losses are included in accumulated other comprehensive income ( loss ) , net of tax , in stockholders ' equity . foreign currency transaction gains and losses are included in the results of operations in other income and expense . cash and cash equivalents cash and cash equivalents are stated at cost plus accrued interest , which approximates fair value , and include short-term highly liquid investments with original maturities of three months or less . as of december 31 , 2019 and 2018 , cash equivalents were comprised of money market funds and other debt securities with maturities less than 90 days from the date of purchase . fair value of financial instruments the carrying amounts reflected in the consolidated balance sheets for story_separator_special_tag ( amounts in millions , except percentages and per share data ) in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from expectations , plans and anticipated results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a “ risk factors ” , and the “ note regarding forward-looking statements ” , included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . the following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. overview alexion is a global biopharmaceutical company focused on serving patients and families affected by rare diseases through the discovery , development and commercialization of life-changing therapies . as the global leader in complement biology and inhibition for more than 20 years , alexion has developed and commercializes two approved complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria ( pnh ) and atypical hemolytic uremic syndrome ( ahus ) , as well as the first and only approved complement inhibitor to treat anti-acetylcholine receptor ( achr ) antibody-positive generalized myasthenia gravis ( gmg ) and neuromyelitis optica spectrum disorder ( nmosd ) in patients who are anti-aquaporin-4 ( aqp4 ) antibody positive . alexion also has two highly innovative enzyme replacement therapies and the first and only approved therapies for patients with life-threatening and ultra-rare metabolic disorders , hypophosphatasia ( hpp ) and lysosomal acid lipase deficiency ( lal-d ) . in addition to our marketed therapies , we have a diverse pipeline resulting from internal innovation and business development . alexion focuses its research efforts on novel molecules and targets in the complement cascade and its development efforts on the core therapeutic areas of hematology , nephrology , neurology , metabolic disorders and cardiology . recent developments in november 2019 , japan 's ministry of health , labour and welfare ( mhlw ) approved the extension of the current marketing authorization of soliris® ( eculizumab ) to include the prevention of relapse in patients with anti-aquaporin-4 ( aqp4 ) antibody-positive neuromyelitis optica spectrum disorder ( nmosd ) , including neuromyelitis optica . in december 2019 , we exercised our option for exclusive rights to two additional targets within the complement pathway under an existing agreement with dicerna pharmaceuticals , inc , which expands alexion 's existing research collaboration and license agreement with dicerna to include a total of four targets within the complement pathway . in connection with the option exercise , we paid dicerna $ 20.0 in the fourth quarter 2019. in december 2019 , following fda feedback which resulted in the redesign and expansion of caelum 's planned clinical development program for cael-101 , we amended the terms of our existing option agreement with caelum . the amendment modified the terms of the option to acquire the remaining equity in caelum based on data from the expanded phase ii/iii trials . the amendment also modified the development-related milestone events associated with the initial $ 30.0 in contingent payments , provided for an additional $ 20.0 in upfront funding , as well as funding of $ 60.0 in exchange for an additional equity interest at fair value upon achievement of a specific development-related milestone event . on january 28 , 2020 , we completed the acquisition of achillion pharmaceuticals , inc. ( achillion ) . achillion is a clinical-stage biopharmaceutical company focused on the development of oral factor d inhibitors . achillion is developing oral small molecule factor d inhibitors to treat complement alternative pathway-mediated rare diseases , such as pnh and c3 glomerulopathy ( c3g ) . the company currently has two clinical stage medicines in development . phase 3 development is being initiated for danicopan as an add-on therapy for pnh patients with extravascular hemolysis and danicopan is also in phase 2 development for c3g , and ach-5228 is in phase 2 development for pnh . under the terms of the agreement , we acquired all outstanding common stock of achillion for $ 6.30 per share , or approximately $ 926.0 , inclusive of the settlement of achillion 's outstanding equity awards . the acquisition was funded with cash on hand . story_separator_special_tag on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims ( and our offers of settlement ) , we may reassess the potential liability related to these matters and may revise these estimates , when facts and circumstances indicate the need for any change . share-based compensation the company recognizes compensation expense associated with the issuance of equity instruments that may be granted to our directors , officers , employees and consultants or advisors of the company or any subsidiary . to date , share-based compensation issued consists of incentive and non-qualified stock options , restricted stock and restricted stock units , including restricted stock units with market and non-market performance conditions , and shares issued under our espp . compensation expense for our share-based awards is recognized based on the estimated fair value of the awards on the grant date . compensation expense reflects an estimate of the number of awards expected to vest and is primarily recognized on a straight-line basis over the requisite service period of the individual grants , which typically equals the vesting period . compensation expense for awards with performance conditions is recognized using the graded-vesting method . significant judgments and assumptions are used in estimating compensation cost for restricted stock units containing market-based performance conditions as well as non-market performance conditions relating to the achievement of operational metrics . we use payout simulation models to estimate the grant date fair value of awards with market-based performance conditions . the payout simulation models assume volatility of our common stock and the common stock of a comparator group of companies , as well as correlations of returns of the price of our common stock and the common stock prices of the comparator group . for our non-market performance-based awards , we estimate the anticipated achievement of the performance targets , including forecasting the achievement of future financial targets . these estimates are revised periodically based on the probability of achieving the performance targets and adjustments are made throughout the performance period as necessary . changes in estimates and probability of achieving the performance targets could have a material impact on our results of operations . valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) we have recorded goodwill and acquired intangible assets related to our business combinations . when identifiable intangible assets , including ipr & d , are acquired , we determine the fair values of the assets as of the acquisition date . discounted cash flow models are typically used in these valuations if quoted market prices are not available , and the models require the use of significant estimates and assumptions including but not limited to : timing and costs to complete the in-process projects ; timing and probability of success of clinical events or regulatory approvals ; estimated future cash flows from product sales resulting from completed products and in-process projects ; and discount rates . we may also utilize a cost approach , which estimates the costs that would be incurred to replace the assets being purchased . significant inputs into the cost approach include estimated rates of return on historical costs that a market participant would expect to pay for these assets . intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if triggering events occur . as of december 31 , 2019 , the net book value of our purchased technology includes $ 2,992.4 associated with the kanuma intangible asset , which we acquired in the acquisition of synageva biopharma corp. as part of our standard procedures , we reviewed the kanuma asset as of december 31 , 2019 and determined that there were no indicators of impairment . cash flow models used in our assessments are based on our commercial experience to date with kanuma and require the use of significant estimates , which include , but are not limited to , long-range pricing expectations and patient-related assumptions , including patient identification , 68 conversion and retention rates . we will continue to review the related valuation and accounting of this asset as new information becomes available to us . goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination and is not amortized . goodwill is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment . we are organized and operate as a single reporting unit and therefore the goodwill impairment test is performed using our overall market value , as determined by our traded share price , compared to our book value of net assets . valuation of contingent consideration we record contingent consideration resulting from a business combination at its fair value on the acquisition date . we determine the fair value of the contingent consideration based primarily on the following factors : timing and probability of success of clinical events or regulatory approvals ; timing and probability of success of meeting commercial milestones , such as estimated future sales levels of a specific compound ; and discount rates . our contingent consideration liabilities arose in connection with our business combinations . on a quarterly basis , we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating earnings . changes to contingent consideration obligations can result from adjustments to discount rates , accretion of the discount rates due to the passage of time , changes in our estimates of the likelihood or timing of achieving development or commercial milestones , changes in the probability of certain clinical events or changes in the assumed probability associated with regulatory approval . the assumptions related to determining the value of contingent consideration include a significant amount of judgment , and any changes in the underlying estimates could have a material impact on the amount of contingent consideration expense recorded in any given period .
| results of operations the following table sets forth consolidated statements of operations data for the periods indicated . this information has been derived from the consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_5_th 72 comparison of the years ended december 31 , 2019 , 2018 , and 2017 net product sales net product sales by product and significant geographic region are as follows : replace_table_token_6_th * * percentages not meaningful 73 net product sales ( consolidated ) united states asia pacific europe rest of world soliris net product sales united states asia pacific europe rest of world ultomiris net product sales united states asia pacific europe rest of world strensiq net product sales united states asia pacific europe rest of world 74 kanuma net product sales united states asia pacific europe rest of world the increase in net product sales for fiscal year 2019 , as compared to fiscal year 2018 , was primarily due to an increase in unit volumes . this increase in unit volumes was primarily due to increased global demand for soliris therapy , with sales to patients with gmg being the largest driver , as well as ultomiris volumes due to the loading doses required in a patient 's first year on therapy . partially offsetting the soliris increase was the conversion of pnh patients from soliris to ultomiris . while ultomiris contributed to 2019 , the ultomiris volumes were primarily attributable to pnh patient conversion from soliris in the u.s. additional unit volume increases were due to increased demand of strensiq and kanuma during 2019 as a result of our continued efforts to identify and reach more patients with hpp and lal-d globally .
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abbvie also has a pipeline of promising new medicines , including more than 30 compounds or indications in phase 2 or phase 3 development across such important medical specialties as immunology , virology/liver disease , oncology , renal disease , neurological diseases and women 's health . abbvie 's products are generally sold worldwide directly to wholesalers , distributors , government agencies , health care facilities , specialty pharmacies , and independent retailers from abbvie-owned distribution centers and public warehouses . in the united states , abbvie distributes pharmaceutical products principally through independent wholesale distributors , with some sales directly to pharmacies and patients . outside the united states , sales are made either directly to customers or through distributors , depending on the market served . certain products are co-marketed or co-promoted with other companies . abbvie has approximately 26,000 employees and its products are sold in over 170 countries . abbvie operates in one business segmentpharmaceutical products . financial results since becoming an independent company , abbvie 's strategy has focused on delivering strong financial results and returns for shareholders while ensuring a strong sustainable growth business over the longer term . in 2014 , abbvie grew worldwide net sales by 6 percent to $ 20.0 billion , driven primarily by the continued strength of humira and double-digit sales growth from other key products including creon , duodopa and synthroid . sales growth in 2014 continued to reflect the impact of the loss of exclusivity in the company 's lipid franchise , which resulted in the loss of $ 748 million of revenue in 2014 over the prior year . generic competition began in november 2012 for tricor , july 2013 for trilipix and september 2013 for niaspan . the company 's financial performance in 2014 included delivering fully diluted earnings per share of $ 1.10 , including after-tax transaction and financing-related costs totaling $ 1.8 billion incurred in connection with the terminated proposed combination with shire plc ( shire ) , a $ 750 million after-tax charge related to a research and development collaboration agreement with calico life sciences llc ( calico ) and a $ 173 million after-tax charge as a result of entering into a global collaboration with infinity pharmaceuticals , inc. ( infinity ) . refer to note 4 for further information regarding the termination of the company 's proposed combination with shire and note 6 for further information regarding the company 's collaborations with calico and infinity . abbvie 's financial performance in 2014 also reflected an improvement in gross margin primarily due to favorable product mix across the product portfolio and operational efficiencies , as well as increased funding in support of abbvie 's emerging mid-and late-stage pipeline assets and additional humira indications . 33 in 2014 , the company generated cash flows from operations of $ 3.5 billion , net of the after-tax transaction and financing-related costs incurred in connection with the terminated proposed combination with shire . these strong cash flows enabled the company to continue to enhance its pipeline through licensing and collaboration activities , pay cash dividends to shareholders of $ 2.7 billion and repurchase approximately 9 million shares for $ 550 million . in addition , the board of directors declared an increase in the company 's quarterly cash dividend from $ 0.42 per share to $ 0.49 per share of common stock payable in february 2015 , as well as authorized a new $ 5.0 billion stock repurchase program that is expected to be executed over the next several years . in addition to these financial results , abbvie continued to advance its pipeline during 2014 , including securing regulatory approval in the united states for abbvie 's interferon-free hcv treatment , viekira pak , as well as submitting its regulatory application in the european union , which was subsequently approved in january 2015. abbvie also continued to advance its previously submitted regulatory applications in the united states for duopa , which were subsequently approved in january 2015 , and completed several late-stage clinical trials , including zinbryta ( daclizumab ) for the treatment of the relapsing/remitting form of multiple sclerosis ( ms ) and registrational programs for an expanded use of humira for hidradenitis suppurativa . abbvie also augmented its pipeline through strategic licensing and partnering activities including in-licensing duvelisib , a dual acting pi3 kinase inhibitor currently under investigation for use in a variety of hematological malignancies , from infinity and entering into a novel collaboration with calico to discover , develop , and commercialize new therapies for patients with age-related diseases . 2015 strategic objectives in 2015 , abbvie expects sales performance to be driven by continued strong growth from humira , the launch of viekira pak , and sales growth in certain key products including creon and duodopa , partially offset by a decline in several products due to generic competition , including androgel 1 % and the remainder of the lipid franchise . in addition , abbvie expects to achieve operating margin improvements while continuing to invest in its pipeline in support of opportunities in oncology , hcv , and immunology , as well as continued investment in key products . abbvie expects to grow operating cash flows in 2015 , which will enable the company to continue to augment its pipeline through concerted focus on strategic licensing , acquisition and partnering activity and returning cash to shareholders via dividends and share repurchases . abbvie expects to continue to drive strong humira sales growth in several ways . abbvie seeks to expand the humira patient base by applying for regulatory approval of new indications for humira , treating conditions such as uveitis and hidradenitis suppurativa . abbvie will also seek to drive humira sales growth by expanding its market share and its presence in underserved markets . abbvie plans to continue making investments in key emerging markets , including brazil , china , and russia . story_separator_special_tag on january 16 , 2015 , abbvie announced that the european commission granted marketing authorizations for its all-oral , short-course , interferon-free treatment viekirax ( ombitasvir/paritaprevir/ritonavir tablets ) + exviera ( dasabuvir tablets ) . the treatment has been approved with or without rbv for patients with genotype 1 chronic hcv infection , including those with compensated liver cirrhosis , hiv-1 co-infection , patients on opioid substitution therapy and liver transplant recipients . additionally , viekirax has been approved for use with rbv in genotype 4 chronic hcv patients . abbvie 's hcv combination is also in phase 3 development in japan . abbvie submitted its regulatory application in japan in 2015. abbvie is also currently conducting phase 2 studies of its next-generation hcv program which includes abt-493 , a potent protease inhibitor , and abt-530 , abbvie 's new ns5a inhibitor . oncology abbvie is focused on the development of targeted treatments that inhibit tumor growth and improve response to common cancer therapies . abbvie 's later-stage oncology pipeline includes the following : elotuzumab is an anti-slam7 antibody for the treatment of multiple myeloma under a collaboration with bristol-myers squibb ( bms ) . phase 3 development began in june 2011 for multiple myeloma . in 2014 , abbvie and bms announced that the fda granted elotuzumab breakthrough therapy designation for use in combination with lenalidomide and dexamethoasone for the treatment of multiple myeloma in patients who have received one or more prior therapies . two phase 3 studies are ongoing with results expected in 2015. veliparib ( abt-888 ) , a parp-inhibitor , is in a phase 3 study in brca-mutated breast cancer being treated with chemotherapy initiated in 2014. veliparib is also in phase 2 evaluation for the treatment of a variety of other solid tumors . in 2014 , abbvie announced the initiation of four separate phase 3 clinical trials evaluating the safety and efficacy of veliparib , in combination with chemotherapy in patients with previously untreated locally advanced or metastatic squamous non-small cell lung cancer ( nsclc ) and a separate study in patients with nonsquamous nsclc , as a neoadjuvant therapy , when added to carboplatin , prior to surgery in women with early-stage , triple 36 negative breast cancer and in patients with human epidermal growth factor receptor 2- ( her2 ) negative metastatic or locally-advanced breast cancer , containing brca1 and or brca2 gene mutations , when added to carboplatin and paclitaxel . venetoclax ( abt-199 ) , a next-generation bcl-2 inhibitor , is in development for patients with relapsed/refractory chronic lymphocytic leukemia . in 2014 , two phase 3 studies in chronic lymphocytic leukemia ( cll ) were initiated in collaboration with abbvie 's development partner , roche holding ag . abbvie also completed enrollment in a single arm study evaluating venetoclax in patients with relapsed/refractory cll harboring the 17p deletion mutation , a negative prognostic factor . abbvie anticipates results from this study in 2015. venetoclax is also being explored for use across a number of different hematologic cancers including non-hodgkin lymphoma , diffuse large b-cell lymphoma and acute myeloid leukemia . other molecular targets are being explored with antibody-drug conjugate approaches linking anti-target antibodies with potent cytotoxic agents . in 2014 , the european medicines agency ( ema ) and the fda granted orphan drug designation to abbvie 's investigational compound abt-414 , an anti-epidermal growth factor receptor antibody drug conjugate , which is being evaluated for safety and efficacy in patients with glioblastoma multiforme , the most common and most aggressive type of malignant primary brain tumor . in 2014 , abbvie in-licensed duvelisib , a dual acting pi3 kinase inhibitor currently under investigation for use in a variety of hematological malignancies , from infinity . duvelisib is also under investigation for use in indolent non-hodgkins lymphoma and for use in cll . renal disease abbvie 's renal care pipeline includes atrasentan , for the prevention of progression of diabetic ckd . in 2013 , a phase 3 study was initiated to assess atrasentan , when added to standard of care , on progression of kidney disease in patients with stage 2 to 4 ckd and type 2 diabetes . this global registrational study is expected to be completed in 2018. atrasentan will potentially be the first compound launched to treat diabetic nephropathy by specifically targeting albuminuria and slowing the progression of ckd . abbvie was previously investigating abt-719 , for the treatment of acute kidney injury associated with major cardiac and vascular surgeries . in 2014 , abbvie completed its phase 2b study and , based on the results of that study , decided not to continue development of abt-719 . neurological diseases abbvie has clinical studies underway on multiple compounds that target receptors in the brain that help regulate mood , memory , and other neurological functions and conditions , including the following : abbvie is collaborating with biogen idec to develop zinbryta ( daclizumab ) for the treatment of the relapsing/remitting form of ms , which is the most common form , and affects nearly 85 percent of newly diagnosed ms patients . the phase 3 study for zinbryta ( daclizumab ) , an anti-cd25 monoclonal antibody , was successfully completed in 2014. abbvie is in the process of working with biogen idec to complete its global regulatory applications for zinbryta ( daclizumab ) which are expected to be submitted in the first half of 2015. on january 12 , 2015 , abbvie announced that the fda approved duopa , a levodopa-carbidopa intestinal gel for the treatment of parkinson 's disease . duopa is administered using a small , portable infusion pump that delivers levodopa and carbidopa directly into the small intestine for 16 continuous hours via a procedurally-placed tube . this product is sold under the name duodopa outside the united states . 37 in 2014 , abbvie completed two phase 2b studies of abt-126 , an a 7-nnr modulator , in both alzheimer 's disease and cognitive impairment associated with schizophrenia .
| results of operations net sales the comparisons presented at constant currency rates reflect comparative local currency sales at the prior year 's foreign exchange rates . this measure provides information on the change in net sales assuming that foreign currency exchange rates had not changed between the prior and the current period . abbvie believes that the non-gaap measure of change in net sales at constant currency rates , when used in conjunction with the gaap measure of change in net sales at actual currency rates , may provide a more complete understanding of the company 's operations and can facilitate analysis of the company 's results of operations , particularly in evaluating performance from one period to another . replace_table_token_3_th sales growth in 2014 and 2013 was driven by the continued strength of humira , both in the united states and internationally , as well as sales growth in key products including synthroid , creon and duodopa . sales increased in 2014 and 2013 despite the loss of exclusivity for abbvie 's consolidated lipid franchise , as well as the unfavorable impact of foreign exchange rates . generic competition began in november 2012 for tricor , in july 2013 for trilipix and in september 2013 for niaspan . 39 the following table details the sales of key products . replace_table_token_4_th on a constant currency basis , global humira sales increased 19 percent in 2014 and 15 percent in 2013 , primarily as a result of market growth across therapeutic categories and geographies , approval of new indications , higher market share , and favorable pricing in certain geographies . abbvie is pursuing several new indications to help further differentiate humira from competing products and add to the sustainability and future growth of humira . androgel sales decreased 10 percent in both 2014 and 2013 primarily due to a decline in the overall u.s. testosterone replacement market . the company expects this trend will continue .
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on the basis of this evaluation , as of november 30 , 2020 , a valuation allowance of $ 271,016 ( november 30 , 2019 : $ 260,920 ) , inclusive of valuation allowance for investment tax credits has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized . the amount of the deferred tax asset considered realizable ; however , could be adjusted if estimates of future taxable income during the carry forward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as management 's projections for growth . uncertain tax position there were no uncertain tax positions as of november 30 , 2020 , 2019 and 2018. the company recognizes any interest and penalties related to uncertain tax positions , if any , as income tax expense . accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet . as of november 30 , 2020 , 2019 and 2018 , there were no accrued interest and penalties related to uncertain tax positions . the company is subject to income taxes in canada and the united states . with few exceptions , the tax years that remain subject to examination as of november 30 , 2020 are 2016 to 2020 in canada and 2017 to 2020 in the united states . 70 novagold resources inc. notes to consolidated financial statements ( us dollars in thousands , except per share ) note 1 5 – discontinued operations galore creek transaction on july 27 , 2018 , the company completed the sale of its 50 % interest in the galore creek assets to newmont . the company received $ 100,000 on closing ; a note for $ 75,000 receivable upon the earlier of the completion of a new galore creek project pre-feasibility study or july 27 , 2021 ; a note for $ 25,000 receivable upon the earlier of the completion of a galore creek project feasibility study or july 27 , 2023 ; and an additional note for $ 75,000 is receivable upon the approval of a galore creek project construction plan by the owner ( s ) . the company has no remaining interest in galore creek . the details of our net loss from discontinued operations , net of tax for the year ended november 30 , 2018 are set forth below : equity loss – galore creek $ ( 1,203 ) income tax expense — galore creek operations , net of tax ( 1,203 ) loss on sale of galore creek , net of tax ( 80,096 ) $ ( 81,299 ) for the year ended november 30 , 2018 , the company recognized a l oss on sale of galore creek , net of tax , calculated as follows : replace_table_token_39_th other comprehensive income ( loss ) for the year ended november 30 , 2018 was not impacted by discontinued operations as galore creek did not have any other comprehensive income ( loss ) . the details of our net cash provided from ( used in ) investing activities of discontinued operations for the year ended november 30 , 2018 are set forth below : funding of galore creek partnership $ ( 1,475 ) net cash proceeds received 99,279 reclamation deposits 4,644 $ 102,448 note 16 – related party transactions the company provided technical services to donlin gold llc for $ 658 in 2018. the company did not provide technical services to donlin gold llc in 2020 or 2019. as of november 30 , 2020 , the company has accounts receivable from donlin gold llc of $ 6 ( november 30 , 2019 : $ nil ) included in other current assets . 71 novagold resources inc. notes to consolidated financial statements ( us dollars in thousands , except per share ) note 17 – net change in operating assets and liabilities replace_table_token_40_th note 1 8 – supplemental cash flow information replace_table_token_41_th non-cash i nvesting a ctivities during 2018 , the company recorded a non-cash increase to long-term notes receivable of $ 88,398 as a portion of the proceeds received on the sale of the galore creek assets ( note 4 ) . note 1 9 – unaudited supplementary data quarterly data the following is a summary of selected quarterly financial information ( unaudited ) : replace_table_token_42_th replace_table_token_43_th 72 novagold resources inc. item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures an evaluation was performed under the supervision and with the participation of our management , including our principal executive officer and principal financial officer , of the effectiveness of our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , as of the end of the period covered by this annual report on form 10-k. based on the foregoing , our management concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec rules and forms , and such information is accumulated and communicated to our management , including our principal executive officer and principal financial officer , to allow timely decisions regarding required disclosure . story_separator_special_tag the primary objective of the program , the largest such campaign at donlin gold since 2008 , was to validate recent geologic modeling concepts and testing for extensions of high-grade zones in both intrusive ( igneous ) and sedimentary rocks . assay results received to-date from the 2020 drilling program have shown areas with higher grades observed over thinner intervals compared to those predicted by previous modeling , particularly in sedimentary rocks . reported results from the drilling support modeled lithology and improve understanding of controls of the higher grades . additional confirmation and extension drilling are planned in 2021 focusing on mineralization continuity , structural control , resource model upgrades , and geotechnical data collection . the program specifics will be finalized once all assay results for the 2020 drill program have been received and integrated into an interim model update . the newly obtained data will be incorporated into the geologic and resource model and should lead the owners to determine updated mining schedules and life of mine business plans . ultimately , the information will assist in determining the next steps to update the donlin gold feasibility study and initiate the engineering work necessary to advance the project design before reaching a construction decision . the owners will advance the donlin gold project in a financially disciplined manner with a strong focus on engineering excellence , environmental stewardship , a strong safety culture and continued community engagement . the donlin gold llc board must approve a construction program and budget before the donlin gold project can be developed . the timing of the required engineering work and the donlin gold llc board 's approval of a construction program and budget , the receipt of all required governmental permits and approvals , and the availability of financing , commodity price fluctuations , risks related to market events and general economic conditions among other factors , will affect the timing of and whether to develop the donlin gold project . among other reasons , project delays could occur as a result of public opposition , litigation challenging permit decisions , requests for additional information or analysis , limitations in agency staff resources during regulatory review and permitting , project changes made by donlin gold llc , or any impact on operations from covid-19 . our share of funding for the donlin gold project in 2020 was $ 15.3 million , $ 4.7 million lower than our original outlook of $ 20 million due to drill productivity exceeding planned rates , environmental and community engagement work delayed due to covid-19 restrictions , assay costs carried forward into 2021 and lower administrative costs . in 2021 , our share of donlin gold llc funding is expected to be $ 18 to $ 22 million , including : $ 11 million for follow-up drilling , camp improvements and studies ; $ 7 million for permitting , community engagement and administration ; and an additional $ 4 million for other studies contingent upon mid-year approval by both owners . we record our interest in the donlin gold project as an equity investment , which results in our 50 % share of donlin gold 's expenses being recorded in the income statement as an operating loss . the investment amount recorded on the balance sheet primarily represents unused funds advanced to donlin gold . donlin gold permitting the adnr 's division of mining , land , and water ( dmlw ) issued the easement land leases , land use permits , and material site authorizations for the proposed transportation facilities including the access road , airstrip , and upriver jungjuk port , as well as the easement for the fiber optic cable on state lands on january 2 , 2020. after initially issuing the state right-of-way ( row ) agreement and lease authorization for the buried natural gas pipeline on january 17 , 2020 , the adnr agreed to reconsider its decision on the row agreement and lease authorization for the buried natural gas pipeline in april 2020. under the reconsideration , on september 10 , 2020 , the adnr issued for additional public comment a revised consideration of comments document . this document further describes how the adnr is considering previous public input that was solicited in the row review , including how cumulative effects are addressed in the decision . the comment period ended on november 9 , 2020. donlin gold llc supported the adnr 's decision to complete this work and we expect that the final row agreement and lease authorization offer will be reissued by the adnr in the first half of 2021. in may 2020 , adec approved a second extension of the date by which construction of the donlin gold project as authorized by the prevention of significant deterioration air quality permit must begin until december 31 , 2021.the state of alaska 's cwa section 401 certification of the federal cwa section 404 permit was formally appealed to the adec commissioner in june 2020 by earthjustice , on behalf of onc , akiak native community ira council , organized village of kwethluk , native village of kwigillingok , chuloonawick tribal council , and the yukon-kuskokwim river alliance . the appeal focuses on three narrow issues related to compliance with the state 's water quality standards near the project site . donlin gold llc and its litigation team are actively involved in the process , assisting the state in responding to the appeal issues .
| summary of consolidated financial performance replace_table_token_10_th results of operations loss from operations increased from $ 26.8 million in 2019 to $ 33.2 million in 2020 due to increases in general and administrative and donlin gold expenses . general and administrative expense increased due to higher share-based compensation , legal and regulatory costs , partially offset by lower travel costs . donlin gold expenses increased due to the 2020 drilling program , partially offset by lower permitting , administrative , and community engagement costs . net loss from continuing operations increased from $ 27.8 million ( $ 0.09 per share ) in 2019 to $ 33.6 million ( $ 0.10 per share ) in 2020 , primarily due to the increased loss from operations and lower interest income , partially offset by a recovery of income taxes and lower interest expense . lower interest rates in 2020 reduced interest income and the interest accrued on the promissory note payable to barrick . the recovery of income taxes results from the company 's intention to file a consolidated u.s. income tax return for its u.s. subsidiaries commencing with the year ended november 30 , 2020 and in future periods . liquidity , capital resources and capital requirements replace_table_token_11_th term deposits are denominated in u.s. dollars and are held at canadian chartered banks with high investment-grade ratings and have maturities of one year or less . 49 novagold resources inc. the net changes in total cash and cash equivalents and term deposits resulted from : replace_table_token_12_th net cash used in operating activities increased by $ 3.9 million , primarily due to lower interest income , and higher legal and regulatory costs . funding of donlin gold increased by $ 4.2 million due to the 2020 drilling program .
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on november 8 , 2019 , the company filed a prospectus supplement to its 2018 shelf registration statement registering an at-the-market offering program we entered into for the sale of up to $ 20.0 million of shares of our common stock . in the year ended december 31 , 2019 , we sold a total of 10,440,908 shares of our common stock under this atm program resulting in net proceeds of approximately $ 19.3 million . 118 agile therapeutics , inc. notes to financial statements ( continued ) december 31 , 2019 ( in thousands , except share and per share data ) 9. stockholders ' story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , `` business '' and item 8 , `` financial statements and supplementary data . '' for information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements , see `` special note regarding forward-looking statements , '' and part i , item 1a , `` risk factors . '' dollars in tabular format are presented in thousands , except per share data , or as otherwise indicated . overview we are a women 's healthcare company dedicated to fulfilling the unmet health needs of today 's women . twirla® and our potential product candidates are designed to provide women with contraceptive options that offer greater convenience and facilitate compliance . twirla , our first and only approved product , is a once-weekly prescription combination hormonal contraceptive patch . twirla is designed using our proprietary transdermal patch technology , called skinfusion® , designed with properties to optimize patch adhesion and patient wearability , which may help support compliance while , for the first time , delivering a dose of estrogen consistent with commonly prescribed combined hormonal contraceptives , or chcs . we believe there is an unmet market need for a contraceptive patch that is designed to delivers approximately 30 mcg of estrogen and 120 mcg of progestin in a convenient dosage form that may support compliance in a non-invasive fashion . twirla was approved for sale in the united states on february 14 , 2020 as a method of contraception for use in women of reproductive potential with a bmi < 30 kg/m 2 for whom a combined hormonal contraceptive is appropriate . based on the observed relationship between efficacy and bmi in a phase 3 clinical trial , twirla 's limitation of use instructs healthcare providers to consider twirla 's reduced effectiveness in women with a bmi ³ 25 to < 30 kg/m 2 before prescribing . twirla is contraindicated in women with a bmi ³ 30 kg/m 2 because compared to women with a lower bmi , women in this group had reduced effectiveness and may have a higher risk for vtes . as part of twirla 's approval , the fda is requiring us to conduct a long-term prospective , observational post-marketing study comparing the risks for vte and ate in new users of twirla to new users of other chcs . the fda 's requirement for twirla is similar to another post-marketing study requirement for a recently approved chc . the final study report for the twirla post-marketing study is scheduled to be submitted to the fda in november 2032 , with interim safety data reporting to the fda due in november 2026. we have also agreed to a small post-marketing commitment , or pmc , study to assess the residual drug content and strength of twirla . the pmc study is similar to residual drug studies requested of patch developers in the fda 's november 2019 draft guidance entitled transdermal and topical delivery systemsproduct development and quality considerations . we are evaluating the design and cost of these post-marketing studies with the approval of twirla we now plan to focus on our transition from a clinical development stage company to a commercial company . during 2020 , we plan to begin the implementation of our 82 commercialization plan for twirla and to manage the growth of our company . our near term plan for the commercialization of twirla includes : activity expected timing initiate coverage and reimbursement activities in the united states from third-party payors . first quarter 2020 initiate hiring of contract sales force second quarter 2020 complete pre-validation and validation of the commercial manufacturing process consistent with our approved marketing application second half 2020 with first shipment of product in the fourth quarter 2020. our short-term goal is to establish an initial franchise in the multi-billion-dollar u.s. hormonal contraceptive market built on approval of twirla in the u.s. our resources are currently focused on the commercialization of twirla . to that end , our goal is to begin the pre-validation and validation of the commercial manufacturing process in the first half of 2020 , manufacture three validation batches of twirla and complete the process in the second half of 2020. at the same time , we will prepare for the availability of commercial product supply . in the first quarter of 2020 , we plan to initiate work with managed care and patient payors to gain market access for twirla . in the second quarter of 2020 , we plan to begin hiring and training an initial sales team , which we estimate to be in the range of 70 to 100 persons . we intend to ship product to wholesalers in fourth quarter of 2020. we also expect to explore the advancement of our existing pipeline and its possible expansion through business development activities . story_separator_special_tag we believe that our cash and cash equivalents as of december 31 , 2019 , along with the proceeds of the perceptive credit agreement we have received to date , will be sufficient to meet our projected operating requirements through the end of 2020. we will require additional capital to fund our 84 operating needs beyond 2020 , which we expect primarily will consist of commercializing twirla , and exploring the advancement of our existing pipeline and its possible expansion through business development activities . our future success depends on our ability to raise additional capital and or implement various strategic alternatives . our ability to continue operations beyond 2020 will depend on our ability to obtain additional funding , as to which no assurances can be given . based upon the foregoing , management has concluded that there is substantial doubt about our ability to continue as a going concern for twelve months from the date of filing of this annual report on form 10-k. there can be no assurance that any financing by us can be realized , or if realized , what the terms of any such financing may be , or that any amount that we are able to raise will be adequate . we continue to analyze strategic and financing alternatives , potential asset sales as well as mergers and acquisitions . we can not be certain that these initiatives or raising additional capital , whether through selling additional debt or equity securities or obtaining a line of credit or other loan , will be available to us or , if available , will be on terms acceptable to us . if we issue additional securities to raise funds , whether through the issuance of equity or convertible debt securities , or any combination thereof , these securities may have rights , preferences , or privileges senior to those of our common stock , and our current stockholders will experience dilution . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with pharmaceutical partners , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates , including twirla , or grant licenses on terms that may not be favorable to us . if we are unable to obtain funds when needed or on acceptable terms , we then may be unable to complete the commercialization of twirla and may also be required to further cut operating costs , forego future development and other opportunities and may need to seek bankruptcy protection . the financial statements as of december 31 , 2019 have been prepared under the assumption that we will continue as a going concern for the next 12 months . our ability to continue as a going concern is dependent upon our uncertain ability to obtain additional capital , reduce expenditures and or execute on our business plan and successfully launch twirla . these financial statements do not include any adjustments that might result from the outcome of this uncertainty . we do not own any manufacturing facilities and rely on our contract manufacturer , corium , for all aspects of the manufacturing of twirla . we will need to continue to invest in the manufacturing process for twirla , and incur significant expenses , in order to complete the validation of corium 's commercial manufacturing line for twirla and be capable of supplying projected commercial quantities of twirla . in september 2019 , we re-started manufacturing development at corium . we are currently working with corium to complete manufacturing development , process improvements , and pre-validation work . our goal is to manufacture three validation batches of twirla and complete the validation of the commercial manufacturing process in the second half of 2020. we expect to incur significant expenses in order to create an infrastructure to support the commercialization of twirla , including sales , marketing , distribution , medical affairs and compliance functions . we have incurred and will continue to incur additional costs associated with operating as a public company . accordingly , we will need additional capital to support our continuing operations and other potential product candidates in our pipeline in addition to the commercial activities required for the pre-launch and launch of twirla . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional capital may not be available to us on acceptable terms , or at all . our failure to raise additional capital as and when needed would have a negative impact on our financial condition and our 85 ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . financial operations overview revenue to date , we have not generated any revenue . in the future , we may generate revenue from product sales , license fees , milestone payments and royalties from the sale of products developed using our intellectual property . our ability to generate revenue and become profitable depends on our ability to successfully commercialize twirla and any product candidates that we may advance in the future . if we fail to successfully commercialize twirla , or any other product candidates we advance in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , will be adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities .
| general and administrative expenses . general and administrative expenses increased by $ 0.3 million , or 3.0 % , from $ 8.7 million for the year ended december 31 , 2018 to $ 9.0 million for the year ended december 31 , 2019. this overall increase in general and administrative expenses was primarily due to the following : an increase in professional fee expense of $ 0.8 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. this increase primarily relates to the use of financial consultants and recruiting and search fees ; an increase in advertising and promotion costs of $ 0.4 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. this increase relates to additional promotional activities as we prepared for the commercialization of twirla ; an increase in insurance costs of $ 0.2 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 ; and a decrease in stock compensation expense of $ 1.1 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. this decrease is primarily the result of a lower stock price associated with the january 2019 stock option grants as compared to the january 2018 stock option grants . restructuring costs . in june 2018 , we announced a reduction in our workforce , which resulted in the termination of several employees primarily from our commercial and clinical teams , representing approximately thirty percent of our employees . this workforce reduction , along with other reductions in planned operating expenses was designed to preserve cash while we pursued formal dispute resolution with the fda for twirla and as we determine the regulatory path forward for the resubmission of our nda for twirla .
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the agreements were designated as cash flow hedges at inception and accordingly , the effective portion of the gain or loss on the swap is reported as a component of accumulated other comprehensive income ( loss ) ( `` aoci `` ) , and will be reclassified into interest expense when the interest rate swap transaction affects earnings . the ineffective portion of the gain or loss will be recognized immediately in current interest expense . financial instruments consisting of cash and cash equivalents , accounts receivable , and accounts payable are carried at cost , which approximates fair value , as a result of the short-term nature of the instruments . see note 13 ( `` long-term debt `` ) for further discussion of the extinguishment of the first priority credit facility long-term debt story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this report . forward-looking statements this annual report on form 10-k , including , without limitation , the sections captioned `` business '' and `` management 's discussion and analysis of financial condition and results of operations , '' contains `` forward-looking statements '' as defined by the sec . such statements are those concerning contemplated transactions and strategic plans , expectations and objectives for future operations . these include , without limitation : statements , other than statements of historical fact , that address activities , events or developments that we expect , believe or anticipate will or may occur in the future ; statements relating to future financial performance , future capital sources and other matters ; and any other statements preceded by , followed by or that include the words `` anticipates , '' `` believes , '' `` expects , '' `` plans , '' `` intends , '' `` estimates , '' `` projects , '' `` could , '' `` should , '' `` may , '' or similar expressions . although we believe that our plans , intentions and expectations reflected in or suggested by the forward-looking statements we make in this annual report on form 10-k are reasonable , we can give no assurance that such plans , intentions or expectations will be achieved . these statements are based on assumptions made by us based on our experience and perception of historical trends , current conditions , expected future developments and other factors that we believe are appropriate in the circumstances . such statements are subject to a number of risks and uncertainties , many of which are beyond our control . you are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors , including but not limited to those set forth under the section captioned `` risk factors '' and contained elsewhere in this report . all forward-looking statements contained in this report only speak as of the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this report , or to reflect the occurrence of unanticipated events . story_separator_special_tag imports , the marketing of competitive fuels and the extent of government regulation . because we apply first-in , first-out ( `` fifo '' ) accounting to value our inventory , crude oil price movements may impact net income in the short term because of changes in the value of our unhedged on-hand inventory . the effect of changes in crude oil prices on our results of operations is influenced by the rate at which the prices of refined products adjust to reflect these changes . feedstock and refined product prices are also affected by other factors , such as product pipeline capacity , local market conditions and the operating levels of competing refineries . crude oil costs and the prices of refined products have historically been subject to wide fluctuations . an expansion or upgrade of our competitors ' facilities , price volatility , international political and economic developments and other factors beyond our control are likely to continue to play an important role in refining industry economics . these factors can impact , among other things , the level of inventories in the market , resulting in price volatility and a reduction in product margins . moreover , the refining industry typically experiences seasonal fluctuations in demand for refined products , such as increases in the demand for gasoline during the summer driving season and for home heating oil during the winter , primarily in the northeast . in addition to current market conditions , there are long-term factors that may impact the demand for refined products . these factors include mandated renewable fuels standards , proposed climate change laws and regulations , and increased mileage standards for vehicles . in order to assess our operating performance , we compare our net sales , less cost of product sold , or our refining margin , against an industry refining margin benchmark . the industry refining margin benchmark is calculated by assuming that two barrels of benchmark light sweet crude oil is converted into one barrel of conventional gasoline and one barrel of distillate . this benchmark is referred to as the 2-1-1 crack spread . because we calculate the benchmark margin using the market value of nymex 67 gasoline and heating oil against the market value of nymex wti , we refer to the benchmark as the nymex 2-1-1 crack spread , or simply , the 2-1-1 crack spread . the 2-1-1 crack spread is expressed in dollars per barrel and is a proxy for the per barrel margin that a sweet crude oil refinery would earn assuming it produced and sold the benchmark production of gasoline and distillate . story_separator_special_tag million . the interruption adversely impacted the production of refined products for the second quarter of 2011. similarly , the wynnewood refinery experienced a small explosion and fire in its hydrocracker process unit due to metal failure in december 2010. nitrogen fertilizer business in the nitrogen fertilizer business , earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices , on-stream factors and direct operating expenses . unlike its competitors , the nitrogen fertilizer business does not use natural gas as a feedstock and uses a minimal amount of natural gas as an energy source in its operations . as a result , volatile swings in natural gas prices have a minimal impact on its results of operations . instead , our adjacent coffeyville refinery supplies the nitrogen fertilizer business with most of the pet coke feedstock it needs pursuant to a long-term pet coke supply agreement entered into in october 2007. the price at which nitrogen fertilizer products are ultimately sold depends on numerous factors , including the global supply and demand for nitrogen fertilizer products which , in turn , depends on , among other factors , world grain demand and production levels , changes in world population , the cost and availability of fertilizer transportation infrastructure , weather conditions , the availability of imports , and the extent of government intervention in agriculture markets . nitrogen fertilizer prices are also affected by local factors , including local market conditions and the operating levels of competing facilities . an expansion or upgrade of competitors ' facilities , international political and economic developments and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics . these factors can impact , among other things , the level of inventories in the market , resulting in price volatility and a reduction in product margins . moreover , the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products . in addition , the demand for fertilizers is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers . individual farmers make planting decisions based largely on the prospective profitability of a harvest , while the specific varieties and amounts of fertilizer they apply depend on factors like crop prices , their current liquidity , soil conditions , weather patterns and the types of crops planted . natural gas is the most significant raw material required in our competitors ' production of nitrogen fertilizers . over the past several years , natural gas prices have experienced high levels of price 69 volatility . this pricing and volatility has a direct impact on our competitors ' cost of producing nitrogen fertilizer . in order to assess the operating performance of the nitrogen fertilizer business , we calculate plant gate price to determine our operating margin . plant gate price refers to the unit price of nitrogen fertilizer , in dollars per ton , offered on a delivered basis , excluding shipment costs . we and other competitors in the u.s. farm belt share a significant transportation cost advantage when compared to our out-of-region competitors in serving the u.s. farm belt agricultural market . in 2011 , approximately 56 % of the corn planted in the united states was grown within a $ 40/uan ton freight train rate of the nitrogen fertilizer plant . we are therefore able to cost-effectively sell substantially all of our products in the higher margin agricultural market , whereas a significant portion of our competitors ' revenues are derived from the lower margin industrial market . our location on union pacific 's main line increases our transportation cost advantage by lowering the costs of bringing our products to customers , assuming freight rates and pipeline tariffs for u.s. gulf coast importers as recently in effect . our products leave the plant either in trucks for direct shipment to customers or in railcars for destinations located principally on the union pacific railroad , and we do not currently incur any intermediate transfer , storage , barge freight or pipeline freight charges . we estimate that our plant enjoys a transportation cost advantage of approximately $ 25 per ton over competitors located in the u.s. gulf coast . selling products to customers within economic rail transportation limits of the nitrogen fertilizer plant and keeping transportation costs low are keys to maintaining profitability . the value of nitrogen fertilizer products is also an important consideration in understanding our results . during 2011 , the nitrogen fertilizer business upgraded approximately 72 % of its ammonia production into uan , a product that presently generates greater profit than ammonia . during 2010 , the nitrogen fertilizer business upgraded approximately 60 % of its ammonia production into uan . uan production is a major contributor to our profitability . the nitrogen fertilizer business ' largest raw material expense is pet coke , which it purchases from the petroleum business and third parties . in the years ended december 31 , 2011 , 2010 and 2009 , the nitrogen fertilizer business spent approximately $ 16.8 million , $ 7.4 million and $ 12.8 million , respectively , for pet coke , which equaled an average cost per ton of $ 33 , $ 17 and $ 27 , respectively . the high fixed cost of the nitrogen fertilizer business ' direct operating expense structure also directly affects its profitability . using a pet coke gasification process , the nitrogen fertilizer business has a significantly higher percentage of fixed costs than a natural gas-based fertilizer plant . major fixed operating expenses include electrical energy , employee labor , maintenance , including contract labor , and outside services . these fixed costs averaged approximately 87 % of direct operating expenses over the 24 months ended december 31 , 2011. the average annual operating costs over the 24 months ended december 31 , 2011 have approximated $ 86 million , of which substantially all are fixed in nature .
| overview and executive summary we are an independent petroleum refiner and marketer of high value transportation fuels in the mid-continental united states . in addition , we own the general partner and approximately 70 % of the common units of cvr partners , lp , a publicly-traded limited partnership that is an independent producer and marketer of upgraded nitrogen fertilizers in the form of ammonia and urea ammonia nitrate , or uan . we operate under two business segments : petroleum and nitrogen fertilizer . for the fiscal years ended december 31 , 2011 , 2010 and 2009 , we generated consolidated net sales of $ 5.0 billion , $ 4.1 billion and $ 3.1 billion , respectively , and operating income of $ 566.6 million , $ 93.1 million and $ 208.2 million , respectively . our petroleum business generated net sales of $ 4.8 billion , $ 3.9 billion and $ 2.9 billion , and the nitrogen fertilizer business generated net sales of $ 302.9 million , $ 180.5 million and $ 208.4 million in each case for the years ended december 31 , 2011 , 2010 and 2009 , respectively . our petroleum business generated operating income of $ 465.7 million , $ 104.6 million and $ 170.2 million in each case , for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the 65 nitrogen fertilizer business generated operating income of $ 136.2 million , $ 20.4 million and $ 48.9 million in each case for the years ended december 31 , 2011 , 2010 and 2009 , respectively . petroleum business . our petroleum business includes a 115,000 bpd complex full coking medium-sour crude oil refinery in coffeyville , kansas and , as of december 15 , 2011 , a 70,000 bpd crude oil unit refinery in wynnewood , oklahoma .
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u se of estimates the preparation of financial statements in conformity with generally accepted accounting principles in the united states of america requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . actual results could differ from those estimates . new accounting standards except as noted below there were no new accounting pronouncements that impacted , or are expected to impact us . in november 2016 , the fasb story_separator_special_tag financial condition and results of operat ions overview we are a real estate investment trust ( “ reit ” ) that commenced operations in 1986. we invest in healthcare and human service related facilities currently including acute care hospitals , rehabilitation hospitals , sub-acute facilities , surgery centers , free-standing emergency departments , childcare centers and medical/office buildings . as of february 28 , 2018 , we have sixty-eight real estate investments or commitments in twenty states consisting of : six hospital facilities including three acute care , one rehabilitation and two sub-acute ; four free-standing emergency departments ( “ feds ” ) ; fifty-four medical/office buildings ( “ mobs ” ) , including four owned by unconsolidated llcs/lps , and ; four preschool and childcare centers . forward looking statements this report contains “ forward-looking statements ” that reflect our current estimates , expectations and projections about our future results , performance , prospects and opportunities . forward-looking statements include , among other things , information concerning our possible future results of operations , business and growth strategies , financing plans , expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition , our competitive position and the effects of competition , the projected growth of the industry in which we operate , and the benefits and synergies to be obtained from our completed and any future acquisitions , and statements of our goals and objectives , and other similar expressions concerning matters that are not historical facts . words such as “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” “ predicts , ” “ potential , ” “ continue , ” “ expects , ” “ anticipates , ” “ future , ” “ intends , ” “ plans , ” “ believes , ” “ estimates , ” “ appears , ” “ projects ” and similar expressions , as well as statements in future tense , identify forward-looking statements . forward-looking statements should not be read as a guarantee of future performance or results , and will not necessarily be accurate indications of the times at , or by which , such performance or results will be achieved . forward-looking information is based on information available at the time and or our good faith belief with respect to future events , and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements . such factors include , among other things , the following : a substantial portion of our revenues are dependent upon one operator , universal health services , inc. ( “ uhs ” ) . we can not assure you that subsidiaries of uhs will renew the leases on our three acute care hospitals ( which are scheduled to expire in december , 2021 ) and two feds at existing lease rates or fair market value lease rates . in addition , if subsidiaries of uhs exercise their options to purchase the respective leased hospital facilities and feds upon expiration of the lease terms , our future revenues and results of operations could decrease if we were unable to earn a favorable rate of return on the sale proceeds received , as compared to the rental revenue currently earned pursuant to these leases ; in certain of our markets , the general real estate market has been unfavorably impacted by increased competition/capacity and decreases in occupancy and rental rates which may adversely impact our operating results and the underlying value of our properties ; a number of legislative initiatives have recently been passed into law that may result in major changes in the health care delivery system on a national or state level to the operators of our facilities , including uhs . no assurances can be given that the implementation of these new laws will not have a material adverse effect on the business , financial condition or results of operations of our operators ; the potential indirect impact of the tax cuts and jobs act of 2017 ( the “ 2017 tax act ” ) , signed into law on december 22 , 2017 , which makes significant changes to corporate and individual tax rates and calculation of taxes , which could potentially impact our tenants and jurisdictions , both positively and negatively , in which we do business , as well as the overall investment thesis for reits ; a subsidiary of uhs is our advisor and our officers are all employees of a wholly-owned subsidiary of uhs , which may create the potential for conflicts of interest ; lost revenues resulting from the exercise of purchase options , lease expirations and renewals , loan repayments and other restructuring ; our ability to continue to obtain capital on acceptable terms , including borrowed funds , to fund future growth of our business ; 31 the outcome of known and unknown litigation , government investigations , and liabilities and other claims asserted against us , uhs or the other operators of our facilities . uhs and its subsidiaries are subject to pending legal actions , purported shareholder class actions and shareholder derivative cases , governmental investigations and regulatory actions . story_separator_special_tag the ultimate outcomes of legislative attempts to repea l or amend the aca and legal challenges to the aca are unknown . recent congressional and presidential election results created a political environment in which there have been repeated attempts to repeal or replace substantial portions of the aca ; legislation has already been enacted that has repealed the individual mandate to obtain health insurance penalty that had been required by the aca . in addition , congress is considering legislation that would , in material part : ( i ) eliminate the large employer mandates to provide health insurance coverage ; ( ii ) permit insurers to impose a surcharge up to 30 percent on individuals who go uninsured for more than two months and then purchase coverage ; ( iii ) provide tax credits towards the purchase of health insurance , with a phase-out of tax credits accordingly to income level ; ( iv ) expand health savings accounts ; ( v ) impose a per capita cap on federal funding of state medicaid programs , or , if elected by a state , transition federal funding to block grants , and ; ( vi ) permit states to seek a waiver of certain federal requirements that would allow such state to define essential health benefits differently from federal standards and that would allow certain commercial health plans to take health status , including pre-existing conditions , into account in setting premiums . in addition to legislative changes , the legislation can be significantly impacted by executive branch actions . in relevant part , president trump has already taken executive actions : ( i ) requiring all federal agencies with authorities and responsibilities under the legislation to “ exercise all authority and discretion available to them to waiver , defer , grant exemptions , from , or delay ” parts of the legislation that place “ unwarranted economic and regulatory burdens ” on states , individuals or health care providers ; ( ii ) directing the department of labor to enable the formation of health plans that would be exempt from certain legislation essential health benefits requirements , and ; ( iii ) eliminating cost-sharing reduction payments to insurers that would otherwise offset deductibles and other out-of-pocket expenses for health plan enrollees at or below 250 percent of the federal poverty level . it remains unclear what portions of the legislation may remain , or whether any replacement or alternative programs may be created by any future legislation . any such future repeal or replacement may have significant impact on the reimbursement for healthcare services generally , and may create reimbursement for services competing with the services offered by our hospitals . accordingly , there can be no assurance that the adoption of any future federal or state healthcare reform legislation will not have a negative financial impact on our hospitals , including their ability to compete with alternative healthcare services funded by such potential legislation , or for our hospitals to receive payment for services there can be no assurance that if any of the announced or proposed changes described above are implemented there will not be negative financial impact on the operators of our hospitals , which material effects may include a potential decrease in the market for health care services or a decrease in the ability of the operators of our hospitals to receive reimbursement for health care services provided which could result in a material adverse effect on the financial condition or results of operations of the operators of our properties , and , thus , our business ; competition for our operators from other reits ; the operators of our facilities face competition from other health care providers , including physician owned facilities and other competing facilities , including certain facilities operated by uhs but the real property of which is not owned by us . such competition is experienced in markets including , but not limited to , mcallen , texas , the site of our mcallen medical center , a 370-bed acute care hospital , and riverside county , california , the site of our southwest healthcare system-inland valley campus , a 130-bed acute care hospital ; changes in , or inadvertent violations of , tax laws and regulations and other factors than can affect reits and our status as a reit ; should we be unable to comply with the strict income distribution requirements applicable to reits , utilizing only cash generated by operating activities , we would be required to generate cash from other sources which could adversely affect our financial condition ; our ownership interest in four llcs/lps in which we hold non-controlling equity interests . in addition , pursuant to the operating and or partnership agreements of the four llcs/lps in which we continue to hold non-controlling ownership interests , the third-party member and the trust , at any time , potentially subject to certain conditions , have the right to make an offer ( “ offering member ” ) to the other member ( s ) ( “ non-offering member ” ) in which it either agrees to : ( i ) sell the entire ownership interest of the offering member to the non-offering member ( “ offer to sell ” ) at a price as 33 determined by the of fering member ( “ transfer price ” ) , or ; ( ii ) purchase the entire ownership interest of the non-offering member ( “ offer to purchase ” ) at the equivalent proportionate transfer price . the non-offering member has 60 to 90 days to either : ( i ) purchase the entire ownership interest of the offering member at the transfer price , or ; ( ii ) sell its entire ownership interest to the offering member at the equivalent proportionate transfer price .
| results of operations year ended december 31 , 2017 as compared to the year ended december 31 , 2016 : for the year ended december 31 , 2017 , net income was $ 45.6 million as compared to $ 17.2 million during 2016. the $ 28.4 million increase was primarily attributable to : a $ 27.2 million increase due to the gain recorded during the first quarter of 2017 in connection with the arlington medical properties , llc transaction , as discussed herein ; a $ 2.0 million increase resulting from the hurricane recovery proceeds in excess of damaged property write-downs ; a $ 708,000 decrease due to increased interest expense resulting primarily from an increase in our average cost of funds under our revolving credit agreement , offset by the repayment of four third-party mortgages ( during the second , third and fourth quarters of 2017 ) utilizing funds borrowed under our revolving credit agreement which bear interest at a comparatively lower interest rate ; a $ 421,000 increase due to a decrease in transaction cost expense , and ; $ 538,000 of other combined net decreases primarily attributable to the unfavorable impact resulting from the temporary closure of the properties damaged by hurricane harvey , as discussed below . total revenue increased $ 5.3 million , or 7.9 % , during the year ended december 31 , 2017 , as compared to 2016 , due primarily to the revenues generated at mobs acquired during 2017 and 2016 , as well as net increases at various other properties . included in our other operating expenses are expenses related to the consolidated medical office buildings , which totaled $ 17.4 million and $ 16.4 million for the years ended december 31 , 2017 and 2016 , respectively .
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bmbc and its direct and indirect subsidiaries ( collectively , the “ corporation ” ) offer a full range of personal and business banking services , consumer and commercial loans , equipment leasing , mortgages , insurance and wealth management services , including investment management , trust and estate administration , retirement planning , custody services , and tax planning and preparation from 41 banking locations , seven wealth management offices and two insurance and risk management locations in the following counties : montgomery , chester , delaware , philadelphia , and dauphin counties in pennsylvania ; new castle county in delaware ; and mercer and camden counties in new jersey . the common stock of bmbc trades on the nasdaq stock market ( “ nasdaq ” ) under the symbol bmtc . the corporation operates in a highly competitive market area that includes local , national and regional banks as competitors along with savings banks , credit unions , insurance companies , trust companies , registered investment advisors and mutual fund families . bmbc and its subsidiaries are regulated by many agencies including the securities and exchange commission ( “ sec ” ) , nasdaq , federal deposit insurance corporation ( “ fdic ” ) , the board of governors of the federal reserve system ( the “ federal reserve board ” ) and the pennsylvania department of banking and securities ( the “ department of banking ” ) . the goal of the corporation is to become the preeminent community bank and wealth management organization in the philadelphia area . since january 1 , 2010 , the corporation has completed ten acquisitions : domenick & associates ( “ domenick ” ) - may 1 , 2018 royal bancshares of pennsylvania , inc. ( “ rbpi ” ) - december 15 , 2017 ( the “ rbpi merger ” ) harry r. hirshorn & company , inc. ( “ hirshorn ” ) - may 24 , 2017 robert j. mcallister agency , inc. ( “ rjm ” ) - april 1 , 2015 continental bank holdings , inc. ( “ cbh ” ) - january 1 , 2015 ( the cbh merger ) powers craft parker and beard , inc. ( “ pcpb ” ) - october 1 , 2014 first bank of delaware ( “ fbd ” ) - november 17 , 2012 davidson trust company ( “ dtc ” ) - may 15 , 2012 the private wealth management group of the hershey trust company ( “ pwmg ” ) - may 11 , 2011 first keystone financial , inc. ( “ fkb ” ) - july 1 , 2010 for a more complete discussion regarding certain of these acquisitions , see item 1 – “ general development and description of our business – growth through acquisitions ” beginning at page 3 in this form 10-k. results of operations the following is management 's discussion and analysis of the significant changes in the financial condition , results of operations , capital resources and liquidity presented in the accompanying consolidated financial statements . the corporation 's consolidated financial condition and results of operations are comprised primarily of the bank 's financial condition and results of operations . current performance does not guarantee , and may not be indicative of , similar performance in the future . for more information on the factors that could affect performance , see “ special cautionary notice regarding forward looking statements ” immediately following the index at the beginning of this document . the geographic information required by item 101 ( d ) of regulation s-k promulgated under the securities exchange act of 1934 , as amended , is impracticable for the corporation to calculate ; however , the corporation does not believe that a material amount of revenue in any of the last three years was attributable to customers outside of the united states , nor does it believe that a material amount of its long-lived assets , in any of the past three years , was located outside of the united states . 34 critical accounting policies , judgments and estimates the accounting and reporting policies of the corporation conform to u.s. generally accepted accounting principles ( “ gaap ” ) . all significant intercompany balances and transactions are eliminated in consolidation and certain reclassifications are made when necessary in order to conform the previous years ' consolidated financial statements to the current year 's presentation . in preparing the consolidated financial statements , management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented . therefore , actual results could differ from these estimates . the allowance for credit losses ( “ acl ” ) on loans and leases on january 1 , 2020 , asu 2016-13 ( topic 326 - credit losses ) , commonly referenced as the current expected credit loss ( “ cecl ” ) became effective for the corporation . cecl has changed the way we estimate credit losses for loans and leases , including off-balance sheet ( “ obs ” ) credit exposures for reporting periods beginning after january 1 , 2020. for more information regarding the cecl standard , see note 2 , “ recent accounting pronouncements ” in the accompanying notes to the consolidated financial statements in this ann ual report on form 10-k. the acl on loans and leases represents management 's estimate of all expected credit losses over the expected contractual life of our existing portfolio loans and leases . determining the appropriateness of the acl on loans and leases is complex and requires judgment by management about the effect of matters that are inherently uncertain . subsequent evaluations of the then-existing loan portfolio , in light of the factors then prevailing , may result in significant changes in the acl on loans and leases in those future periods . story_separator_special_tag the selected period for which historic loss rates are used is dependent on management 's evaluation of current conditions and expectations of future loss conditions . the portfolio segments utilizing the warm methodology as of december 31 , 2020 included leases and commercial & industrial loans . impact of covid-19 in the first quarter of 2020 , the world health organization declared the outbreak of covid-19 a pandemic . the covid-19 pandemic has resulted in authorities implementing numerous measures attempting to contain the spread and impact of covid-19 . our banking products and services are delivered primarily in southeastern pennsylvania , southern and central new jersey , and delaware , each of which had a stay at home order in place and had closed all non-essential businesses during a period of the second quarter of 2020. to address the economic impact in the u.s. , in march and april 2020 , the president signed into law four economic stimulus packages to provide relief to businesses and individuals , including the coronavirus aid , relief , and economic security act ( the “ cares act ” ) . among other measures , the cares act created funding for the small business administration ( “ sba ” ) paycheck protection program ( “ ppp ” ) , which provides loans to small businesses to keep their employees on payroll and make other eligible payments . the original funding for the ppp was fully allocated by mid-april 2020 , with additional funding made available on april 24 , 2020 under the paycheck protection program and health care enhancement act . on april 9 , 2020 , the federal reserve took additional steps to bolster the economy by providing additional funding sources for small and mid-sized businesses as well as for state and local governments as they work through cash flow stresses caused by the covid-19 pandemic . additionally , the federal reserve has taken other steps to provide fiscal and monetary stimuli , including reducing the federal funds rate and the interest rate on the federal reserve 's discount window , and implementing programs to promote liquidity in certain securities markets . the federal reserve , along with other u.s. banking regulators , has also issued interagency guidance to financial institutions that are working with borrowers affected by the covid-19 pandemic . we participated in the ppp and during the second quarter of 2020 originated 1,866 loans with a recorded investment of $ 307.9 million . recognizing the significance of operational risk that this portfolio posed , and the continued complexity and uncertainty surrounding evolving regulatory pronouncements regarding various aspects of the ppp , management reviewed several options for continued servicing of the ppp loan portfolio through forgiveness and beyond . after thoughtful consideration , management decided that it was in the best interests of both the bank and our ppp borrowers that the loans be serviced by an organization that has the servicing infrastructure in place to support the significant volume and short timeframe involved in the complex and evolving ppp forgiveness process . in that regard , in late june 2020 the bank sold substantially all of its ppp loans to the loan source , inc. , which , together with its servicing partner , acap sme , llc , have taken over the forgiveness and ongoing servicing process for the ppp loans . in connection with the sale , the corporation recognized a $ 2.4 million gain on the sale of 36 approximately $ 292.1 million of ppp loans in the second quarter of 2020. the remaining loans within the bank 's ppp portfolio were sold in the third quarter of 2020 and did not result in a material impact on our consolidated financial statements . also , the corporation recognized $ 1.8 million of net deferred ppp loan origination fees during the second quarter of 2020 , which is included within interest and fees on loans and leases on the consolidated statement of income for the year ended december 31 , 2020. to provide relief from the economic impacts of covid-19 , the corporation has offered assistance to our commercial , consumer and small business clients by waiving fees for early cd redemptions , overdrafts , and minimum deposit balance requirements , as well as implemented consumer and commercial loan modification programs . the corporation 's modification program for consumer credit products includes a six-month deferral of principal and interest , with interest continuing to accrue on unpaid principal . upon completion of the deferral period , resumed payments will be applied to the interest accrued during the deferral period , followed by principal and interest payments through the extended maturity date . as of december 31 , 2020 , 66 consumer loans in the amount of $ 7.3 million were within a deferral period under the program . management is taking proactive measures and is working prudently with borrowers who may be unable to meet their obligations due to continuing financial challenges caused by covid-19 . as a result , the bank may enter into an additional modification in an effort to mitigate losses for the bank and the borrower . the corporation 's modification programs for commercial loan and lease products include a three- or six-month deferral of principal and interest or a three- or six-month period of interest-only payments , with interest continuing to accrue on unpaid principal . upon completion of the deferral period , resumed payments will be applied to the interest accrued during the deferral period , followed by principal and interest payments through the contractual maturity date . as of december 31 , 2020 , 37 commercial loans and leases in the amount of $ 67.7 million were within a deferral period under the program , of which $ 59.0 million , or 87.2 % of deferred commercial loans , continue to make interest-only payments . management is taking proactive measures and is working prudently with borrowers who may be unable to meet their obligations due to continuing financial challenges caused by covid-19 .
| summary of interest rate simulation replace_table_token_7_th the above interest rate simulation suggests that the corporation 's balance sheet is asset sensitive as of december 31 , 2020 in the +100 basis point scenario , demonstrating that a 100 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months . the balance sheet is more asset sensitive in a rising-rate environment as of december 31 , 2020 than it was as of december 31 , 2019. the increase was related to an increase of variable rate assets and non-interest bearing liabilities as of december 31 , 2020 as compared to december 31 , 2019. the decrease in the loss in the -100 basis point scenario is related to floor rates on loans and non-maturity deposit rates having limited room to reprice lower . the interest rate simulation is an estimate based on assumptions , which are derived from past behavior of customers , along with expectations of future behavior relative to interest rate changes . in today 's economic environment and emerging from an extended period of very low interest rates , the reliability of management 's assumptions in the interest rate simulation model is more uncertain than in prior years . actual customer behavior , as it relates to deposit activity , may be significantly different than expected behavior , which could cause an unexpected outcome and may result in lower net interest income than that derived from the analysis referenced above . gap analysis the interest sensitivity , or gap analysis , identifies interest rate risk by showing repricing gaps in the corporation 's balance sheet . all assets and liabilities are reflected based on behavioral sensitivity , which is usually the earliest of : repricing , maturity , contractual amortization , prepayments or likely call dates .
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the judgments made in determining the amount of costs incurred include whether the commissions story_separator_special_tag you should read the following discussion in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10-k ( `` annual report '' ) . this annual report contains certain statements that are forward-looking within the meaning of the private securities litigation reform act of 1995. certain statements contained in the md & a are forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on 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 several factors , including those discussed in other sections of this annual report . see `` risk factors '' and `` forward-looking statements . '' overview teradata corporation ( `` we , '' `` us , '' `` teradata , '' or the `` company '' ) is a leading hybrid cloud analytics software provider focused on helping companies leverage all of their data across an enterprise to uncover real-time intelligence , at scale . in doing so , we enable them to find answers to their toughest challenges . our solutions enable customers to integrate and simplify their analytics ecosystem , access and manage data , and use analytics to extract answers and derive business value from data . our solutions are comprised of software , hardware , and related business consulting and support services to deliver analytics across a company 's entire analytics ecosystem . teradata 's strategy is based on our mission of transforming how businesses work and people live through the power of data . our target market is made up of companies that we believe are the world 's most demanding , large-scale users of data . these companies face significant challenges including siloed data and conflicting and duplicative solutions that typically results in considerable expense to maintain and to manage the complexity . our strategy is to provide a differentiated set of offerings to our target market through a portfolio of integrated data and analytic solutions . teradata vantage is an extremely scalable , secure , highly concurrent and resilient analytics platform that addresses the challenges faced in our targeted customer set . by offering customers full integration of their datasets , tools , analytics languages , functions , and engines in one analytical platform , vantage reduces customers ' complexity , risk , and costs . our vantage platform embraces leading commercial and open source analytics technologies and is available in the cloud and on-premises . all subscription-based teradata software licenses enable portability of the software license between cloud and on-premises deployment options ; this flexibility is designed to reduce risk associated with customers ' buying decisions . customer buying behavior has shifted from predominantly capital-intensive purchases to these subscription-based purchasing options . in the near term , the movement to subscription-based transactions is negatively impacting the timing of our reported revenue and our cash flows because revenue and cash related to subscription-based transactions are recognized and received over time versus upfront as was the case with the capital purchase model . the transition to a subscription-based model is expected to increase our recurring revenue , create more predictable operating results and improve cash flow generation . near term impacts , however , can fluctuate based on the pace of customer adoption , which can be difficult to predict . in the longer term , we expect our reported operating results and cash flow to normalize and increase as customers increasingly transition to these subscription-based offerings . we are continuing to invest in teradata 's future , including investments to ( i ) support and expand our cloud-based offerings , market-leading vantage platform , and analytical consulting and solutions , ( ii ) align our go-to-market approach to best address our target customers , and ( iii ) modernize our infrastructure . 24 in connection with the company 's business transformation , teradata introduced additional financial and performance metrics to allow for greater transparency regarding the progress we are making toward achieving our strategic objectives . these metrics included the following : annual recurring revenue ( `` arr '' ) - annual contract value for all active and contractually binding term-based contracts at the end of a period . it includes maintenance , software upgrade rights , subscription-based transactions and managed services . bookings mix - subscription bookings divided by the sum of subscription bookings plus perpetual bookings . because we expect little to no perpetual revenue in 2020 , we will not be providing bookings mix as a key financial and performance metric going forward . story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; font-weight : bold ; '' > revenue mix - the proportion of recurring , consulting , and perpetual software licenses and hardware that generates the total revenue of the company . changes in revenue mix can have an impact on gross profit even if total revenue remains unchanged . recurring revenue mix - the proportion of various recurring revenue offerings that comprise the total of recurring revenue . for example , a higher mix of subscriptions including hardware rentals could have a negative impact on total recurring gross profit . deal mix - refers to the type of transactions closed within the period that generate the total perpetual software license and hardware revenue . for example , a higher mix of hardware versus software or the mix of teradata versus third-party products can impact profitability . gross profit for the following years ended december 31 was as follows : replace_table_token_5_th 2019 compared to 2018 - the decrease in recurring revenue gross profit as a percent of revenue was driven by a higher mix of subscription-based revenue as compared to the prior-year period . story_separator_special_tag the forecasted tax rate is based on the overseas profits being taxed at an overall effective tax rate of approximately 33 % , as compared to the federal statutory tax rate of 21 % in the u.s. revenue and gross profit by operating segment effective january 1 , 2019 , teradata implemented an organizational change in which teradata now manages its business under three geographic regions , which are also the company 's operating segments : ( 1 ) americas region ( north america and latin america ) ; ( 2 ) emea region ( europe , middle east , and africa ) and ( 3 ) apac region ( asia pacific and japan ) . for purposes of discussing results by segment , management excludes the impact of certain items , consistent with the manner by which management evaluates the performance of each segment . this format is useful to investors because it allows analysis and comparability of operating trends . it also includes the same information that is used by teradata management to make decisions regarding the segments and to assess financial performance . the chief operating decision maker , who is our interim president and chief executive officer , evaluates the performance of the segments based on revenue and multiple profit measures , including segment gross profit . for management reporting purposes , assets are not allocated to the segments . our segment results are reconciled to total company results reported under gaap in note 14 of notes to consolidated financial statements . prior-period results have been restated to conform to the current year presentation . the following table presents revenue and operating performance by segment for the years ended december 31 : 29 replace_table_token_9_th 2019 compared to 2018 americas revenue decreased 6 % , which included a 1 % unfavorable impact from foreign currency fluctuations . an increase in recurring revenue was offset by a decrease in perpetual software licenses and hardware revenue and decrease in consulting revenue . the increase in recurring revenue and decline in perpetual revenue were driven by the shift to subscription-based transactions . segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue . emea emea revenue decreased 16 % , which includes a 3 % unfavorable impact from foreign currency fluctuations . an increase in recurring revenue was offset by a decrease in perpetual software licenses and hardware revenue and decrease in consulting revenue . segment gross profit as a percentage of revenues was higher primarily due to a higher mix of recurring revenue . apac apac revenue decreased 22 % , which included a 2 % unfavorable impact from foreign currency fluctuations . an increase in recurring revenue was offset by a decrease in perpetual software licenses and hardware revenue and a decrease in consulting revenue . segment gross profit as a percentage of revenues was lower primarily due to a decline in consulting margins and decline in perpetual software licenses and hardware margins as a result of a higher mix of hardware , partially offset by a higher mix of recurring revenue . 2018 compared to 2017 americas revenue decreased 6 % , which included a 1 % unfavorable impact from foreign currency fluctuations . an increase in recurring revenue was offset by a decrease in perpetual software licenses and hardware revenue and consulting revenue . the increase in recurring revenue and decline in perpetual revenue were driven by the shift to subscription-based transactions . segment gross profit as a percentage of revenues was lower primarily due to lower perpetual revenue margin from a higher mix of hardware as some customers continued to purchase hardware upfront while buying software on a subscription basis . emea emea revenue increased 4 % , which included a 3 % favorable impact from foreign currency fluctuations . an increase in recurring revenue and consulting revenue was partially offset by a decrease in perpetual software licenses and hardware revenue . segment gross profit as a percentage of revenues was lower primarily due to due to a decline in perpetual software and hardware margins , which more than offset a favorable higher mix of recurring revenue . 30 apac apac revenue increased 14 % , which included a 1 % unfavorable impact from foreign currency fluctuations . an increase in recurring revenue and consulting revenue was partially offset by a decrease in perpetual software licenses and hardware revenue . segment gross profit as a percentage of revenues was higher primarily due to growth in higher margin recurring revenue and an increase in consulting services gross margin as the company continued to focus on making operational improvements in its consulting business . financial condition , liquidity and capital resources teradata ended 2019 with $ 494 million in cash and cash equivalents , a $ 221 millio n decrease from the december 31 , 2018 balance , after using approximately $ 300 million for repurchases of company common stock during the year . cash provided by operating activities decreased by $ 216 million to $ 148 million in 2019 compared to 2018. the decrease in cash provided by operating activities was driven by a faster transition to a subscription model , higher cash payments in 2019 related to 2018 variable compensation , lower upfront multi-year cash payments from subscription-based transactions , and higher cash used for reorganizing and restructuring our operations and go-to-market functions to align to our strategy . teradata 's management uses a non-gaap measure called `` free cash flow , '' which is not a measure defined under gaap . we define free cash flow as net cash provided by operating activities less capital expenditures for property and equipment and additions to capitalized software . free cash flow is one measure of assessing the financial performance of the company , and this may differ from the definition used by other companies . the components that are used to calculate free cash flow are gaap measures taken directly from the consolidated statements of cash flows .
| 2019 financial overview as more fully discussed in later sections of this md & a , the following are the financial highlights for 2019 : revenue of $ 1,899 million decreased by 12 % in 2019 as compared to 2018 , with an underlying 9 % increase in recurring revenue as the company 's business shifts to subscription-based transactions . the increase in recurring revenue was more than offset by a 69 % decrease in perpetual software licenses and hardware revenue and a 24 % decrease in consulting services revenue . foreign currency fluctuations had a 2 % negative impact on total revenue for the year . gross margin was 50.3 % in 2019 , an increase from 47.4 % in 2018 , primarily due to a higher recurring revenue mix as compared to prior year . operating expenses in 2019 decreased by 3.9 % as compared to 2018 , primarily due to cost management initiatives . operating income was $ 10 million in 2019 , down from $ 43 million in 2018 , primarily due to a decrease in revenue as compared to the prior year as a result of a higher subscription-based bookings mix , which resulted in a significant decline in perpetual as well as a decline in consulting revenue , as expected and generally in line with our strategy . net loss was $ 20 million in 2019 versus net income of $ 30 million in 2018 . net loss per share was $ 0.18 in 2019 compared to net income per share of $ 0.25 in 2018 . 25 results from operations for the years ended december 31 , 2019 , 2018 and 2017 in july 2019 , the financial accounting standards board ( `` fasb '' ) issued accounting standards update 2019-07 , `` codification updates to sec sections-amendments to sec paragraphs pursuant to sec final rule releases no .
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organizational structure we , turning point brands , inc. , are a holding company which owns north atlantic trading company , inc. ( “ natc ” ) , and its subsidiaries national tobacco company , l.p. ( “ ntc ” ) , national tobacco finance , llc ( “ ntfllc ” ) , north atlantic operating company , inc. ( “ naoc ” ) , north atlantic cigarette company , inc. ( “ nacc ” ) , and rbj sales , inc. ( “ rbj ” ) , and turning point brands , llc ( “ tpllc ” ) , and its subsidiaries intrepid brands , llc ( “ intrepid ” ) , vaporbeast , llc ( “ vaporbeast ” , f/k/a smoke free technologies , inc. ) , and vapor shark , llc , and its subsidiaries ( collectively , “ vapor shark ” , f/k/a the hand media ) . overview we are a leading independent provider of other tobacco products ( “ otp ” ) in the u.s. we sell a wide range of products across the otp spectrum including moist snuff tobacco ( “ mst ” ) , loose leaf chewing tobacco , premium cigarette papers , make-your-own ( “ myo ” ) cigar wraps and cigar smoking tobacco , cigars , liquid vapor products , and tobacco vaporizer products ; but , we do not sell cigarettes . we estimate the otp industry generated approximately $ 11 billion in manufacturer revenue in 2017. in contrast to manufactured cigarettes , which have been experiencing declining volumes for decades based on data published by the alcohol and tobacco tax and trade bureau ( “ ttb ” ) , the otp industry is demonstrating increased consumer appeal with low to mid-single digit consumer unit growth as reported by management science associates , inc. ( “ msai ” ) , a third-party analytics and informatics company . under the leadership of a senior management team with an average of 22 years of experience in the tobacco industry , we have grown and diversified our business through new product launches , category expansions , and acquisitions while concurrently improving operational efficiency . products we operate in three segments : ( i ) smokeless products , ( ii ) smoking products and ( iii ) newgen products . in our smokeless products segment we manufacture and market moist snuff and contract for and market loose leaf chewing tobacco products . in our smoking products segment , we ( i ) market and distribute cigarette papers and related products , ( ii ) market and distribute myo cigar wraps , myo loose cigar smoking tobacco , and cigars , and ( iii ) package , market , and distribute traditional pipe tobaccos . in our newgen products segment , we ( i ) market and distribute liquid vapor products , tobacco vaporizer products , and certain other products without tobacco and or nicotine ; ( ii ) distribute a wide assortment of vaping related products to non-traditional retail via vaporbeast and vapor shark ; and ( iii ) distribute a wide assortment of vaping related products to individual consumers via vapor shark branded retail outlets . refer to the ‘ recent developments ' section below for details regarding the vaporbeast and vapor shark acquisitions . our portfolio of brands includes some of the most widely recognized names in the otp industry , such as stoker 's ® , zig-zag ® , and vaporbeast ® . the following table sets forth the market share and category rank of our core products and demonstrates their industry positions : replace_table_token_5_th ( 1 ) market share and category rank data for all products are derived from msai data as of 12/31/17 . 33 operations as of december 31 , 2017 , our products are available in approximately 170,000 u.s. retail locations which , with the addition of retail stores in canada , brings our total north american retail presence to an estimated 200,000 points of distribution . we subscribe to a sales tracking system from msai that records all otp product shipments ( ours as well as those of our competitors ) from approximately 900 wholesalers to over 250,000 retail stores in the u.s. this system enables us to understand individual product share and volume trends across multiple categories down to the individual retail store level , allowing us to allocate field salesforce coverage to the highest opportunity stores . our sales and marketing group of approximately 145 professionals utilizes the msai system to efficiently target markets and sales channels with the highest sales potential . our core tobacco business ( smokeless and smoking segments ) primarily generates revenues from the sale of our products to wholesale distributors who , in turn , resell the products to retail operations . our acquisition of vaporbeast in november 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets and to ultimate consumers via non-traditional retail outlets as well . our acquisition of vapor shark further expanded our selling network by allowing us to directly reach ultimate consumers through vapor shark branded retail outlets . our net sales , which include federal excise taxes , consist of gross sales net of cash discounts , returns , and selling and marketing allowances . we rely on long-standing relationships with high-quality , established manufacturers to provide the majority of our produced products . approximately 87 % of our production , as measured by gross sales , is outsourced to suppliers . the remaining 13 % represents our moist snuff tobacco operations located in dresden , tn , and the packaging of our pipe tobacco in louisville , ky. our principal operating expenses include the cost of raw materials used to manufacture the limited number of our products which we produce in-house ; the cost of finished products , which are generally purchased goods ; federal excise taxes ; legal expenses ; and compensation expenses , including benefits and costs of salaried personnel . our other principal expenses include interest expense and other expenses . story_separator_special_tag in april 2016 , we increased the total authorized shares of preferred and voting and non-voting common stock and effected a 10.43174381 for 1 stock split of our voting and non-voting common stock . as a result of the stock split , all previously reported share amounts ( including options and warrants ) in the accompanying financial statements and related notes of the company have been retrospectively restated to reflect the stock split . critical accounting policies and uses of estimates the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states . when more than one accounting principle , or the method of its application , is generally accepted , we select the principle or method that is appropriate in the specific circumstances . application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties . actual results could differ from these estimates . we evaluate our estimates , including those related to revenue recognition , collectability of accounts receivable , inventory valuation and obsolescence , goodwill , intangibles , pension and postretirement obligations , income taxes , litigation , and contingencies on an ongoing basis . we base these estimates on our historical experience and other assumptions we believe are appropriate under the circumstances . in preparing these consolidated financial statements , we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements . revenue recognition . we recognize revenues , net of sales incentives and sales returns , including shipping and handling charges billed to customers , upon delivery to the customer at which time there is a transfer of title and risk of loss to the customer in accordance with asc 605-10-s99 . we classify customer rebates as sales deductions in accordance with the requirements of asc 605-50-25 . 35 derivative instruments . we use foreign currency forward contracts to hedge a portion of our exposure to changes in foreign currency exchange rates from time to time . we account for our forward contracts under the provisions of asc 815 , derivatives and hedging . under our policy , as amended , we may hedge up to 100 % of our anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months . we may also , from time to time , hedge up to ninety percent of our non-inventory purchases in the denominated invoice currency . forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date except any hedge ineffectiveness which is recognized currently in income . gains and losses on these contracts are transferred from other comprehensive income into net income as the related inventories are received . changes in fair value of any contracts that do not qualify for hedge accounting or are not designated as hedges are recognized in income currently . goodwill and other intangible assets . we follow the provisions of asc 350 , intangibles – goodwill and other . in accordance with asc 350-20-35 , goodwill and indefinite-lived intangible assets are reviewed for impairment annually on december 31 , or more frequently if certain indicators are present . if the carrying value of the goodwill or indefinite-life intangible asset exceeds its fair value , which is determined using discounted cash flows , the goodwill or intangible asset is considered impaired . the carrying value of the goodwill or indefinite-life intangible asset would then be reduced to fair value . for goodwill , the determination of a reporting unit 's fair value involves , among other things , our market capitalization and application of the income approach , which includes developing forecasts of future cash flows and determining an appropriate discount rate . based on our annual goodwill impairment testing , the estimated fair values of each of our reporting units were substantially in excess of the respective carrying values . we had no such impairment of goodwill or other intangible assets during the year ended december 31 , 2017. fair value : gaap establishes a framework for measuring fair value . that framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value . the hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ( level 1 ) and the lowest priority to unobservable inputs ( level 3 ) . the three levels of the fair value hierarchy under gaap are described below : · level 1 – inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date . · level 2 – inputs to the valuation methodology include : quoted prices for similar assets or liabilities in active markets ; quoted prices for identical or similar assets or liabilities in inactive markets ; inputs other than quoted prices that are observable for the asset or liability ; and inputs that are derived principally from or corroborated by observable market data by correlation or other means . · level 3 – unobservable inputs that reflect management 's best estimate of what market participants would use in pricing the asset or liability at the measurement date . retirement plans . we follow the provisions of asc 715 , compensation – retirement benefits in accounting for our retirement plans , which requires an employer to ( i ) recognize in its statement of financial position the funded status of a benefit plan , measured as the difference between the fair value of plan assets and benefit obligations ; ( ii ) recognize , net of tax , the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost ; and ( iii ) measure defined benefit plan assets and obligations as of the date of the employer 's statement of financial position . income taxes .
| summary the table and discussion set forth below relates to our consolidated results of operations for the years ended december 31 ( in thousands ) : replace_table_token_6_th 37 comparison of year ended december 31 , 2017 , to year ended december 31 , 2016 net sales . for the year ended december 31 , 2017 , overall net sales increased to $ 285.8 million from $ 206.2 million for the year ended december 31 , 2016 , an increase of $ 79.5 million or 38.6 % . for the year ended december 31 , 2017 , volumes increased 34.2 % and price/mix increased 4.4 % . this increase was substantially due to an increase in newgen products sales as a result of the acquisitions of vaporbeast and vapor shark . for the year ended december 31 , 2017 , net sales in the smokeless products segment increased to $ 84.6 million from $ 77.9 million for the year ended december 31 , 2016 , an increase of $ 6.6 million or 8.5 % . for the year , volume increased 3.4 % and price/mix increased 5.1 % . net sales growth was primarily driven by stoker 's ® mst . for the year ended december 31 , 2017 , net sales in the smoking products segment decreased to $ 110.0 million from $ 111.0 million for the year ended december 31 , 2016 , a decrease of $ 1.0 million or 0.9 % . for the year ended december 31 , 2017 , smoking products volumes decreased 3.7 % , while price/mix increased 2.8 % . the decline in net sales is primarily due to reduced investment in the cigar product line to allow for those resources to be used for other product lines with higher margins . for the year ended december 31 , 2017 , net sales in the newgen products segment increased to $ 91.3 million from $ 17.3 million for the year ended december 31 , 2016 , an increase of $ 74.0 million or 427.2 % .
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story_separator_special_tag of this report for an additional discussion of these and other related factors that affect our operations and or financial performance . f inancial r isks instability and volatility in the financial markets could negatively impact our ability to access capital at competitive rates . our business strategy includes the continued pursuit of growth , both organically and through acquisitions . to the extent that we do not generate sufficient cash flow from operations , we may incur additional indebtedness to finance our growth . we rely on access to both short-term and long-term capital markets as a significant source of liquidity for capital requirements not satisfied by the cash flows from our operations . we are committed to maintaining a sound capital structure and strong credit ratings to provide the financial flexibility needed to access capital markets when required . however , if we are not able to access capital at competitive rates , our ability to implement our strategic plan , undertake improvements and make other investments required for our future growth may be limited . a downgrade in our credit rating could adversely affect our access to capital markets and our cost of capital . our ability to obtain adequate and cost-effective capital depends on our credit ratings , which are greatly affected by our financial performance and the liquidity of financial markets . a downgrade in our current credit ratings could adversely affect our access to capital markets , as well as our cost of capital . if we fail to comply with our debt covenant obligations , we could experience adverse financial consequences that could affect our liquidity and ability to borrow funds . our long-term debt obligations and committed short-term lines of credit contain financial covenants related to debt-to-capital ratios and interest-coverage ratios . failure to comply with any of these covenants could result in an event of default which , if not cured or waived , could result in the acceleration of outstanding debt obligations or the inability to borrow under certain credit agreements . any such acceleration would cause a material adverse change in our financial condition . an increase in interest rates may adversely affect our results of operations and cash flows . an increase in interest rates , without the recovery of the higher cost of debt in the sales and or transportation rates we charge our utility customers , could adversely affect future earnings . an increase in short-term interest rates would negatively affect our results of operations , which depend on short-term lines of credit to finance accounts receivable and storage gas inventories , as well as to temporarily finance capital expenditures . inflation may impact our results of operations , cash flows and financial position . inflation affects the cost of supply , labor , products and services required for operations , maintenance and capital improvements . to help cope with the effects of inflation on our capital investments and returns , we seek rate increases from regulatory commissions for regulated operations and closely monitor the returns of our unregulated operations . there can be no assurance that we will be able to obtain adequate and timely rate increases to offset the effects of inflation . to compensate for fluctuations in propane gas prices , we adjust our propane selling prices to the extent allowed by the market . there can be no assurance , however , that we will be able to increase propane sales prices sufficiently to compensate fully for such fluctuations in the cost of propane gas to us . our energy marketing subsidiaries are exposed to market risks , beyond our control , which could adversely affect our financial results and capital requirements . our energy marketing subsidiaries are subject to market risks beyond our control , including market liquidity and commodity price volatility . although we maintain risk management policies , we may not be able to offset completely the price risk associated with volatile commodity prices , which could lead to volatility in earnings . physical trading also has price risk on any net open positions at the end of each trading day , as well as volatility resulting from : ( i ) intra-day fluctuations of natural gas and or propane prices , and ( ii ) daily price movements between the time natural gas and or propane is purchased or sold for future delivery and the time the related purchase or sale is economically hedged . the determination of our net open position at the end of any trading day requires us to make assumptions as to future circumstances , including the use of natural gas and or propane by our customers in relation to its anticipated market positions . because the price risk associated with any net open position at the end of such day chesapeake utilities corporation 2013 form 10-k page 12 may increase if the assumptions are not realized , we review these assumptions daily . net open positions may increase volatility in our financial condition or results of operations if market prices move in a significantly favorable or unfavorable manner , because the changes in fair value of trading contracts are immediately recognized as profits or losses for financial accounting purposes . this volatility may occur , with a resulting increase or decrease in earnings or losses , even though the expected profit margin is essentially unchanged from the date the transactions were consummated . our energy marketing subsidiaries are exposed to credit risk of their counterparties . our energy marketing subsidiaries extend credit to counterparties and continually monitor and manage collections aggressively . each of these subsidiaries is exposed to the risk that it may not be able to collect amounts owed to it . if the counterparty to such a transaction fails to perform , and any underlying collateral is inadequate , we could experience financial losses . our energy marketing subsidiaries are dependent upon the availability of credit to successfully operate their businesses . story_separator_special_tag higher natural gas prices can significantly increase the cost of gas billed to our natural gas customers . increases in the cost of coal , natural gas and other fuels used to generate electricity can significantly increase the cost of electricity billed to our electric customers . damage to the production or transportation facilities of our suppliers , decreasing their supply of natural gas and electricity , could result in increased supply costs and higher prices for our customers . such cost increases generally have no immediate effect on our revenues and net income because of our regulated fuel cost recovery mechanisms . our net income , however , may be reduced by higher expenses that we may incur for uncollectible customer accounts and by lower volumes of natural gas and electricity deliveries when customers reduce their consumption . therefore , increases in the price of natural gas , coal and other fuels can affect our operating cash flows and the competitiveness of natural gas and electricity as energy sources . propane . propane costs are subject to volatile changes as a result of product supply or other market conditions , including weather and economic and political factors affecting crude oil and natural gas supply or pricing . for example , weather conditions could damage production or transportation facilities , which could result in decreased supplies of propane , increased supply costs and higher prices for customers . such cost changes can occur rapidly and can affect profitability . there is no assurance that we will be able to pass on propane cost increases fully or immediately , particularly when propane costs increase rapidly . therefore , average retail sales prices can vary significantly from year to year as product costs fluctuate in response to propane , fuel oil , crude oil and natural gas commodity market conditions . in addition , in periods of sustained higher commodity prices , declines in retail sales volumes due to reduced consumption and increased amounts of uncollectible accounts may adversely affect net income . our propane inventory is subject to inventory valuation risk , which may result in a write-down of inventory . our propane distribution operations own bulk propane storage facilities , with an aggregate capacity of approximately 3.6 million gallons . we purchase and store propane based on several factors , including inventory levels and the price outlook . we may purchase large volumes of propane at current market prices during periods of low demand and low prices , which generally occur during the summer months . propane is a commodity , and as such , its price is subject to volatile fluctuations in response to changes in supply or other market conditions . we have no control over these market conditions . consequently , the wholesale price of the propane that we purchase can change rapidly over a short period of time . the retail market price for propane could fall below the price at which we made the purchases , which would adversely affect our profits or cause sales from that inventory to be unprofitable . in addition , falling propane prices may result in inventory write-downs , as required by gaap , if the market price of propane falls below our weighted average cost of inventory , which could adversely affect net income . operating events affecting public safety and the reliability of our natural gas and electric distribution and transmission systems could adversely affect our operations and increase our costs . our natural gas and electric operations are exposed to operational events and risks , such as major leaks , outages , mechanical failures and breakdown , operations below expected level of performance or efficiency and accidents that could affect public safety and the reliability of our distribution and transmission systems , significantly increase costs and cause loss of customer confidence . chesapeake utilities corporation 2013 form 10-k page 14 if we are unable to recover from customers through the regulatory process , all or some of these costs and our authorized rate of return , our results of operations , financial condition and cash flows could be adversely affected . we operate in a competitive environment , and we may lose customers to competitors . natural gas . our natural gas marketing operations compete with third-party suppliers to sell natural gas to commercial and industrial customers . our natural gas transmission and distribution operations compete with interstate pipelines when our transmission and or distribution customers are located close enough to a competing pipeline to make direct connections economically feasible . failure to retain and grow our customer base in the natural gas operations would have an adverse effect on our financial condition , cash flows and results of operations . electric . while there is active wholesale power sales competition in florida , our retail electric business through fpu has remained substantially free from direct competition from other electric service providers . generally , however , our retail electric business through fpu remains subject to competition from other energy sources . changes in the competitive environment caused by legislation , regulation , market conditions or initiatives of other electric power providers , particularly with respect to retail competition , could adversely affect our results of operations , cash flows and financial condition . propane . our propane distribution operations compete with other propane distributors , primarily on the basis of service and price . some of our competitors have significantly greater resources . our ability to grow the propane distribution business is contingent upon capturing additional market share , expanding into new markets , and successfully utilizing pricing programs that retain and grow our customer base . failure to retain and grow our customer base in our propane distribution operations would have an adverse effect on our results of operations , cash flows and financial condition . our propane wholesale marketing operation competes with various marketers , many of which have significantly greater resources and are able to obtain price or volumetric advantages .
| resulting in an increase in cash flows of $ 6.3 million . significant operating activities generating the cash flow change were as follows : net income , adjusted for reconciling activities , increased cash flows by $ 5.6 million , due primarily to higher earnings and increased non-cash items , such as depreciation and amortization expenses included in our earnings ; lower net regulatory liabilities increased cash flows by $ 7.3 million , due primarily to an increase in fuel cost collected through the fuel cost recovery mechanisms during 2013 and the absence of the $ 1.2 million refund by eastern shore in january 2012 to customers as a result of its rate case settlement ; higher inventory balances in 2013 decreased cash flows by $ 5.1 million due primarily to higher propane costs ; and lower customer deposits decreased cash flows by $ 1.7 million due to refunds to customers during the year . during 2012 and 2011 , our net cash flow provided by operating activities was $ 66.6 million and $ 71.1 million , respectively , resulting in a decrease of $ 4.5 million . significant operating activities generating the cash flow change were as follows : lower customer deposits decreased cash flows by $ 6.7 million , due primarily to the absence in 2012 of a large deposit made by an industrial customer in 2011 and refunds to customers during 2012 ; higher net regulatory liabilities decreased cash flows by $ 2.5 million , primarily as a result of a reduction in fuel costs due and collected from regulated customers during 2012 ; and chesapeake utilities corporation 2013 form 10-k page 49 lower propane inventory , storage gas and other inventory increased cash flows by $ 3.1 million , as a result of lower commodity prices during 2012 , partially offset by an increase in the pipes and other construction inventory purchased during
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the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the financial statements . we believe that our audits provide a reasonable basis for our opinion . f- 1 critical audit matter the critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that ( 1 ) relates to accounts or disclosures that are material to the financial statements and ( 2 ) involved our especially challenging , subjective , or complex judgments . the communication of critical audit matters does not alter in any way our opinion on the financial statements , taken as a whole , and we are not , by communicating the critical audit matter below , providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates . ore on leach pad as described in notes 2 and 5 to the financial statements , the company 's ore on leach pad balance is $ 6.8 million at december 31 , 2020 consisting of a current balance of $ 5.3 million and a noncurrent balance of $ 1.5 million . the measurement and valuation of the ore on leach pad balance involves significant management estimates and assumptions related to the measure of metal content of ore placed on the leach pad , including recovery rates and ore grades . the carrying value of the metal expected to be extracted within twelve months is classified as current on the balance sheet . we identified the measurement and valuation for the ore on leach pad as a critical audit matter . the principal considerations for our determination that the measurement and valuation for ore on leach pad is a critical audit matter is that certain management assumptions are complex and have a higher degree of estimation uncertainty and that changes in these assumptions could have a significant impact on the balance . in turn , auditing ore on leach pad requires significant auditor judgment . our audit procedures related to the accounting for ore on leach pad included the following , among others . ● we obtained and tested the leach pad rollforward of the estimated ounces and costs added to , recovered from , and the resulting ending amounts of ounces and costs of the ore on leach pad balance , including testing of certain assumptions , such as recovery rates and ore grades . ● for the rollforward of estimated ounces , we assessed the completeness and accuracy of mining production information , including tests of tonnage processed . ● we evaluated management 's laboratory procedures related to assay testing used to estimate ore grade . ● we assessed the classification of the current and noncurrent portions of the ore on leach pad balance based upon estimated future sales . ● we evaluated management 's process for determining production information ; estimating the recovery rates and ore grades ; and tracking inventory rollforward related to recording the balance of ore on leach pad . we have served as the company 's independent auditor since 2011. assure cpa , llc assure cpa , llc ( formerly decoria , maichel & teague , p.s . ) spokane , washington april 19 , 2021 f- 2 desert hawk gold corp balance sheets replace_table_token_7_th f- 3 desert hawk gold corp statements of operations replace_table_token_8_th f- 4 desert hawk gold corp statements of stockholders ' equity ( deficit story_separator_special_tag the following discussion should be read in conjunction with our financial statements and related notes thereto as filed with this report . story_separator_special_tag consumables ; direct labor ; repairs and maintenance ; utilities ; amortization of property , equipment , and mineral properties ; and mine administrative expenses . costs are removed from ore on leach pads as ounces are recovered , based on the average cost per recoverable ounce of gold on the leach pad . estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad ( measured tons added to the leach pad ) , the grade of material placed on the leach pad ( based on assay data ) and an estimated recovery percentage ( based on ore type ) . the nature of the leaching process inherently limits the ability to precisely monitor inventory levels . as a result , actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time . as of december 31 , 2020 , the company had a limited operating history and actual results only over a short period of time . variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis . story_separator_special_tag the ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded . the quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the company expects to recover during the next 12 to 24 months . inventory is stated at the lower of cost or net realizable value , which for december 31 , 2020 is net realizable value . a portion of the december 31 , 2020 inventory has been classified as non-current . this classification has been made based on the amount of gold expected to be sold over the next twelve months based on prior year sales . see note 5. mineral properties and interests the company capitalizes costs for acquiring mineral properties and ongoing mineral lease payments and expenses costs to maintain mineral rights . upon reaching the production stage , the capitalized costs are amortized using the units-of-production method on the basis of periodic estimates of ore resources . estimates for ore resources are a key component in determining units of production rates . estimates of ore resources , mineralized material , and other resources may change , possibly in the near term , resulting in changes to rates in future reporting periods . the company does not have proven and probable resources at this time . mineral exploration and development costs until proven and probable resources ( as defined by sec guide 7 ) are established , all exploration expenditures are expensed as incurred . once such reserves are established , expenditures to develop new mines , to define further mineralization in existing ore bodies , and to expand the capacity of operations , are capitalized and will be amortized on units of production basis over proven and probable reserves . previously capitalized costs are expensed in the period the property is abandoned . revenue recognition concentrate sales : the company 's product consists of gold bearing carbon which is shipped offsite to be turned into an unrefined gold concentrate , which is then further refined to become gold and silver bullion . the company 's performance obligation in these transactions is generally the transfer of concentrate to the customer . revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer , and when the transaction price and number of ounces can be determined or reasonably estimated . processing income : the company processes ore for another company . once processed , the unrefined gold concentrate is shipped to a refinery where it is refined into gold and silver bullion . the company receives a percentage of the proceeds from the sale of the gold and silver concentrate which is credited to the company 's account at the refinery . management has determined the performance obligation is met when the company delivers the unrefined gold concentrate to the refinery and recognizes revenue at that time . 19 sales and accounts receivable for sales are recorded net of charges from the customer which represent components of the transaction price . charges are estimated by management upon transfer of risk based on contractual terms , and actual charges typically do not vary materially from management 's estimates . revenue from the sale of concentrate may be subject to adjustment upon final settlement of estimated metal prices , weights and assays , and are recorded as adjustments to revenue in the period of final settlement of prices , weights and assays ; such adjustments are typically not material in relation to the initial invoice amounts . revenue proceeds are recorded net of the impact of royalties and participation agreements . see note 18. reclamation and remediation the company 's operations have been , and are subject to , standards for mine reclamation that have been established by various governmental agencies . the company records the fair value of an asset retirement obligation as a liability in the period in which the company incurs a legal obligation for the retirement of tangible long-lived assets . a corresponding asset is also recorded and depreciated over the life of the asset . after the initial measurement of the asset retirement obligation , the liability is adjusted when there are changes in the estimated future cash flows due to change in estimated costs or change in time until reclamation will commence . determination of any amounts recognized is based upon numerous estimates and assumptions , including future retirement costs , future inflation rates and the credit-adjusted risk-free interest rates . such assumptions are based on the company 's current mining plan and the best available information for making such estimates . see note 13. for non-operating properties , the company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable . such costs are based on management 's estimate of amounts expected to be incurred when the remediation work is performed . financial instruments the company 's financial instruments include cash and cash equivalents as well as various notes payable and the prepaid gold contract liability . all instruments are accounted for on a historical cost basis , which , due to the short maturity and interest rates of these financial instruments , approximates fair value at december 31 , 2020 and 2019. going concern as shown in the accompanying financial statements , the company had an accumulated deficit of $ 11,291,811 through december 31 , 2020 and net loss of $ 1,840,593 for the year ended december 31 , 2020 along with negative working capital of $ 3,748,321 , which raises substantial doubt about the company 's ability to continue as a going concern . the financial statements do not include any adjustments relating to the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be necessary in the event
| overview we are a mineral exploration company located in the gold hill mining district in tooele county , utah . we are currently focused on exploration and development of our kiewit claims and operation of a heap leach processing facility . we were originally incorporated in the state of idaho on november 5 , 1957. for several years we bought and sold mining leases and claims , but in 1995 we ceased all principal business operations . in 2008 , we changed our corporate domicile from the state of idaho to the state of nevada . in may 2009 , we raised funds to recommence mining activities . in july 2009 , we entered into agreements to commence exploration activities on mining claims in the gold hill mining district located in tooele county , utah . we hold leasehold interests within the gold hill mining district consisting of 66 unpatented mining claims and 10 patented claims . from these claims we have centered our exploration activities on the kiewit site . 17 during 2018 we settled our outstanding debt with dmrj group i , llc and repurchased and retired all outstanding preferred shares issued to them under the 2010 investment agreement with them . during 2019 we secured funding of $ 13,600,000 ( net ) from pdk utah holdings lp under the terms of the prepaid forward gold purchase agreement dated march 7 , 2019. we also renegotiated our lease with clifton mining and released all but the current unpatented and patented mining claims . we also reacquired the existing royalties from clifton and its affiliates and issued a royalty to pdk equal to 4 % of the net smelter returns from our mine . an additional 20 claims , known as the jjs property , were acquired . we suspended our mining operations in june 2016 because of depressed metal prices and lack of funds .
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( 11 ) the shares subject to this stock option vested as to 1/4 of the shares on september 2 , 2014 , with the remaining shares vesting on an equal monthly basis over the following 36 months . employee benefits and stock plans 2011 equity incentive plan our board of directors adopted , and our stockholders approved , the 2011 equity incentive plan , or 2011 incentive plan , in january 2011 as a successor to the 2006 equity incentive plan , or 2006 plan . the 2011 incentive plan became effective immediately upon the execution and delivery of the underwriting agreement for our ipo and , on that date , the 51,693 shares that were available for future grant under the 2006 plan as of such date became available for future grant under the 2011 incentive plan , and no additional shares remain available for grant under the 2006 plan . the 2011 incentive plan will terminate on january 4 , 2021 , unless sooner terminated by our board of directors . administration . the board of directors has delegated its authority to administer the 2011 incentive plan to the compensation committee . subject to the terms of the 2011 incentive plan , the board of directors or an authorized committee determines recipients , dates of grant , the numbers and types of stock awards to story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended . such forward-looking statements involve risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the information expressed or implied by these forward-looking statements . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under item 1a . risk factors and elsewhere in this annual report on form 10-k. please refer to the section entitled forward-looking statements in this annual report on form 10-k. overview we are a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute and breakthrough pain . our lead product candidate , zalviso tm , formerly known as the sufentanil nanotab pca system , or arx-01 , is currently under review by the fda for marketing approval , and is designed to improve the management of moderate-to-severe acute pain in patients in the hospital setting . the current standard of care for patients with moderate-to-severe pain in the hospital is intravenous patient-controlled analgesia , or iv pca , has been shown to cause harm and inconvenience to patients following surgery because of the side effects of commonly used iv pca opioids , the invasive iv needle route of delivery and the inherent potential for programming and delivery errors associated with the complexity of infusion pumps . zalviso zalviso is an investigational pre-programmed , non-invasive , handheld system that allows hospital patients with moderate-to-severe acute pain to self-dose with sublingual sufentanil nanotabs to manage their pain . zalviso is designed to address the needs of patients with moderate-to-severe pain in the hospital setting by offering : a high therapeutic index opioid : zalviso uses the high therapeutic index , highly lipophilic opioid , sufentanil , enabling delivery via a non-intravenous route , and also supporting fast onset of effect . a non-invasive route of delivery : the sublingual route of delivery used by zalviso provides rapid onset of analgesia , therefore eliminating the risk of iv-related analgesic gaps and iv complications , such as catheter-related infections . in addition , because patients do not require direct connection to an iv pca infusion pump through iv tubing , zalviso allows for ease of patient mobility . a simple , pre-programmed pca solution : zalviso is a pre-programmed pca system designed to eliminate the risk of programming errors . based on the successful results of our phase 3 clinical program for zalviso , we submitted a new drug application , or nda , for zalviso in september 2013 and , in december 2013 , we announced that the u.s food and drug administration , or fda , accepted for filing the zalviso nda . in addition , the fda has established a prescription drug user fee act , or pdufa , action date of july 27 , 2014 for acelrx 's zalviso nda . assuming successful approval of our nda on or around the pdufa action date , we anticipate generating the first commercial sales of zalviso in the united states in the first quarter of 2015. the 505 ( b ) ( 2 ) nda submission for zalviso is based on a development program that includes data from seven phase 1 studies , three phase 2 clinical trials , and three phase 3 clinical trials . the phase 3 trial program included two placebo-controlled efficacy and safety trials and one open-label active comparator trial , in which zalviso was compared to iv pca with morphine . zalviso successfully achieved the primary efficacy endpoints for each of these trials . a summary of the phase 3 trials and results is as follows : active comparator trial ( iap 309 ) in november 2012 , we reported top-line data demonstrating that zalviso met its primary endpoint of non-inferiority in a phase 3 open-label active comparator trial 69 designed to compare the efficacy and safety of zalviso ( 15 mcg/dose , 20 minute lock-out ) to iv pca with morphine ( 1mg/dose , 6 minute lock-out ) for the treatment of moderate-to-severe acute post-operative pain immediately following major abdominal or orthopedic surgery . story_separator_special_tag our net losses were $ 23.4 million and $ 33.4 million during the years ended december 31 , 2013 and 2012 , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 145.5 million . as of december 31 , 2013 , we had cash , cash equivalents and investments totaling $ 103.7 million compared to $ 59.8 million as of december 31 , 2012. in december 2013 , we entered into an amended loan and security agreement with hercules technology ii , l.p. and hercules technology growth capital , inc. , collectively referred to as hercules , under which we may borrow up to $ 40.0 million in three tranches , represented by secured convertible promissory notes . the agreement amends and restates the loan and security agreement with hercules dated as of june 29 , 2011. we borrowed the first tranche of $ 15.0 million upon closing of the transaction on december 16 , 2013 and used approximately $ 8.6 million of the proceeds from the first tranche to repay our obligations under the original loan and security agreement with hercules . we plan to use the proceeds of the remaining tranches to provide additional funding for the commercialization of zalviso , as a potential source of funding for clinical trials for other development programs in its pipeline and for general corporate purposes . the second tranche of $ 10.0 million can be drawn , at the company 's option , anytime prior to june 30 , 2014. the third tranche , of $ 15.0 million , can be drawn at anytime between december 15 , 2014 and march 15 , 2015 , but only if the company has obtained approval for zalviso from the fda ( the milestone ) . the interest rate for each tranche will be calculated at a rate equal to the greater of either ( i ) 9.10 % plus the prime rate as reported from time to time in the wall street journal minus 5.25 % , and ( ii ) 9.10 % . payments under the loan agreement are interest only until april 1 , 2015 ( which will be extended until january 1 , 2016 if we achieve the milestone on or before april 1 , 2015 ) followed by equal monthly payments of principal and interest through the scheduled maturity date on october 1 , 2017 ( which would be extended until january 1 , 2018 if we achieve the milestone on or prior to april 1 , 2015 ) . in addition , a final payment equal to $ 1.7 million will be due on the loan maturity date , or such earlier date specified in the loan agreement . the company 's obligations under the loan agreement are secured by a security interest in substantially all of its assets , other than its intellectual property . 71 as of december 31 , 2013 , the outstanding principal owed to hercules was $ 15.0 million . in december 2013 , we announced a commercial collaboration with grünenthal , covering the territory of the european union , certain other european countries and australia for zalviso for potential use in pain treatment within or dispensed by a hospital , hospice , nursing home or other medically supervised setting . we retain all rights in remaining countries , including the u.s. and asia . under the terms of the agreement , we received an upfront cash payment of $ 30 million . we are eligible to receive approximately $ 220 million in additional payments , based upon research , development , regulatory and manufacturing efforts and net sales target achievements . grünenthal will also make tiered royalty , supply and trademark fee payments in the mid-teens up to the mid-twenties percent range , on net sales of zalviso in the grünenthal territory . grünenthal will be responsible for all commercial activities for zalviso , including obtaining and maintaining pharmaceutical product regulatory approval in the grünenthal territory . we will be responsible for obtaining and maintaining device regulatory approval in the grünenthal territory and manufacturing and supply of zalviso to grünenthal for commercial sales . since our inception in july 2005 , we have not generated any revenue from the sale of our products . we are currently seeking fda approval for our lead product candidate , zalviso , and are preparing for the commercial launch of zalviso in 2015 ; however , there is no guarantee that we will receive approval from the fda and there can be no guarantee that we will be able to produce product revenue in the foreseeable future , if ever . as of december 31 , 2013 , we have recognized in full , as revenue , our $ 5.6 million grant from the usamrmc there can be no assurance that we will receive additional funding from usamrmc or other research-related grant awards or produce other collaborative agreement revenues in the future . critical accounting estimates based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations . the accompanying discussion and analysis of our financial condition and results of operations are based upon our financial statements and the related disclosures , 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 in our financial statements and accompanying notes . 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 .
| results of operations our results of operations have fluctuated from period to period and may continue to fluctuate in the future , based upon the progress of our research and development efforts and variations in the level of expenses related to developmental efforts during any given period . results of operations for any period may be unrelated to results of operations for any other period . in addition , historical results should not be viewed as indicative of future operating results . we are subject to risks common to companies in our industry and at our stage of development , including risks inherent in our research and development efforts , reliance upon our collaborator , enforcement of our patent and proprietary rights , need for future capital , potential competition and uncertainty of clinical trial results or regulatory approvals or clearances . in order for a product candidate to be commercialized based on our research , we and our collaborators must conduct preclinical tests and clinical trials , demonstrate the efficacy and safety of our product candidates , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing arrangements , as well as obtain market acceptance . 76 years ended december 31 , 2013 , 2012 and 2011 revenue to date , we have not generated any commercial product revenue . we do not expect to receive any commercial sales revenue from any product candidates that we develop until we , or our collaborators , obtain regulatory approval and commercialize our products . collaboration agreement in december 2013 , we announced a commercial collaboration with grünenthal , covering the territory of the european union , certain other european countries and australia for zalviso for potential use in pain treatment within or dispensed by a hospital , hospice , nursing home or other medically supervised setting . we retain all rights in remaining countries , including the united states and asia .
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this amount does not include the $ 1,840,000 discount . ( 11 ) represents base salary earned by dr. liang for services as our chief financial officer and chief strategy officer during 2015. dr. liang 's annual base salary during this period was $ 350,000 . ( 12 ) represents base salary earned by dr. yuan for services as our chief medical officer and president of global clinical research and development during 2015. dr. yuan story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with item 6selected consolidated financial data and our consolidated financial statements and related notes appearing elsewhere in this annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under part iitem 1arisk factors and under forward-looking statements and market data in this annual report . overview we are a globally focused , clinical-stage biopharmaceutical company dedicated to becoming a leader in the discovery and development of innovative , molecularly targeted and immuno-oncology drugs for the treatment of cancer . we believe the next generation of cancer treatment will utilize therapeutics both as monotherapy and in combination to attack multiple underlying mechanisms of cancer cell growth and survival . we further believe that discovery of next generation cancer therapies requires new research tools . to that end , we have developed a proprietary cancer biology platform that addresses the importance of tumor-immune system interactions and the value of primary biopsies in developing new models to support our drug discovery effort . our strategy is to develop a pipeline of drug candidates with the potential to be best-in-class monotherapies and also important components of multiple-agent combination regimens . we have used our cancer biology platform to develop four clinical-stage drug candidates that we believe have the potential to be best-in-class or first-in-class . in addition , we believe that each has the potential to be an important component of a drug combination addressing major unmet medical needs . our clinical-stage drug candidates include three molecularly targeted agents , bgb-3111 , bgb-290 and bgb-283 and one immuno-oncology agent , bgb-a317 . bgb-3111 is a potent and selective small molecule inhibitor of btk . bgb-290 is a highly selective small molecule inhibitor of parp1 and parp2 . bgb-283 is a small molecule inhibitor of both the monomer and dimer forms of raf . for each of our molecularly targeted drug candidates , we have achieved proof-of-concept by demonstrating objective responses in the defined patient populations . our clinical-stage immuno-oncology agent , bgb-a317 , is a humanized monoclonal antibody against the immune checkpoint receptor , pd-1 . in addition to our clinical-stage drug candidates , we have a robust pipeline of preclinical programs and are planning to advance one or more of these programs into the clinic in the next 18 months . we have licensed the ex-china rights of bgb-283 to merck kgaa . we retain full global rights for all of our other clinical and preclinical drug candidates and programs . since our inception on october 28 , 2010 , our operations have focused on organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and conducting preclinical studies and clinical trials . we do not have any drug candidates approved for sale and have not generated any revenue from product sales . we have financed operations through a combination of debt and equity financings and private and public grants and contracts , including the net proceeds from the issuance of a senior and convertible promissory note to merck sharp & dohme research gmbh , or msd , an affiliate of merck sharp & dohme corp. , the private placements of our series a preferred shares and series a-2 preferred shares , and our collaboration with merck kgaa , or merck kgaa collaboration . from january 1 , 2014 to december 31 , 2015 , we raised an aggregate of $ 150.3 million of gross proceeds from sales of our preferred shares , and additionally received $ 18.0 million from the merck kgaa collaboration to fund our operations . at december 31 , 2015 , we had cash , cash equivalents and short-term investments of $ 100.5 million . although it is difficult to predict our liquidity requirements , based upon our current operating plan and the successful completion of our initial public offering , we believe we have sufficient cash to meet our projected operating requirements for at least the next 12 months . see liquidity and capital resources. since inception we have incurred significant operating losses . our net losses were $ 7.9 million , $ 18.5 million and $ 57.1 million for the years ended december 31 , 2013 , 2014 and 2015 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 118.2 million . substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : 144 · continue investment in our cancer biology platform ; · continue preclinical and clinical development of our programs ; · continue investment in our manufacturing facilities ; · hire additional research , development and business personnel ; · maintain , expand and protect our intellectual property portfolio ; and · incur additional costs associated with operating as a public company . story_separator_special_tag in accordance with our revenue recognition policy , we recognize these amounts as shown in the table below : replace_table_token_5_th for the years ended december 31 , 2013 , 2014 and 2015 , substantially all of our revenue were generated solely from merck kgaa . for the foreseeable future , we expect substantially all of our revenue will be generated from the merck kgaa collaboration , and any other strategic relationships we may enter into . if our development efforts are successful , we may also generate revenue from product sales . expenses research and development expenses research and development expenses consist of the costs associated with our research and development activities , conducting preclinical studies and clinical trials and activities related to regulatory filings . our research and development expenses consist of : · employee-related expenses , including salaries , benefits , travel and share-based compensation expense for research and development personnel ; · expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , and consultants that conduct and support clinical trials and preclinical studies ; · costs associated with preclinical activities and development activities ; · costs associated with regulatory operations ; and · other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in research and development activities . our current research and development activities mainly relate to the clinical development of the following programs : · bgb-3111 , a potent and selective small molecule inhibitor of btk ; 146 · bgb-a317 , a humanized monoclonal antibody against pd-1 ; · bgb-290 , a highly selective small molecule inhibitor of parp1 and parp2 ; and · bgb-283 , a small molecule inhibitor of both the monomer and dimer forms of braf . we expense research and development costs when we incur them . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information our vendors provide to us . we do not allocate employee-related costs , depreciation , rental and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified as unallocated research and development expenses . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our drug candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our drug candidates . this is due to the numerous risks and uncertainties associated with developing such drug candidates , including the uncertainty of : · successful enrollment in and completion of clinical trials ; · establishing an appropriate safety profile ; · establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; · receipt of marketing approvals from applicable regulatory authorities ; · commercializing the drug candidates , if and when approved , whether alone or in collaboration with others ; · obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drug candidates ; · continued acceptable safety profiles of the products following approval ; and · retention of key research and development personnel . a change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs , timing and viability associated with the development of that drug candidate . research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our development programs progress , including as we continue to support the clinical trials of bgb-3111 , bgb-a317 , bgb-290 and bgb-283 as a treatment for various cancers and move such drug candidate into additional clinical trials . there are numerous factors associated with the successful commercialization of any of our drug candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefit costs , including share-based compensation for general and administrative personnel . other general and administrative expenses include professional fees for legal , consulting , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in general and administrative activities . we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities , including the continuation of the clinical trials of bgb-3111 , bgb-a317 , bgb-290 and bgb-283 as a treatment for various cancers and the initiation of our clinical trials for our other drug candidates . these increases will likely include increased headcount , increased share-based compensation charges , 147 expanded infrastructure and increased costs for insurance . we also anticipate increased legal , compliance , accounting and investor and public relations expenses associated with being a public company . interest expense , net interest expense consists primarily of interest on our $ 10 million 8 % senior promissory note and $ 10 million 8 % subordinated convertible promissory note , compounded annually , both issued to msd in 2011. we also issued an aggregate principal amount of $ 3.1 million convertible promissory notes to several other investors in 2012 and 2014 , all bearing interest of 8 % per annum for the first three years and 15 % per annum for the remaining term .
| results of operations comparison of the years ended december 31 , 2014 and 2015 the following table summarizes the results of our operations for the years ended december 31 , 2014 and 2015 , respectively , together with the changes from year-to-year : replace_table_token_6_th revenue revenue from the merck kgaa collaboration decreased by $ 4.2 million to $ 8.8 million for the year ended december 31 , 2015 from $ 13.0 million for the year ended december 31 , 2014. the decrease was mainly attributable to the difference between revenues recognized in 2014 for payments received for dosing of 5th patient of bgb-283 and bgb-290 in ex-prc trials and a payment received in 2015 for dosing of the 5th patient of bgb-283 in prc trials . 148 research and development expense research and development expense increased by $ 36.4 million to $ 58.3 million for the year ended december 31 , 2015 from $ 21.9 million for the year ended december 31 , 2014. the following table summarizes our research and development expense by program and stage of development for the year ended december 31 , 2014 and 2015 , respectively : replace_table_token_7_th the increase in external research and development expense was primarily attributable to the advancement of our clinical and preclinical pipeline , and included the following : · increases of approximately $ 7.8 million , $ 5.8 million , $ 6.4 million , and $ 0.7 million respectively for bgb-290 , bgb-a317 , bgb-3111 , and bgb-283 , including the recognized expenses associated with the repurchase of ex-prc rights to bgb-290 .
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this form 10-k covers the transition period of july 1 , 2013 through december 31 , 2013 . 46 overview we are a houston , texas based independent energy company engaged in the acquisition , exploration , development , exploitation and production of crude oil and natural gas offshore in the shallow waters of the gulf of mexico and in the onshore gulf coast regions of the united states and colorado . on october 1 , 2013 , we completed a merger with crimson , under an all-stock transaction pursuant to which crimson became a wholly-owned subsidiary of contango . the merger with crimson has given us access to high rate of return onshore prospects in known , prolific producing areas as well as long-life resource plays in southeast texas ( the woodbine oil and liquids- rich play ) and south texas ( the buda and eagle ford shale oil and liquids-rich plays ) . we believe these areas provide significant long-term growth potential from multiple formations . our production for the six months ended december 31 , 2013 was approximately 78 % offshore and 22 % onshore . our production for the three months ended december 31 , 2013 was approximately 63 % offshore and 37 % onshore . as of december 31 , 2013 , our proved reserves were approximately 61 % offshore and 39 % onshore and our proved developed reserves were approximately 74 % offshore and 26 % onshore . additionally , we have ( i ) an equity investment in exaro energy iii llc ( `` exaro '' ) , which is primarily focused on the development of proved natural gas reserves in the jonah field in wyoming ; ( ii ) acreage positions and non-operated producing properties in louisiana and mississippi targeting the tuscaloosa marine shale ( “ tms ” ) ; ( iii ) operated producing properties in the james lime play in east texas and ( iv ) operated producing properties in the denver julesburg basin ( “ dj basin ” ) in weld and adams counties in colorado , which we believe are prospective in the niobrara shale oil play . revenues and profitability our revenues , profitability and future growth depend substantially on our ability to find , develop and acquire natural gas and oil reserves that are economically recoverable , as well as prevailing prices for natural gas and oil . reserve replacement generally , producing properties offshore in the gulf of mexico have high initial production rates , followed by steep declines . we must locate and develop , or acquire , new natural gas and oil reserves to replace those being depleted by production . substantial capital expenditures are required to find , develop and or acquire natural gas and oil reserves . the company did not replace produced offshore reserves during the fiscal year ended june 30 , 2013 or 2012. during fiscal year 2013 , the company drilled two unsuccessful exploratory wells , dry holes at ship shoal 134 and south timbalier 75. during fiscal year 2012 , the company did not drill any wells as obtaining government permits was difficult during the post-deepwater horizon incident period ( see below ) . our permits to spud eagle and fang were approved in september 2011 and march 2012 , respectively , but a lack of rig availability prevented us from drilling these wells during fiscal year 2012. while waiting for permits , and drilling rigs , we spent most of fiscal year 2012 generating new prospects . in june 2012 and march 2013 , the company successfully acquired nine lease blocks at two gulf of mexico lease sales . our plan is to apply for permits to drill these prospects during the next several years . the merger with crimson allowed the company to add significant proved developed and undeveloped reserves ( see item 2 - properties , for details of reserves acquired ) and provided the company with access to several onshore resource plays which have substantial reserve growth potential , including in oil and liquids rich plays that position us to move to a more balanced oil/gas profile . use of estimates the preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved natural gas and oil reserves , the timing and costs of our future drilling , development and abandonment activities , and income taxes . related party transactions the company has historically relied on jex and rex to generate its offshore and onshore domestic natural gas and oil prospects . in addition to generating new prospects , jex occasionally evaluated offshore and onshore exploration prospects generated by third-party independent companies for us to purchase . with the merger with crimson , and the technical teams obtained in the merger , the company will be active in identifying onshore opportunities , while continuing its relationship with jex and rex for potential new offshore drilling prospects . see note 17 to our financial statements - `` related party transactions '' for a detailed description of our transactions with jex and rex . 47 see “ risk factors ” on page 18 for a more detailed discussion of a number of other factors that affect our business , financial condition and results of operations . impact of deepwater horizon incident we believe that the deepwater horizon incident continues to have a significant and lasting effect on the u.s. offshore energy industry , and will result in a number of fundamental changes , including heightened regulatory scrutiny , more stringent operating and safety standards , changes in equipment requirements and the availability and cost of insurance , as well as increased politicization of the industry . story_separator_special_tag for the six months ended december 31 , 2012 , the average price received for natural gas was $ 3.25 per mcf , the average price received for oil and condensate and ngls was $ 105.99 and $ 36.37 per barrel , respectively . operating expenses operating expenses for the six months ended december 31 , 2013 were approximately $ 16.3 million , which included approximately $ 3.0 million of louisiana state severance taxes . operating expenses for the six months ended december 31 , 2012 were approximately $ 11.4 million , which included approximately $ 1.6 million in louisiana state severance taxes . the remaining increase is attributable to increased operations as a result of our merger with crimson . 51 exploration expenses we reported approximately $ 1.7 million of exploration expenses for the six months ended december 31 , 2013. we reported approximately $ 51.6 million of exploration expense for the six months ended december 31 , 2012 , which consists mainly of $ 50.0 million for two dry holes at ship shoal 134 and south timbalier 75 ; $ 1.4 million related to a drilling program in jim hogg county , texas and $ 0.2 million for geological and geophysical activities , seismic data and delay rentals . depreciation , depletion and amortization depreciation , depletion and amortization for the six months ended december 31 , 2013 was approximately $ 44.8 million . this compares to approximately $ 20.3 million for the six months ended december 31 , 2012. the increase in depreciation , depletion and amortization was primarily attributable to increased production as a result of our merger with crimson . impairment of natural gas and oil properties for the six months ended december 31 , 2013 , the company did not record any impairment expenses . for the six months ended december 31 , 2012 , the company recorded impairment expense of approximately $ 14.1 million on our properties . of this amount , approximately $ 12.0 million related to our ship shoal 263 well and $ 2.1 million related to the eugene island 24 platform and other properties . general and administrative expenses general and administrative expenses for the six months ended december 31 , 2013 were approximately $ 17.5 million , compared to $ 5.4 million for the six months ended december 31 , 2012. major components of general and administrative expenses for the six months ended december 31 , 2013 included approximately $ 8.4 million in salaries and benefits ( $ 3.2 million of which was non-cash stock based compensation ) , $ 0.2 million in board of directors compensation , $ 2.4 million in accounting , legal , tax and professional services , $ 2.6 million in office and other administrative expenses , and $ 3.9 million attributable to the merger with crimson . major components of general and administrative expenses for the six months ended december 31 , 2012 included approximately $ 0.4 million in state of louisiana franchise taxes , $ 2.5 million in salaries and benefits , $ 0.2 million in insurance costs , $ 1.7 million in accounting , tax , legal and consulting expenses , $ 0.3 million in administrative costs , and $ 0.3 million related to board of directors compensation . fiscal year ended june 30 , 2013 compared to fiscal year ended june 30 , 2012 ; and fiscal year ended june 30 , 2012 compared to fiscal year ended june 30 , 2011 the table below sets forth revenue , production data , average sales prices and average production costs associated with our sales of natural gas , oil and natural gas liquids ( `` ngls '' ) from continuing operations for the fiscal years ended june 30 , 2013 , 2012 and 2011. oil , condensate and ngls are compared with natural gas in terms of cubic feet of natural gas equivalents . one barrel of oil , condensate or ngl is the energy equivalent of six thousand cubic feet ( “ mcf ” ) of natural gas . reported lease operating expenses include property and severance taxes . replace_table_token_24_th 52 replace_table_token_25_th 53 replace_table_token_26_th * less than 1 % * * greater than 1,000 % not included in the table above is production information from our discontinued operations . for the fiscal year ended june 30 , 2012 , our discontinued operations produced approximately 1.7 mmcf of natural gas at an average price of $ 3.79 per mcf . for the fiscal year ended june 30 , 2011 , our discontinued operations produced approximately 1,892 mmcf of natural gas , 12.8 mbbls of condensate , and 62,000 barrels of natural gas liquids at an average price of $ 3.45 per mcf , $ 86.91 per bbl and $ 40.32 per bbl , respectively . the company did not have any discontinued operations for the fiscal year ended june 30 , 2013. natural gas , oil and ngl sales and production all of our revenues are from the sale of our natural gas , oil and natural gas liquids production . our revenues may vary significantly from year to year depending on changes in commodity prices , which fluctuate widely , and production volumes . our production volumes are subject to wide swings as a result of new discoveries , weather and mechanical related problems . in addition , our production declines over time as we produce our reserves . we reported revenues of approximately $ 127.2 million for the year ended june 30 , 2013 , compared to revenues of approximately $ 179.3 million for the year ended june 30 , 2012. this decrease in revenues was primarily attributable to a decrease in natural gas , condensate and ngl production , further compounded by a lower average equivalent sales price received for the period .
| results of operations the table below sets forth our average net daily production data in mmcfed from our fields for each of the periods indicated : replace_table_token_21_th ( 1 ) southeast texas and south texas production is not included in the table above for periods prior to quarter ended december 31 , 2013 , as a result of acquiring these producing properties effective october 1 , 2013 due to the merger . additionally , the `` other '' field only includes ship shoal 263 for periods prior to the quarter ended december 31 , 2013 , and includes additional onshore wells for the quarter ended december31 , 2013. vermilion 170 well in january 2013 , we identified sustained casing pressure between the production tubing and the production casing at our vermilion 170 well . diagnostic tests revealed that the production tubing had parted downhole requiring a workover of the well . well production was shut-in and the original tubing and completion assembly were successfully removed . operations were conducted to replace the tubing and restore the well , which resumed production in june 2013. southeast texas during 2012 , crimson 's southeast texas production averaged approximately 19 mmcfed . for the quarter ended december 31 , 2013 , southeast texas production averaged approximately 24.3 mmcfed . crimson , and then contango , actively developed this area during 2013 , focusing on the horizontal development of the woodbine formation in madison and grimes counties . during 2013 , crimson , and then contango , drilled 12 gross ( eight net ) wells on acreage targeting the woodbine formation . we will continue our focus on further developing our inventory of crude oil and liquids-rich projects in the woodbine formation with a continuous rig program planned for 2014 . 48 south texas during 2012 , crimson 's south texas production averaged approximately 15 mmcfed . for the quarter ended december 31 , 2013 , south texas production averaged approximately 14.7 mmcfed .
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the amortized cost and estimated fair values of investments by contractual maturity story_separator_special_tag this section is intended to help current and potential investors understand our financial performance through a discussion of the factors affecting our consolidated financial condition at december 31 , 2016 and 2015 and our consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014. this section should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear elsewhere in this report . overview howard bancorp , inc. is the holding company for howard bank . howard bank was formed in 2004. howard bank 's business has consisted primarily of originating both commercial and real estate loans secured by property in our market area . typically , commercial real estate and business loans involve a higher degree of risk and carry a higher yield than one-to four-family residential loans . although we plan to continue to focus on commercial customers , we intend to continue our origination of one- to four-family residential mortgage loans , maintaining our portfolio of mortgage lending and also selling select loans into the secondary markets . we are headquartered in ellicott city , maryland and we consider our primary market area to be the greater baltimore metropolitan area . we engage in a general commercial banking business , making various types of loans and accepting deposits . we market our financial services to small to medium sized businesses and their owners , professionals and executives , and high-net-worth individuals . our loans are primarily funded by core deposits of customers in our market . our core business strategy is to deliver superior customer service that is supported by an extremely high level of banking sophistication . our specialized community banking focus on both local markets and small business related market segments is combined with a broad array of products , new technology and seasoned banking professionals which positions the bank differently than most competitors . our experienced executives establish a relationship with each client and bring value to all phases of a client 's business and personal banking needs . our results of operations depend mainly on our net interest income , which is the difference between the interest income we earn on our loan and investment portfolios and the interest expense we pay on deposits and borrowings . results of operations are also affected by provisions for credit losses , noninterest income and noninterest expense . our noninterest expense consists primarily of compensation and employee benefits , as well as office occupancy , deposit insurance and general administrative and data processing expenses . our operations are significantly affected by general economic and competitive conditions , particularly with respect to changes in interest rates , government policies and actions of regulatory authorities . future changes in applicable laws , regulations or government policies may materially affect our financial condition and results of operations . in august 2015 , we completed our acquisition of patapsco bancorp , the parent company of the patapsco bank , through the merger of patapsco bancorp with and into the company , immediately followed by the merger of patapsco bank with and into the bank . the merger was consummated pursuant to the agreement and plan of merger dated as of march 2 , 2015 , as amended , by and between the company and patapsco bancorp . on may 6 , 2016 , we redeemed all of the 12,562 shares of the series aa preferred stock that we had previously issued to the treasury under its sblf program . the aggregate redemption price of the series aa preferred stock was approximately $ 12.7 million , including dividends accrued but unpaid through the redemption date . the redemption of the series aa preferred stock was funded with variable rate debt with raymond james bank , n.a . financial highlights in 2016 are as follows : · we reached $ 1.0 billion in assets . · total assets increased by $ 80.2 million or 8.5 % . · portfolio loans grew by $ 64.5 million or 8.5 % . · deposits increased by $ 61.3 million or 8.2 % . · $ 4.2 million or over 350 % increase in net income for 2016 compared to 2015. on february 1 , 2017 , we sold 2,760,000 shares of our common stock resulting in aggregate net proceeds of approximately $ 38.4 million . we used the proceeds of the offering to pay off the loan to raymond james bank , n.a . and retained the remainder . this will positively impact our liquidity and capital position in 2017 and provide funds that will allow us to grow our loans and investments . 29 critical accounting policies our accounting and financial reporting policies conform to the accounting principles generally accepted in the united states of america ( “ gaap ” ) and general practice within the banking industry . accordingly , preparation of the financial statements require management to exercise significant judgment or discretion and make significant assumptions and estimates based on the information available that have , or could have , a material impact on the carrying value of certain assets or on income . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . in reviewing and understanding financial information for us , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . the accounting policies we view as critical are those relating to the allowance for credit losses , goodwill and other intangible assets , income taxes and share based compensation . allowance for credit losses the allowance for credit losses is established through a provision for credit losses charged against income . loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . story_separator_special_tag assets total assets increased $ 80.2 million , or 8.5 % , to $ 1.0 billion at december 31 , 2016 compared to $ 946.8 million at december 31 , 2015. this increase in assets includes organic loan growth of $ 64.5 million and the bank 's $ 19.5 million investment in interest bearing deposits at other financial institutions during 2016. partially offsetting these increases was a $ 10.8 million decrease in securities available for sale . the primary source of funding for the asset growth was an increase in deposit levels . customer deposits increased from $ 747.4 million at december 31 , 2015 to $ 808.7 million at december 31 , 2016 , an increase of $ 61.3 million or 8.2 % . supplementing the deposit growth , the level of short-term federal home loan bank of atlanta ( “ fhlb ” ) borrowings increased by $ 37.9 million during 2016. as a result of the redemption of our series aa preferred stock in may 2016 , as discussed above and in notes 1 and 20 to our consolidated financial statements , total shareholders ' equity decreased from $ 92.9 million on december 31 , 2015 to $ 85.8 million on december 31 , 2016 , despite an increase in retained earnings of $ 5.1 million . investment securities available for sale available for sale securities are reported at fair value . we currently hold u.s. agency and treasury securities , mortgage backed securities , and mutual fund investments in our securities portfolio , which are categorized as available for sale . the investment in mutual funds is a supplement to our community reinvestment program activities . we use our securities portfolio to provide the required collateral for funding via commercial customer repurchase agreements as well as to provide sufficient liquidity to fund our loans and provide funds for withdrawals of deposits . at december 31 , 2016 and december 31 , 2015 we held an investment in stock of the fhlb of $ 5.1 million and $ 4.2 million , respectively . this investment is required for continued fhlb membership and is based partially upon the amount of borrowings outstanding from the fhlb . this fhlb stock is carried at cost . held to maturity held to maturity securities are reported at amortized cost . the only investments that we have classified as held to maturity are corporate debentures . these investments are intended to be held until maturity . 31 the following table sets forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_6_th we had available for sale securities of $ 38.7 million and $ 49.6 million at december 31 , 2016 and december 31 , 2015 , respectively , which were recorded at fair value . this represents a decrease of $ 10.8 million , or 21.9 % , for the year ended december 31 , 2016 from the prior year end . this decrease was a result of scheduled maturities and calls of these securities , except for the sale of an equity security with a carrying value of $ 100 thousand issued by a local small financial institution that resulted in a gain of $ 96 thousand in 2016. in 2015 , we sold the entire investment portfolio acquired in the patapsco bancorp acquisition within days of the closing , recording no gain or loss on the sale of this investment portfolio . with respect to our portfolio of securities available for sale , the portfolio contained 12 securities with unrealized losses of $ 240 thousand and 19 securities with an unrealized losses of $ 51 thousand at december 31 , 2016 and 2015 , respectively . changes in the fair value of these securities resulted primarily from interest rate fluctuations . we do not intend to sell these securities nor is it more likely than not that we would be required to sell these securities before their anticipated recovery , and we believe the collection of the investment and related interest is probable . based on this analysis , we do not consider any of the unrealized losses to be other than temporary impairment losses . the held to maturity securities were all in a gain position at december 31 , 2016 and 2015. portfolio maturities and yields the composition and maturities of the investment securities portfolio ( with respect to those securities that have a fixed maturity date ) at december 31 , 2016 is summarized in the following table . maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur . as of december 31 , 2016 after one after five ( in thousands ) one year or less through five years through ten years after ten years total weighted weighted weighted weighted weighted amortized average amortized average amortized average amortized average amortized average cost yield cost yield cost yield cost yield cost yield available for sale u.s. government agencies $ 16,988 0.70 % $ 17,596 1.16 % $ - - % $ - - % $ 34,584 0.93 % treasury - - 1,512 0.83 - - - - 1,512 0.83 mortgage-backed - - 12 4.58 12 4.97 1,342 2.57 1,366 2.61 $ 16,988 0.70 % $ 19,120 1.14 % $ 12 4.97 % $ 1,342 2.57 % $ 37,462 0.99 % held to maturity corporate debentures $ - - $ - - $ 6,250 6.12 $ - - $ 6,250 6.12 % 32 loan and lease portfolio total loans and leases increased $ 64.5 million , or 8.52 % , to $ 821.5 million at december 31 , 2016 from $ 757.0 million at december 31 , 2015. this organic growth during 2016 was primarily due to growth in total real estate loans , which increased $ 61.7 million or 10.4 % from 2015 levels .
| comparison of results of operations a comparison of the results of operations for the years ended december 31 , 2016 and december 31 , 2015 is presented below . general net income available to common shareholders increased $ 4.1 million , to $ 5.1 million for the year ended december 31 , 2016 compared to $ 1.0 million for the year ended december 31 , 2015. the increase in net income available to common shareholders was driven by increases of $ 5.3 million in interest income and $ 2.9 million in noninterest income , partially offset by increases of $ 1.5 million in interest expense , $ 201 thousand in the provision for credit losses and $ 432 thousand in noninterest expense . much of this revenue growth and the increased expenses are attributable to balance sheet growth resulting from our continued strategic and organic growth initiatives . for 2016 , the dividends paid on preferred stock totaled $ 166 thousand compared to $ 126 thousand for 2015. with the redemption our series aa preferred stock , previously discussed , these dividends paid will not continue in 2017 . 37 interest income interest income increased $ 5.4 million , or 16.2 % , to $ 38.7 million for the year ended december 31 , 2016 compared to $ 33.3 million during the year ended december 31 , 2015. the increase was almost entirely due to a $ 5.0 million , or 15.3 % , increase in interest and fees on loans and leases ( including loans held for sale ) . the increase in interest and fees on loans and leases was a result of an increase of $ 158.2 million in average loans outstanding for 2016 versus 2015 , largely attributable to the loans we acquired in the patapsco bancorp acquisition , partially offset by a decrease in the average yield on such loans .
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for the years ended december 31 , 2011 , 2010 and 2009 , no single client comprised more than 10 % of the company 's revenue . no single client had an accounts receivable balance greater than 10 % of total accounts receivable at december 31 , 2011 or 2010. foreign currency transactions and translation transactions in foreign currencies are translated into u.s. dollars at the rates of exchange in effect at the date of the transaction . transaction gains and losses were insignificant for all periods presented and are included in other income ( expense ) , net , in story_separator_special_tag for additional information about common stock warrants that are accounted for as reductions of revenue . comparison of years ended december 31 , 2011 , 2010 , and 2009 revenue and metrics the following table sets forth our revenue and the following key metrics that we use to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions as of and for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_8_th net revenues increased by $ 29.3 million , or 67 % in 2011 as compared to 2010. gross revenue increased $ 28.9 million , or 62 % in 2011 as compared to 2010. see critical accounting policies and estimatesfair value of warrants for further discussion of common stock warrants accounted for as reductions of revenue . net revenue for 2011 and 2010 consisted of gross revenue less a $ 2.5 million reduction of revenue in 2011 and a $ 2.9 million reduction of revenue in 2010 , respectively , related to a non-cash charge for a common stock warrant issued during the second quarter of 2011 and the fourth quarter of 2010 , respectively . gross revenue increased $ 28.9 million , or 62 % , in 2011 as compared to the same period in 2010. gross revenue growth in 2011 was driven by $ 19.3 million in additional revenue from client agreements signed prior to 2011 that were not fully reflected prior to 2011 , as compared to revenue from client agreements signed prior to 2010 that were not fully reflected prior to 2010 , as a result of 47 the seasonality of when we enter into new client agreements and our revenue recognition policy , which generally recognizes subscription revenue over the contract period . gross revenue for 2011 from client agreements signed prior to 2011 was $ 51.3 million , compared to gross revenue for 2010 from client agreements signed prior to 2010 of $ 32.0 million . these increases include incremental revenue due to sales of additional clouds to those clients that existed prior to 2011 and additions of incremental users by those clients . gross revenue growth in 2011 was also driven by $ 9.6 million in higher revenue for client agreements entered into during 2011 as compared to revenue in 2010. during the period from december 31 , 2010 through december 31 , 2011 , we acquired 324 new clients , or an increase of 67 % , compared to 201 new clients in 2010 , or an increase of 72 % . net revenue in the united states for 2011 and 2010 was impacted by the $ 2.5 million and $ 2.9 million , respectively , in reductions of revenue related to the common stock warrants described above . net revenue in the united states increased by $ 20.8 million , or 69 % , in 2011 as compared to 2010 , while international net revenue , increased by $ 8.5 million , or 62 % . gross revenue in the united states increased by $ 20.4 million , or 62 % , in 2011 as compared to 2010. as a percentage of total net revenue , international net revenue accounted for 30 % in 2011 as compared to 31 % in 2010. as a percentage of total gross revenue , international gross revenue accounted for 29 % in 2011 and 2010. during the period from december 31 , 2010 through december 31 , 2011 , we acquired 260 domestic and 64 international clients , or an increase of 70 % and 58 % , respectively . our bookings , number of clients and number of users all grew significantly . bookings increased 60 % in 2011 from 2010 , due to acquisitions of new clients and , to a much lesser extent , sales of additional functionality to existing clients , additions of incremental users by existing clients and client renewals . the growth rates for revenue and bookings are not correlated with each other in a given year due to the seasonality of our client agreements , the varied timing of billings , the recognition in most cases of subscription revenue on a straight-line basis over the term of each client agreement , and the recognition of consulting revenue based on proportional performance over the period the services are performed . in 2011 , our annual dollar retention rate of 94.9 % largely consistent with our 2010 and 2009 annual dollar retention rates of 95.8 % and 94.8 % , respectively , as a result of increased client renewals . the number of our clients grew 67 % in 2011 from 2010. the number of users increased by approximately 2.6 million in 2011 , or 52 % , due to the acquisitions of new clients and our increased penetration within existing clients . story_separator_special_tag we completed our transition from a fully managed third-party hosting environment to self-managed co-location facilities during the fourth quarter of 2010. we also incurred $ 0.7 million in increased depreciation expenses , $ 0.5 million in increased third-party e-learning costs , $ 0.4 million in increased amortization of capitalized software , and $ 0.4 million in increased employee-related allocated overhead such as rent , it costs , depreciation and amortization and employee benefits costs resulting from our increased headcount in order to support our continued growth . these increases in our cost of revenue were partially offset by a $ 0.2 million decrease in referral fees and $ 0.2 million in decreased amortization of license fees we pay to third-parties to use their technology . our gross margin , as a percentage of net revenue , decreased to 67 % in 2010 from 70 % in 2009. our gross profit as a percentage of gross revenue decreased one percentage point to 69 % in 2010 from 70 % in 2009 , reflecting our significant investments in additional headcount and infrastructure . sales and marketing replace_table_token_10_th sales and marketing expenses increased $ 17.6 million , or 63 % , in 2011 as compared to 2010. the increase was attributable to the expansion of our sales force to address increased opportunities in new and existing markets and increases in marketing programs . total headcount in sales and marketing increased 63 % in december 31 , 2011 from december 31 , 2010 with the number of employees on our direct sales teams increasing by 60 % , contributing to an increase in employee-related costs of $ 12.4 million ( consisting of increased employee compensation of $ 8.7 million , increased commissions of $ 2.9 million , and increased stock-based compensation of $ 0.8 million ) . in addition , we incurred increased allocated overhead such as rent , it costs , and depreciation and amortization of $ 1.9 million , increased travel costs associated with our direct sales teams of $ 1.6 million , and increased costs associated with marketing programs of $ 1.0 million . notwithstanding these investments in anticipation of future growth , sales and marketing expenses as a percentage of net revenue decreased by one percentage point to 63 % in 2011 from 64 % in 2010. sales and marketing expenses as a percentage of gross 49 revenue increased by one percentage point to 61 % in 2011 from 60 % in 2010. sales and marketing expenses may fluctuate from period to period based on the timing of our investments and related expenditures in our sales and marketing programs as they vary in scope and scale over periods . sales and marketing expenses increased $ 9.2 million , or 49 % , in 2010 as compared to 2009. the increase was attributable to the expansion of our sales force to address increased opportunities in new and existing markets and increases in marketing programs . total headcount in sales and marketing increased 46 % in december 31 , 2010 from december 31 , 2009 , with the number of employees on our direct sales teams increasing by 48 % , contributing to an increase in employee-related costs of $ 6.3 million , consisting of increased employee compensation and benefits of $ 4.5 million , increased commissions of $ 1.7 million , and increased stock-based compensation of $ 0.1 million . in addition , we incurred increased travel costs associated with our direct sales teams of $ 1.0 million , increased costs associated with outsourced marketing programs and events of $ 0.9 million , and increased allocated overhead costs such as rent , it costs , and depreciation and amortization , of $ 0.9 million . as a percentage of net revenue , sales and marketing expenses remained at 64 % in 2010 and 2009 , respectively . sales and marketing expenses as a percentage of gross revenue decreased to 60 % in 2010 from 64 % in 2009. research and development replace_table_token_11_th research and development expenses increased $ 4.5 million or 81 % , in 2011 as compared to 2010. the increase was attributable to added headcount to maintain and improve the functionality of our solution . we incurred increased employee-related costs of $ 2.5 million arising primarily from increased headcount , consisting of increased employee compensation of $ 1.9 million and increased stock-based compensation of $ 0.6 million . in addition , in 2011 , we incurred increased expenses of allocated overhead costs , such as rent , it costs , and depreciation and amortization , of $ 0.9 million relating to overall increased expenses to support our continued growth , increased expenses related to third-party consultants of $ 0.8 million , increased expenses related to travel of $ 0.1 million , and increased expenses related to software programming subscriptions of $ 0.1 million . as a percentage of net revenue , research and development expenses increased to 14 % in 2011 from 13 % in 2010. research and development expenses as a percentage of gross revenue increased to 13 % compared to 12 % in 2010 for the reasons described above . research and development expenses increased by $ 2.8 million , or 101 % , in 2010 as compared to 2009. the increase was principally due to added headcount to maintain and improve the functionality of our solution . we incurred increased employee-related costs of $ 2.3 million arising from increased headcount , consisting of increased employee compensation and benefits of $ 2.2 million and increased stock-based compensation of $ 0.1 million . in addition , in 2010 we incurred increased expenses of allocated overhead costs such as rent , it costs , and depreciation and amortization , of $ 0.4 million , relating to overall increased expenses to support our continued growth and increased expense of $ 0.1 million related to software programming subscriptions .
| general and administrative replace_table_token_12_th general and administrative expenses increased $ 6.6 million , or 77 % , in 2011 as compared to 2010. the increase was driven by increased employee-related costs and increased overhead costs associated with increased headcount and professional fees to support our growing business , operations as a public company and our expansion into new geographic regions . we incurred increased employee-related costs of $ 3.8 million , consisting of increased employee compensation and benefits of $ 2.1 million and increased stock-based compensation expense of $ 1.7 million , as a result of increased headcount and corresponding stock-based compensation awards as of december 31 , 2011 as compared to 2010. in addition , in 2011 , we incurred increased professional fees of $ 1.0 million for accounting , audit , legal and tax services , increased travel expenses of $ 0.8 million , and increased allocated overhead costs , such as rent , it costs , and depreciation and amortization , of $ 0.3 million . general and administrative headcount increased by 27 % at december 31 , 2011 as compared to december 31 , 2010 , primarily in our accounting and finance department to support our growth and operations as a public company . as a percentage of net revenue , general and administrative expenses increased to 21 % in 2011 from 20 % in 2010. general and administrative expenses as a percentage of gross revenue increased to 20 % in 2011 from 18 % in 2010 for the reasons described above . general and administrative expenses increased $ 4.2 million , or 98 % , in 2010 from 2009. the increase was driven by increased employee-related costs and professional fees to support our growing business and our transition from a private company to a public company .
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it should be read in conjunction with our consolidated financial statements and the accompanying notes , which are included elsewhere in this report . we are one of the largest branded apparel companies in the world , with a history going back over 135 years . our brand portfolio consists of nationally and internationally recognized trademarks , including tommy hilfiger , calvin klein , van heusen , izod , arrow , speedo ( licensed in perpetuity for north america and the caribbean from speedo international limited ) , warner 's , olga , true & co . and geoffrey beene . our brand portfolio also consists of various other owned , licensed and private label brands . our business strategy is to position our brands to sell globally at various price points and in multiple channels of distribution . this enables us to offer products to a broad range of consumers , while minimizing competition among our brands and reducing our reliance on any one demographic group , product category , price point , distribution channel or region . we also license the use of our trademarks to third parties and joint ventures for product categories and in regions where we believe our licensees ' expertise can better serve our brands . our revenue was $ 9.657 billion in 2018 , of which over 50 % was generated outside of the united states . our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated over 80 % of our revenue . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of dress shirts , neckwear , sportswear , jeanswear , performance apparel , intimate apparel , underwear , swim products , handbags , accessories , footwear and other related products under owned and licensed trademarks , including through digital commerce sites operated by our wholesale partners and pure play digital commerce retailers , and ( ii ) the sale of certain of these products through ( a ) approximately 1,700 company-operated free-standing retail store locations worldwide under our tommy hilfiger , calvin klein and certain of our heritage brands trademarks , ( b ) approximately 1,500 company-operated shop-in-shop/concession locations worldwide under our tommy hilfiger and calvin klein trademarks , and ( c ) digital commerce sites in over 30 countries under each of our tommy hilfiger and calvin klein trademarks and in the united states through our speedousa .com , trueandco .com , vanheusen .com , izod .com and stylebureau .com digital commerce sites . additionally , we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . we manage our operations through our operating divisions , which are presented as six reportable segments : ( i ) tommy hilfiger north america ; ( ii ) tommy hilfiger international ; ( iii ) calvin klein north america ; ( iv ) calvin klein international ; ( v ) heritage brands wholesale ; and ( vi ) heritage brands retail . we have entered into the following transactions , which impact our results of operations and comparability among the years , including our 2019 expectations as compared to 2018 , as discussed in the section entitled “ result of operations ” below : we will be closing our tommy hilfiger flagship and anchor stores in the united states in the first quarter of 2019. we expect to incur pre-tax costs of approximately $ 60 million during 2019 , primarily consisting of severance , noncash asset impairments and lease and other contract termination costs . we announced in the first quarter of 2019 that we had entered into definitive agreements for two pending acquisitions . the first is for purposes of acquiring the approximately 78 % interest in gazal that we do not already own . we , along with gazal , jointly own and manage pvh australia , which licenses and operates businesses under the tommy hilfiger , calvin klein and van heusen brands , along with other licensed and owned brands . pvh australia will come under our full ownership as a result of the acquisition . the aggregate net purchase price for the shares being acquired is approximately a $ 124 million ( approximately $ 90 million based on the current exchange rate in effect ) , after taking into account the divestiture to a third party of an office building and warehouse owned by gazal . the second is for purposes of acquiring the tommy hilfiger retail business in hong kong and certain other countries in central and southeast asia from our current licensee in those markets . the purchase price is estimated to be approximately $ 75 million . the closings of these two pending acquisitions are subject to customary conditions , 32 including in respect of the australia acquisition , shareholder and court approvals , and are expected to occur in the second quarter of 2019. we expect to record a net pre-tax gain of approximately $ 70 million during 2019 in connection with the australia acquisition and th csap acquisition , consisting of a noncash gain to write up our equity investments in gazal and pvh australia to fair value , partially offset by pre-tax costs related to both acquisitions , primarily consisting of noncash valuation adjustments and amortization of short-lived assets . we announced on january 10 , 2019 a restructuring in connection with strategic changes for our calvin klein business ( the “ calvin klein restructuring ” ) . the strategic changes include ( i ) the closure of the calvin klein 205 w39 nyc brand ( formerly calvin klein collection ) , ( ii ) the closure of the flagship store on madison avenue in new york , new york , ( iii ) the restructuring of the calvin klein creative and design teams globally , and ( iv ) the consolidation of operations for the men 's calvin klein sportswear and calvin klein jeans businesses . story_separator_special_tag we acquired on april 13 , 2016 the 55 % of the ownership interests in th china , our former joint venture for tommy hilfiger in china , that we did not already own . as a result of the th china acquisition , we now operate directly our tommy hilfiger business in this market . the total consideration for the acquisition was $ 161 million ( including the elimination of a $ 3 million pre-acquisition receivable owed to us by th china ) , net of cash acquired of $ 105 million . we recorded a net pre-tax gain of $ 70 million in 2016 , including a noncash gain of $ 153 million to write-up our equity investment to fair value prior to the acquisition closing and costs of $ 83 million , which primarily consisted of noncash valuation adjustments and amortization of short-lived assets . we recorded pre-tax charges of $ 24 million and $ 27 million in 2018 and 2017 , respectively , primarily consisting of noncash amortization of short-lived assets . we exited a tommy hilfiger flagship store in europe in 2016 and recorded a pre-tax gain of $ 18 million in connection with a payment made to us . our tommy hilfiger and calvin klein businesses each have substantial international components that expose us to significant foreign exchange risk . our heritage brands business also has international components but those components are not significant to the business . our results of operations in local foreign currencies are translated into united states dollars using an average exchange rate over the representative period . accordingly , our results of operations are unfavorably impacted during times of a strengthening united states dollar against the foreign currencies in which we generate significant revenue and earnings and favorably impacted during times of a weakening united states dollar against those currencies . over 50 % of our $ 9.657 billion of revenue in 2018 was subject to foreign currency translation . there is also a transactional impact on our financial results because inventory typically is purchased in united states dollars by our foreign subsidiaries . as with translation , our results of operations will be unfavorably impacted during times of a strengthening united states dollar as the increased local currency value of inventory results in a higher cost of goods in local currency when the goods are sold and favorably impacted during times of a weakening united states dollar as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold . we use foreign currency forward exchange contracts to hedge against a portion of the exposure related to this transactional impact . the contracts cover at least 70 % of the projected inventory purchases in united states dollars by our foreign subsidiaries . these contracts are generally entered into 12 months in advance of the related inventory purchases . therefore , the impact of fluctuations of the united states dollar on the cost of inventory purchases covered by these contracts may be realized in our results of operations in the year following their inception , as the underlying inventory hedged by the contracts is sold . 34 additionally , there is a transactional impact related to changes in sg & a expenses as a result of fluctuations in foreign currency exchange rates . based on current foreign currency exchange rates , we expect a decrease in revenue of approximately $ 150 million , or 1 % , and a slight decrease in net income in 2019 as compared to 2018 due to the impact of foreign currency exchange . further , we have exposure to changes in foreign currency exchange rates related to our 950 million aggregate principal amount of euro-denominated senior notes , as the weakening of the united states dollar against the euro would require us to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments . we designated the carrying amount of these euro-denominated senior notes that we had issued in the united states as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency . as a result , the remeasurement of these foreign currency borrowings at the end of each period is recorded in equity . retail comparable store sales discussed below refer to sales from retail stores that have been open for at least 12 months , as well as sales from company-operated digital commerce sites for those businesses and regions that have operated the related digital commerce site for at least 12 months . sales from retail stores and company-operated digital commerce sites that are closed or shut down during the year are excluded from the calculation of retail comparable store sales . sales for retail stores that are relocated , materially altered in size or closed for a certain number of consecutive days and sales from company-operated digital commerce sites that are materially altered are also excluded from the calculation of retail comparable store sales until such stores or sites have been in their new location or in their newly renovated state , as applicable , for at least 12 months . retail comparable store sales are based on local currencies and comparable weeks . as a result of the 53rd week in 2017 , the 2018 retail comparable store sales are more appropriately compared with the 52 week period ended february 4 , 2018 ( which excludes for this purpose the first week of 2017 ) . all 2018 retail comparable store sales are presented on this shifted basis . 2017 retail comparable store sales exclude the extra week in 2017. the following table summarizes our income statements in 2018 , 2017 and 2016 : replace_table_token_2_th 35 total revenue total revenue was $ 9.657 billion in 2018 , $ 8.915 billion in 2017 and $ 8.203 billion in 2016. revenue in 2017 included the benefit of a 53rd week .
| summary of significant accounting policies , ” in the notes to consolidated financial statements included in item 8 of this report for further discussion of the accounting guidance . financing arrangements our capital structure was as follows : replace_table_token_6_th in addition , we had $ 452 million and $ 494 million of cash and cash equivalents as of february 3 , 2019 and february 4 , 2018 , respectively . short-term borrowings we have the ability to draw revolving borrowings under our senior secured credit facilities , as discussed in the section entitled “ 2016 senior secured credit facilities ” below . we had $ 8 million outstanding under these facilities as of february 3 , 2019 . the weighted average interest rate on funds borrowed as of february 3 , 2019 was 4.45 % . the maximum amount of revolving borrowings outstanding under these facilities during 2018 was $ 274 million . there were no borrowings outstanding under these facilities as of february 4 , 2018 . additionally , we have the availability to borrow under short-term lines of credit , overdraft facilities and short-term revolving credit facilities denominated in various foreign currencies . these facilities provided for borrowings of up to $ 102 million based on exchange rates in effect on february 3 , 2019 and are utilized primarily to fund working capital needs . we had $ 5 million and $ 20 million outstanding under these facilities as of february 3 , 2019 and february 4 , 2018 , respectively . the weighted average interest rate on funds borrowed as of february 3 , 2019 and february 4 , 2018 was 0.21 % and 1.19 % , respectively . the maximum amount of borrowings outstanding under these facilities during 2018 was $ 39 million . capital lease obligations our cash payments for capital lease obligations totaled $ 5 million , $ 5 million and $ 7 million in 2018 , 2017 and 2016 , respectively .
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impairment is measured on a loan-by-loan basis for commercial , commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . large groups of smaller balance homogeneous loans are collectively evaluated for impairment . accordingly , the company does not separately identify individual consumer and residential loans for impairment disclosures . the story_separator_special_tag this discussion and analysis reflects our consolidated financial statements and other relevant statistical data , and is intended to enhance your understanding of our financial condition and results of operations . you should read the information in this section in conjunction with the business and financial information regarding provident bancorp , inc. , including the financial statements , provided in this annual report . overview total assets were $ 1.1 billion at december 31 , 2019 , representing an increase of $ 147.7 million , or 15.2 % , from $ 974.1 million at december 31 , 2018. the increase resulted primarily from increases in net loans of $ 123.8 million and cash and cash equivalents of $ 31.0 million . the increases were partially offset by a decrease in available-for-sale investment securities of $ 9.6 million . net income increased $ 1.5 million , or 15.9 % , to $ 10.8 million for the year ended december 31 , 2019 from $ 9.3 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 6.3 million , or 16.9 % , in net interest and dividend income , offset by an increase in provision for loan losses of $ 2.0 million , or 60.0 % , and an increase in salaries and employee benefits expense of $ 1.4 million , or 8.6 % . critical accounting policies a summary of our accounting policies is described in note 2 to the consolidated financial statements included in this annual report . critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change . critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions . management believes that the most critical accounting policies , which involve the most complex or subjective decisions or assessments , are as follows : allowance for loan losses . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . 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 . the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , size and composition of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . a loan is considered impaired when , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record , and the amount of the shortfall in relation to the principal and interest owed . impairment is measured on a loan by loan basis for commercial , commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . 32 large groups of smaller balance homogeneous loans are collectively evaluated for impairment . accordingly , we do not separately identify individual consumer and residential loans for impairment disclosures . the allowance consists of a general component , a specific component for impaired loans , and in some cases an unallocated component . the general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments : residential real estate , commercial real estate , construction and land development , commercial and consumer . management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment . this historical loss factor is adjusted for the following qualitative factors : levels/trends in delinquencies ; trends in volume and terms of loans ; effects of changes in risk selection and underwriting standards and other changes in lending policies , procedures and practices ; experience/ability/depth of lending management and staff ; and national and local economic trends and conditions . there were no changes in our policies or methodology pertaining to the general component of the allowance for loan losses during 2019. to determine the general component of the allowance for loan losses , the company 's loan portfolio is segregated into various risk categories . story_separator_special_tag at december 31 , 2019 , net loans were $ 959.3 million , or 85.5 % of total assets , compared to $ 835.5 million , or 85.8 % of total assets at december 31 , 2018. increases in commercial loans of $ 90.0 million , or 24.9 % , commercial real estate loans of $ 53.5 million , or 14.7 % , and in construction and land development loans of $ 2.2 million , or 4.8 % , were partially offset by decreases in residential real estate loans of $ 11.7 million , or 20.3 % , and consumer loans of $ 7.1 million , or 35.7 % . our commercial loan growth is attributed to a continued focus on our specialty lending of renewable energy loans and enterprise value loans . renewable energy loans increased $ 15.7 million , or 31.2 % , to $ 66.1 million at december 31 , 2019 from $ 50.4 million at december 31 , 2018. enterprise value loans increased $ 39.2 million , or 28.3 % , to $ 178.0 million at december 31 , 2019 from $ 138.8 million at december 31 , 2018 . 34 the following table sets forth the composition of our loan portfolio by type of loan at the dates indicated , excluding loans held for sale . at december 31 , 2019 2018 2017 2016 2015 amount percent amount percent amount percent amount percent amount percent ( dollars in thousands ) real estate : residential ( 1 ) $ 45,695 4.69 % $ 57,361 6.76 % $ 67,724 9.00 % $ 76,850 12.13 % $ 92,392 16.40 % commercial ( 2 ) 418,356 42.89 364,867 43.00 371,510 49.35 336,102 53.07 285,356 50.67 construction and land development 46,763 4.79 44,606 5.26 55,828 7.42 48,161 7.60 71,535 12.70 commercial 451,791 46.32 361,782 42.64 240,223 31.91 166,157 26.23 112,073 19.90 consumer 12,737 1.31 19,815 2.34 17,455 2.32 6,172 0.97 1,855 0.33 total loans 975,342 100.00 % 848,431 100.00 % 752,740 100.00 % 633,442 100.00 % 563,211 100.00 % deferred loan fees , net ( 2,212 ) ( 1,223 ) ( 845 ) ( 427 ) ( 377 ) allowance for loan losses ( 13,844 ) ( 11,680 ) ( 9,757 ) ( 8,590 ) ( 7,905 ) loans , net $ 959,286 $ 835,528 $ 742,138 $ 624,425 $ 554,929 ( 1 ) includes home equity loans and lines of credit ( 2 ) includes multi-family real estate loans loan maturity . the following table sets forth certain information at december 31 , 2019 regarding the contractual maturity of our loan portfolio .
| general . net income increased $ 1.5 million , or 15.9 % , to $ 10.8 million for the year ended december 31 , 2019 from $ 9.3 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 6.3 million , or 16.9 % , in net interest and dividend income partially offset by an increase in provision for loan losses of $ 2.0 million , or 13.7 % , and an increase in salaries and employee benefits expense of $ 1.4 million , or 8.6 % . interest and dividend income . interest and dividend income increased $ 9.2 million , or 21.7 % , to $ 51.5 million for the year ended december 31 , 2019 from $ 42.3 million for the year ended december 31 , 2018. this was caused by an increase in interest and fees on loans , which increased $ 9.3 million , or 23.1 % , partially offset by a decrease in interest and dividends on securities of $ 120,000 , or 7.2 % . the increase in interest income on loans was due to an increase in average balance of $ 123.3 million , or 15.7 % , to $ 906.9 million for the year ended december 31 , 2019 from $ 783.6 million for the year ended december 31 , 2018 , and an increase in yield on loans of 33 basis points , to 5.48 % for the year ended december 31 , 2019 from 5.15 % for the year ended december 31 , 2018 , due to our continued shift to higher-yielding commercial loans and the higher market interest rate environment . 46 the decrease in interest and dividends on securities was due to a decrease in the average balance of investment securities of $ 7.9 million , or 14.2 % , to $ 47.8 million for the year ended december 31 , 2019 from $ 55.7 million for the year ended december 31 , 2018. interest expense .
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the warranty reserve is established at the time of closing , and is calculated based upon historical warranty cost experience and current business factors . this reserve is an estimate and actual warranty costs could vary from these estimates . variables used in the calculation of the reserve , as well as the adequacy of the reserve based on the number of homes still under warranty , are reviewed on a periodic basis . warranty claims are directly charged to the reserve as they arise . the following table is a summary of warranty reserve activity which is included in accounts payable and accrued liabilities : replace_table_token_4_th revenue recognition we recognize revenues and related profits or losses from the sale of residential properties , including multiple units to the same buyer , finished lots and land sales when closing has occurred , full payment has been received , title and possession of the property has transferred to the buyer and we have no significant continuing involvement in the property . other revenues include revenue from land sales , rental revenue from leased apartments , which is recognized over the terms of the respective leases , and revenue earned from management and administrative support services provided to related parties , which is recognized as the services are provided . income taxes income taxes are accounted for under the asset and liability method in accordance with asc 740 , accounting for income taxes , ( asc 740 ) . deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . at december 31 , 2007 , the company recorded valuation allowances for certain tax attributes and other deferred tax assets . at this time , sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income or carry back opportunities . if , in the future , the company believes that it is more likely than not that these deferred tax benefits will be realized , the valuation allowances will be reversed . with a full valuation allowance , any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance . this results in a zero deferred tax benefit or expense for the year ended december 31 , 2011. the company currently has approximately $ 106 million in federal and state nols , which based on current statutory notes , has a potential value of up to $ 41 million in tax savings . if unused , these nols will begin expiring in 2028. under internal revenue code section 382 rules , if a change of ownership is triggered , the company 's nol asset and possibly certain other deferred tax assets may be impaired . in general , an ownership change occurs whenever there is a shift in ownership by more than 50 percentage points by one or more 5 % shareholders over a specified time period ( generally three years ) . given section 382 's broad definition , an ownership change could be the 20 unintended consequence of otherwise normal market trading in the company 's stock that is outside of the company 's control . we estimate that as of december 31 , 2011 , the cumulative shift in the company 's stock would not cause an impairment of our nol asset . however , if an ownership change were to occur , a section 382 limitation is not expected to materially impact the company 's financial position or results of operations as of december 31 , 2011. in an effort to preserve the availability of these nols , comstock earlier this year adopted a section 382 stockholder rights plan ( the rights plan ) . the rights plan was adopted to reduce the likelihood of such an unintended ownership change and thus assist in preserving the value of these tax benefits . similar plans have been adopted by a number of companies holding similar significant tax assets over the past several years . this plan was submitted to a vote of the company 's shareholders on june 17 , 2011 and the plan was approved at that meeting . we file u.s. and state income tax returns in jurisdictions with varying statutes of limitations . the 2008 through 2010 tax years generally remain subject to examination by federal and most state tax authorities . use of estimates the preparation of the financial statements , in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes . actual results could differ from those estimates . material estimates are utilized in the valuation of real estate held for development and sale , valuation of deferred tax assets , capitalization of costs , consolidation of variable interest entities and warranty reserves . story_separator_special_tag related units are sold . when a project becomes inactive , its interest , real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period in which they are incurred . during the twelve months ended december 31 , 2011 and 2010 , all of our projects were determined to be inactive for accounting purposes . the following is a story_separator_special_tag the warranty reserve is established at the time of closing , and is calculated based upon historical warranty cost experience and current business factors . this reserve is an estimate and actual warranty costs could vary from these estimates . variables used in the calculation of the reserve , as well as the adequacy of the reserve based on the number of homes still under warranty , are reviewed on a periodic basis . warranty claims are directly charged to the reserve as they arise . the following table is a summary of warranty reserve activity which is included in accounts payable and accrued liabilities : replace_table_token_4_th revenue recognition we recognize revenues and related profits or losses from the sale of residential properties , including multiple units to the same buyer , finished lots and land sales when closing has occurred , full payment has been received , title and possession of the property has transferred to the buyer and we have no significant continuing involvement in the property . other revenues include revenue from land sales , rental revenue from leased apartments , which is recognized over the terms of the respective leases , and revenue earned from management and administrative support services provided to related parties , which is recognized as the services are provided . income taxes income taxes are accounted for under the asset and liability method in accordance with asc 740 , accounting for income taxes , ( asc 740 ) . deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . at december 31 , 2007 , the company recorded valuation allowances for certain tax attributes and other deferred tax assets . at this time , sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income or carry back opportunities . if , in the future , the company believes that it is more likely than not that these deferred tax benefits will be realized , the valuation allowances will be reversed . with a full valuation allowance , any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance . this results in a zero deferred tax benefit or expense for the year ended december 31 , 2011. the company currently has approximately $ 106 million in federal and state nols , which based on current statutory notes , has a potential value of up to $ 41 million in tax savings . if unused , these nols will begin expiring in 2028. under internal revenue code section 382 rules , if a change of ownership is triggered , the company 's nol asset and possibly certain other deferred tax assets may be impaired . in general , an ownership change occurs whenever there is a shift in ownership by more than 50 percentage points by one or more 5 % shareholders over a specified time period ( generally three years ) . given section 382 's broad definition , an ownership change could be the 20 unintended consequence of otherwise normal market trading in the company 's stock that is outside of the company 's control . we estimate that as of december 31 , 2011 , the cumulative shift in the company 's stock would not cause an impairment of our nol asset . however , if an ownership change were to occur , a section 382 limitation is not expected to materially impact the company 's financial position or results of operations as of december 31 , 2011. in an effort to preserve the availability of these nols , comstock earlier this year adopted a section 382 stockholder rights plan ( the rights plan ) . the rights plan was adopted to reduce the likelihood of such an unintended ownership change and thus assist in preserving the value of these tax benefits . similar plans have been adopted by a number of companies holding similar significant tax assets over the past several years . this plan was submitted to a vote of the company 's shareholders on june 17 , 2011 and the plan was approved at that meeting . we file u.s. and state income tax returns in jurisdictions with varying statutes of limitations . the 2008 through 2010 tax years generally remain subject to examination by federal and most state tax authorities . use of estimates the preparation of the financial statements , in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes . actual results could differ from those estimates . material estimates are utilized in the valuation of real estate held for development and sale , valuation of deferred tax assets , capitalization of costs , consolidation of variable interest entities and warranty reserves . story_separator_special_tag related units are sold . when a project becomes inactive , its interest , real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period in which they are incurred . during the twelve months ended december 31 , 2011 and 2010 , all of our projects were determined to be inactive for accounting purposes . the following is a
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 orders , backlog and cancellations gross new order revenue for the year ended december 31 , 2011 decreased $ 4.1 million to $ 14.5 million on 50 homes as compared to $ 18.6 million on 58 homes for the year ended december 31 , 2010. net new order revenue for the year ended december 31 , 2011 decreased $ 4.0 million to $ 14.1 million on 48 homes as compared to $ 18.1 million on 57 homes for the year ended december 31 , 2010. the average gross new order revenue per unit for the year ended december 31 , 2011 decreased by $ 30 to $ 290 , as compared to $ 320 for the year ended december 31 , 2010. our backlog at december 31 , 2011 increased $ 0.07 million to $ 0.63 million on 3 homes as compared to our backlog at december 31 , 2010 of $ 0.56 million on 1 home . we have two washington , d.c. condominium projects where we have units available for sale and for rent : penderbrook square in fairfax , va and the eclipse at potomac yard in arlington , va. therefore , we were only able to generate orders and backlog at these two condominium projects for the year ended december 31 , 2011. because our unit sales are generated from completed inventory we do not need to construct units after a sales contract is executed with a unit purchaser . as a result , we are able to quickly execute on a sales contract and deliver the unit to the purchaser . typically , unit deliveries are made within thirty days of contract execution . as a result , we do not tend to generate significant order backlog .
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our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in our sponsored mutual funds and other managed investment portfolios . investment advisory clients outside the united states account for 12.5 % of our assets under management at december 31 , 2010. we manage a broad range of u.s. , international and global stock , bond , and money market mutual funds and other investment portfolios , which meet the varied needs and objectives of individual and institutional investors . investment advisory revenues depend largely on the total value and composition of assets under our management . accordingly , fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations . on january 20 , 2010 , we purchased a 26 % equity interest in uti asset management company and an affiliate from existing stockholders for 6.5 billion indian rupees ( inr ) , or $ 142.4 million , plus transaction costs of $ 3.2 million of which a portion was paid in 2009. we repurchased 5.0 million shares of our common stock for $ 240.0 million in 2010. we funded the investment in uti and the share repurchases with existing cash balances and cash generated from operations . the low interest rate environment experienced in 2010 led us to continue voluntarily waiving money market advisory fees to maintain a zero or positive yield for fund investors . we waived $ 25.1 million in 2010 compared to $ 5.7 million in 2009 and anticipate these fee waivers will continue into 2011. we made a one-time contribution of $ 16.4 million in november 2010 , to certain of our sponsored money market mutual funds to offset the effect of cumulative net losses realized by those funds in past years in order to allay any fund shareholder concerns that might arise because of new sec disclosure rules . the charge associated with this one-time contribution is included in other operating expenses . - 15 - background . against a backdrop of healthy earnings , strong balance sheets , and low borrowing costs for corporations , major u.s. equity indexes rose strongly in 2010 , capping a second consecutive year of solid gains . stocks produced robust returns through late april , extending the rally that started in march 2009 , but fell sharply through early july due in part to concern around the european sovereign debt crisis , a sluggish u.s. economic recovery , and the flash crash in u.s. stock prices on may 6. equities rebounded strongly beginning in late august as the economy showed signs of improvement and the federal reserve gave reassurance that they would employ non-traditional monetary policy tools , as needed , to promote economic recovery . the market continued to rally through the fourth quarter , as the federal reserve proved their willingness to act by initiating a second round of quantitative easing since the 2008 financial crisis . they announced plans to purchase an additional $ 600 billion in treasuries by mid-2011 in an attempt to keep longer-term interest rates low . bipartisan legislation in mid-december that extended for two years the bush-era tax cuts that were set to expire at the end of 2010 helped lift major indexes to their highest levels of the year . in this environment , the s & p 500 index of large-cap companies in leading industries of the u.s. economy returned 15.1 % in 2010 , while the nasdaq composite index , which is heavily weighted with technology companies , returned 16.9 % ( excluding dividends ) . the returns in developed non-u.s. equity markets were mixed as strong asian market performance was offset by weaker results in europe , where markets struggled with concerns over the sovereign debt crisis . as developed markets dealt with economic pressures , emerging equity markets produced strong returns , with countries in the emerging europe , middle east , and africa ( emea ) regions faring the best . the msci emerging markets index returned 19.2 % versus 8.2 % for the msci eafe index , which measures the performance of mostly large-cap stocks in europe , australasia , and the far east . the federal reserve 's target funds rate remained in the range of 0.00 % to 0.25 % throughout 2010 , where it has been since late 2008. this historically low rate along with the slowdown in the economy during the spring and the european debt crisis placed strong downward pressure on treasury yields as investors sought the safety of treasuries . treasury yields began to rise in late fall in response to the federal reserve 's additional stimulus and a stronger economic climate , but most of the yield curve ended the year still below their levels at the end of 2009. the yield on the benchmark 10-year u.s. treasury at december 31 , 2010 , was 3.3 % , a decrease of 55 basis points from the end of 2009. u.s. fixed income securities realized modest gains in 2010. high yield bonds significantly outperformed investment-grade issues , as investors sought higher returns in the low interest rate environment . the credit suisse high yield index gained 14.4 % in 2010 , while the barclays capital u.s. aggregate index gained 6.5 % . a similar trend was seen in the non-u.s. bond markets , as investors sought riskier bonds issued by emerging market countries over the high-quality bonds issued in developed markets . the j.p. morgan emerging markets index plus gained 11.8 % in 2010 , while the barclays capital global aggregate ex-u.s. dollar bond index was up 5.0 % . story_separator_special_tag our non-operating investment activity resulted in net losses of $ 12.7 million in 2009 and $ 52.3 million in 2008. the improvement of nearly $ 40 million is primarily attributable to a reduction in the other than temporary impairments recognized on our investments in sponsored mutual funds in 2009 versus 2008. the following table details our related mutual fund investment gains and losses ( in millions ) during the two years ended december 31 , 2009. replace_table_token_7_th lower income of $ 16 million from our money market holdings due to the significantly lower interest rate environment offset the improvement experienced with our fund investments . the 2009 provision for income taxes as a percentage of pretax income is 37.1 % , down from 38.4 % in 2008. our 2009 provision includes reductions of prior years ' tax provisions and discrete nonrecurring benefits that lowered our 2009 effective tax rate by 1.0 % . capital resources and liquidity . during 2010 , stockholders ' equity increased from $ 2.9 billion to $ 3.3 billion . we repurchased nearly 5.0 million common shares for $ 240.0 million in 2010. tangible book value is $ 2.6 billion at december 31 , 2010 , and our cash and cash equivalents and our mutual fund investment holdings total more than $ 1.5 billion . given the availability of these financial resources , we do not maintain an available external source of liquidity . - 19 - at december 31 , 2010 , we had outstanding commitments to make additional contributions totaling $ 48.2 million to various investment partnerships in which we have an existing investment . we presently anticipate funding 2011 property and equipment expenditures of about $ 120 million from our cash balances and operating cash inflows . 2010 versus 2009 . operating activities during 2010 provided cash flows of $ 732.8 million , up $ 197.2 million from 2009 , including a $ 238.6 million increase in net income . cash flows in 2009 also included the impact of $ 36.1 million in other than temporary impairments of our investments in sponsored mutual funds that did not recur in 2010. net cash used in investing activities totaled $ 276.9 million , up $ 110.2 million from the 2009 period , primarily from the purchase of a 26 % equity interest in uti for $ 142.4 million plus related transaction costs incurred in the 2010 period of $ 1.2 million . we spent $ 15.9 million less in property and equipment expenditures in 2010 compared to 2009 due to the construction of our two new facilities in owings mills , maryland being completed in late 2009. net cash used in financing activities was $ 386.1 million in 2010 , up $ 141.4 million from the 2009 period . we increased our stock repurchases by expending $ 169.0 million more in 2010 compared to the 2009 year . dividends paid during 2010 increased $ 22.0 million from the 2009 period due primarily to a $ .02 increase in our quarterly per-share dividend . these uses of cash are offset by $ 35.3 million more in cash proceeds from option exercises compared to 2009 as the higher market valuations of our common stock experienced in 2010 led employees to exercise . 2009 versus 2008 . operating activities during 2009 provided cash flows of nearly $ 536 million , down $ 206 million from 2008 , including a $ 57 million decrease in net income and a $ 129 million change in the timing differences in the cash settlement of our accounts receivable and accrued revenues and payables and accrued liabilities . in addition , our add back of the non-cash charges for other than temporary impairments of our investments in sponsored mutual funds was $ 55 million more in 2008 than in 2009. net cash used in investing activities totaled $ 167 million in 2009 , up $ 42 million from 2008. we made net investments of nearly $ 18 million into our mutual fund portfolio in 2009 , an increase of $ 15 million from 2008. during 2009 and 2008 , we made several changes , totaling more than $ 56 million in 2009 and $ 95 million in 2008 , to the composition of our portfolio of mutual fund holdings in light of market conditions experienced during the period . because of the smaller 2009 increase in savings bank deposits , we increased our investment in debt securities held by the savings bank by only $ 9 million in 2009 versus $ 41 million in 2008. in 2008 , we liquidated our $ 70 million u.s. treasury notes portfolio thereby producing inflows of nearly $ 73 million that did not recur in 2009. net cash used in financing activities was $ 245 million in 2009 , down $ 538 million from 2008. compared to 2008 , we expended $ 543 million less to repurchase our common shares in 2009. the uncertain market environment in 2009 led us to reduce our share repurchases and preserve our liquid capital . our $ .01 per share quarterly dividend increase in 2009 accounts for an additional payout of $ 10 million in dividends ; however , our 2008 change in policy regarding the timing of dividend payments such that our quarterly dividends are declared and paid in the same quarter resulted in five quarterly dividend payments in 2008 versus only four in 2009. this additional payment resulted in our 2009 outflows for dividends decreasing $ 64 million from 2008. excess tax benefits from share-based compensation plans decreased $ 37 million as fewer stock option exercises due to uncertainties and lower market valuations of our common stock reduced our common stock issuances about 25 % from 2008. contractual obligations .
| results of operations . 2010 versus 2009. investment advisory revenues were up 31.1 % , or $ 480.7 million , to $ 2.0 billion in 2010 , as average assets under our management increased $ 101.3 billion to $ 422.6 billion . the average annualized fee rate earned on our assets under management was 48.0 basis points during 2010 , virtually unchanged from the 48.1 basis points earned in 2009 , including the effect of the voluntary fee waivers made to our money market funds . net revenues increased $ 499.8 million , or 26.8 % , to nearly $ 2.4 billion . operating expenses were $ 1.3 billion in 2010 , an increase of $ 164.9 million , or 14.1 % . this increase includes the $ 16.4 million charge related to the one-time contribution made to certain of our money market funds . overall , net operating income for 2010 increased $ 334.9 million , or 47.7 % , to more than $ 1.0 billion . the increase in our average assets under management and resulting advisory revenue increased our operating margin for 2010 to 43.8 % from 37.6 % for 2009. we recognized non-operating investment income of $ 33.5 million in 2010 compared to investment losses in 2009 of $ 12.7 million . the 2009 year included $ 36.1 million in other than temporary impairment charges recognized in the first quarter on our investments in sponsored mutual funds . net income increased $ 238.6 million , or 55 % , to $ 672.2 million from the 2009 period resulting in diluted earnings per share on our common stock to increase 53 % to $ 2.53 from the $ 1.65 earned in 2009. investment advisory revenues earned from the t. rowe price mutual funds distributed in the united states increased 30.5 % , or $ 326.0 million , to nearly $ 1.4 billion .
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we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) ( pcaob ) , the consolidated balance sheets story_separator_special_tag the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements set forth in part iv , item 15 of this form 10-k , and the risk factors and related information set forth in part i , item 1a and part ii , item 7a of this form 10-k. this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k are incorporated by reference to “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 ( filed with the sec on march 1 , 2019 ) . overview apache 's mission is to grow in an innovative , safe , environmentally responsible , and profitable manner for the long-term benefit of its stakeholders . apache is focused on rigorous portfolio management , disciplined financial structure , and optimization of returns . apache corporation , a delaware corporation formed in 1954 , is an independent energy company that explores for , develops , and produces natural gas , crude oil , and ngls . apache currently has exploration and production operations in three geographic areas : the u.s. , egypt , and offshore the u.k. in the north sea ( north sea ) . apache also has exploration interests in suriname and other international locations that may , over time , result in reportable discoveries and development opportunities . apache 's midstream business is operated by altus midstream company through its subsidiary altus midstream lp ( collectively , altus ) . altus owns , develops , and operates a midstream energy asset network in the permian basin of west texas . additionally , altus owns equity interests in a total of four permian basin pipelines that will access various points along the texas gulf coast , providing it with fully integrated , wellhead-to-water connectivity . apache 's u.s. unconventional assets are complemented by its conventional international assets in egypt and the north sea , each of which adds to the company 's inventory of exploration and development opportunities and generates cash flows in excess of current capital investments , facilitating the company 's ability to develop its onshore u.s. properties while maintaining financial flexibility in a volatile commodity price environment . apache 's diverse portfolio and asset inventory allows for very flexible allocation of capital across the portfolio . consistent with this strategy , apache closely monitors hydrocarbon pricing fundamentals and will reallocate capital as part of its ongoing planning process . for additional detail on the company 's forward capital investment outlook , refer to the “ capital and operational outlook ” below . for 2019 , apache reduced its upstream capital costs incurred by approximately 27 percent compared to the prior year in response to lower realized commodity prices . worldwide crude oil price realizations declined 8 percent , and natural gas and natural gas liquids price realizations were lower by 27 percent and 41 percent , respectively , compared to 2018. apache 's capital spending reduction aligned with its $ 2.9 billion of cash from operating activities generated in 2019 , which was down $ 910 million or 24 percent from the prior year . during the year , the company advanced key environmental , social and governance initiatives , met corporate goals around capital spending and cash returns , and further streamlined and repositioned its asset portfolio . specifically , the company closed on several divestitures of non-core , gas-weighted assets in the oklahoma and texas panhandle areas . these decisions progressed apache 's efforts to invest to prioritize long-term returns and cash flow , strengthen its balance sheet , and maintain the company 's dividend . during 2019 , apache reported a loss attributable to common stock of $ 3.6 billion , or $ 9.43 per diluted common share , compared to net income of $ 40 million , or $ 0.11 per share in 2018 . the 2019 story_separator_special_tag 10-k. acquisition and divestiture activity over apache 's 65-year history , the company has repeatedly demonstrated its ability to capitalize quickly and decisively on changes in its industry and economic conditions . a key component of this strategy is to continuously review and optimize apache 's portfolio of assets in response to these changes . most recently , apache has completed a series of divestitures designed to monetize nonstrategic assets and enhance apache 's portfolio in order to allocate resources to more impactful exploration and development opportunities . these divestments include : midcontinent/gulf coast divestiture in the second quarter of 2019 , apache completed the sale of non-core , gas-weighted assets in the woodford-scoop and stack plays for aggregate cash proceeds of approximately $ 223 million . in the third quarter of 2019 , apache completed the sale of non-core , gas-weighted assets in the western anadarko basin of 29 oklahoma and texas for aggregate cash proceeds of approximately $ 322 million and the assumption of asset retirement obligations of $ 49 million . u.s. leasehold divestitures & other during 2019 , the company also completed the sale of certain other non-core producing assets , gpt assets , and leasehold acreage , primarily in the permian region , in multiple transactions for total cash proceeds of $ 73 million . altus transaction in the fourth quarter of 2018 , the company completed the previously announced agreement with altus midstream company and its then wholly-owned subsidiary altus midstream lp ( collectively , altus ) . story_separator_special_tag crude oil revenues crude oil revenues for 2019 totaled $ 5.2 billion , a $ 616 million decrease from the 2018 total of $ 5.8 billion . an 8 percent decrease in average realized prices reduced 2019 revenues by $ 470 million compared to 2018 , while 2 percent lower average daily production decrease d revenues by $ 146 million . average daily production in 2019 was 239.4 mb/d , with prices averaging $ 60.05 per barrel . crude oil accounted for 83 percent of apache 's 2019 oil and gas production revenues and 51 percent of its worldwide production . worldwide crude oil production decrease d 6.0 mb/d compared to 2018 , primarily a result of lower gross production in egypt due to natural decline . natural gas revenues natural gas revenues for 2019 totaled $ 678 million , a $ 241 million decrease from the 2018 total of $ 919 million . a 27 percent decrease in average realized prices reduced 2019 revenues by $ 251 million compared to 2018 , while 2 percent higher average daily production increase d revenues by $ 10 million . average daily production in 2019 was 980 mmcf/d , with prices averaging $ 1.90 per mcf . natural gas accounted for 11 percent of apache 's 2019 oil and gas production revenues and 34 percent of its worldwide production . worldwide gas production increase d 14.7 mmcf/d compared to 2018 , primarily a result of the alpine high development , partially offset by lower gross production in egypt due to natural decline and the sale of the company 's woodford-scoop and stack plays and western anadarko basin assets in the u.s. ngl revenues ngl revenues for 2019 totaled $ 407 million , a $ 176 million decrease from the 2018 total of $ 583 million . a 41 percent decrease in average realized prices reduced 2019 revenues by $ 242 million compared to 2018 , while 19 percent higher average daily production increased revenues by $ 66 million . average daily production in 2019 was 71.1 mb/d , with prices averaging $ 15.74 per barrel . ngls accounted for 6 percent of apache 's 2019 oil and gas production revenues and 15 percent of its worldwide production . worldwide production of ngls increased 11.5 mb/d compared to 2018 , primarily a result of the alpine high development and partially offset by the sale of the company 's woodford-scoop and stack plays and western anadarko basin assets in the u.s. altus revenues apache is the largest single owner of the voting common stock of altus and has an approximate 79 percent ownership interest in altus . altus generates revenue primarily by providing fee-based natural gas gathering , compression , processing , and transmission services . altus owns and operates a midstream energy asset network in the permian basin of west texas primarily to service apache 's production from its alpine high resource play , which commenced production in may 2017. during 2019 and 2018 , midstream services revenues totaling $ 136 million and $ 77 million , respectively , were generated through fee-based contractual arrangements with apache . these affiliated revenues are eliminated upon consolidation . the increase compared to the prior year was primarily driven by higher throughput volumes from apache 's drilling activity levels at alpine high in late 2018 and the first half of 2019. given the prevailing gas and ngl price environment and disappointing performance of multi-well development pads in the second half of 2019 , apache materially reduced planned investment and currently has no future drilling plans at alpine high . as such , altus ' aggregate gathering and processing volumes from apache are expected to decline over time . other producers developing plays in surrounding areas are expected to provide additional opportunities for altus to pursue third-party treating , processing , and transportation agreements . 34 operating expenses the table below presents a comparison of the company 's operating expenses for the years ended december 31 , 2019 , 2018 , and 2017 . all operating expenses include costs attributable to a noncontrolling interest in egypt and altm . replace_table_token_15_th lease operating expenses ( loe ) loe includes several key components , such as direct operating costs , repair and maintenance , and workover costs . direct operating costs generally trend with commodity prices and are impacted by the type of commodity produced and the location of properties ( i.e. , offshore , onshore , remote locations , etc. ) . fluctuations in commodity prices impact operating cost elements both directly and indirectly . they directly impact costs such as power , fuel , and chemicals , which are commodity price based . commodity prices also affect industry activity and demand , thus indirectly impacting the cost of items such as rig rates , labor , boats , helicopters , materials , and supplies . oil , which contributed approximately half of apache 's 2019 production , is inherently more expensive to produce than natural gas . repair and maintenance costs are typically higher on offshore properties . during 2019 , loe increased $ 8 million , or 1 percent , on an absolute dollar basis compared to 2018 . on a per-unit basis , loe decreased $ 0.09 , or 1 percent , compared to 2018 , from $ 8.47 per boe to $ 8.38 per boe . loe in the u.s. decreased 10 percent on a per-boe basis , partially offset by localized cost increases in egypt . gathering , processing , and transmission ( gpt ) gpt expenses include processing and transmission costs paid to third-party carriers and to altus for apache 's upstream natural gas production associated with its alpine high play . gpt expenses also include midstream operating costs incurred by altus . the following table presents a summary of these expenses : replace_table_token_16_th 35 gpt costs decreased $ 42 million from 2018 .
| results include asset impairments of $ 2.9 billion and unproved leasehold impairments of $ 619 million . these non-cash impairments were primarily related to the company 's upstream assets in alpine high and gathering and processing assets from the consolidated results of altus midstream . given the prevailing gas and ngl price environment and disappointing performance of recent multi-well development pads , apache materially reduced planned investment and currently has no future drilling plans at alpine high . 28 operational highlights key operational highlights for the year include : united states equivalent production from the permian region , which accounts for 91 percent of apache 's total u.s. production , increased 21 percent from 2018 to 2019 driven by the success of the midland basin oil-focused drilling program and production increases at its alpine high field . the permian region averaged 11 operated rigs during the year , drilling 233 gross wells . international the egypt region 's gross equivalent production decreased 7 percent and net production decreased 11 percent from 2018 primarily a result of natural decline and fewer wells brought on-line during the period . the region continues to build and enhance its robust drilling inventory , supplemented with recent seismic acquisitions and new play concept evaluations , on both new and existing acreage . the north sea region averaged 3 rigs during 2019 , drilling 11 gross development wells with a 100 percent success rate . during the year , the region averaged production of 61 mboe/d and contributed $ 1.3 billion of revenues .
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during the year ended december 31 , 2014 , the company repaid in full the remaining amounts outstanding of approximately $ 70,000 due for laboratory equipment under financing agreements with a supplier , which is a business owned by a member of the company 's board of directors , using the net proceeds from the ipo . pursuant to an underwriting agreement dated february 9 , 2015 between the company , aegis and feltl and company , as underwriters named therein , a public offering of 8,000,000 shares story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in the annual report . this discussion contains forward-looking statements based upon our current plans , estimates , beliefs and expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under the sections entitled “ risk factors , ” “ special note regarding forward-looking statements ” and elsewhere in this annual report . we are an early commercial-stage molecular oncology diagnostics company that develops and commercializes proprietary circulating tumor cell , or ctc , and circulating tumor dna , or ctdna , assays utilizing a standard blood sample , or “ liquid biopsy. ” our current breast , lung and gastric cancer assays provide , and our planned future assays would provide , information to oncologists and other physicians that enable them to select appropriate personalized treatment for their patients based on better , timelier and more-detailed data on the characteristics of their patients ' tumors . our current assays and our planned future assays focus on all the key solid tumor indications utilizing our target-selector tm offering for the biomarker analysis of ctcs and ctdna from a standard blood sample . the target-selector offering is based on an internally developed and patented , microfluidics-based ctc capture and analysis platform , with enabling features that change how ctc testing can be used by clinicians by providing real-time biomarker detection and monitoring requiring only a standard blood sample . our patent pending ctdna technology enables mutation detection with enhanced sensitivity and specificity and is applicable to nucleic acid from ctcs or other sample types , such as blood plasma . we believe the target-selector technology can be used as a stand-alone test for molecular biomarker screening and monitoring . at our corporate headquarters facility located in san diego , california , we operate a clinical laboratory that is certified under the clinical laboratory improvement amendments of 1988 , or clia , and accredited by the college of american pathologists . we manufacture our microfluidic channels , related equipment and certain reagents to perform our current assays and our planned future assays at this facility . clia certification is required before any clinical laboratory , including ours , may perform testing on human specimens for the purpose of obtaining information for the diagnosis , prevention , or treatment of disease or the assessment of health . the assays we offer and intend to offer are classified as laboratory developed tests , or ldts , under clia regulations . we are continuing to commercialize our target-selector assays for a number of solid tumor indications such as : breast cancer , non-small cell lung cancer , or nsclc , small cell lung cancer , or sclc , gastric cancer , colorectal cancer , prostate cancer , and melanoma . these assays utilize our dual ctc and ctdna technology platform and provide biomarker analysis from a standard blood sample . in the case of our breast and gastric cancer offering , biomarker analysis involves fluorescence in situ hybridization , or fish , for the detection and quantitation of the human epidermal growth factor receptor 2 , or her2 , gene copy number as well as immunocytochemical analysis of estrogen receptor , or er , protein , which is currently commercially available . we plan to include immunocytochemical analysis of progesterone receptor , or pr , proteins as part of the target-selector menu in 2016. a patient 's her2 status provides the physician with information about the appropriateness of therapies such as herceptin® or tykerb® . er and pr status provides the physician with information about the appropriateness of endocrine therapies such as tamoxifen and aromatase inhibitors . the lung cancer biomarker analysis currently includes fish testing for alk and ros1 gene rearrangements and mutation analysis of the t790m , deletion 19 , and l858r mutations of the epidermal growth factor receptor , or egfr , gene as well as b-raf and k-ras using our target-selector platform . the l858r mutation of the egfr gene and exon 19 deletions as activators of egfr kinase activity are associated with the drugs tarceva® , gilotrif® and iressa® . the codon 12 and 13 mutations of the k-ras gene are found in patients whose tumors are unlikely to respond to the egfr kinase inhibitors such as erbitux® and vectibix® . for lung cancer , we also offer a resistance panel assay consisting of the biomarkers met , her2 ( both of which we perform using our technology for ctcs ) and t790m which is performed using ctdna in plasma . this assay could be used by physicians to identify the mechanism causing disease progression for patients with nsclc who are being treated with tki therapy and therefore could qualify for inclusion in a clinical trial . fibroblast growth receptor 1 , or fgfr1 , amplification is offered using our ctc technology . fgfr1 is present in several tumor types , including both nsclc and sclc and has been shown to be a prognostic indicator of progression . fgfr1 is also a key target for many drugs which are in clinical development . mutations of the b-raf gene are associated with zelboraf® and tafinlar® , which are both approved for treating patients with melanoma and are in clinical trials for lung cancer . story_separator_special_tag 58 fr om january through august 2014 , approximately $ 43,000 , or approximately 32 % of our annual revenues in 2014 , was billed to our clinical partner , the dana-farber cancer institute . from january through december 2015 , approximately $ 32,400 , or approximately 5 % of our annual revenues in 2015 , was billed to our clinical partner , the university of texas md anderson cancer center . the clinical laboratory industry is highly competitive , and our relationships and our partners ' relationships with decision-makers at ho spitals , cancer centers or physician offices is a critical component of securing their business . consequently , our ability to establish and manage partnerships with groups that have sales and marketing capabilities in our target markets and attract and mai ntain productive sales personnel that have and can grow these relationships will largely determine our ability to grow our clinical services revenue . cost of revenues our cost of revenues consists principally of personnel costs , laboratory and manufacturing supplies and overhead . we are pursuing various strategies to reduce and control our cost of revenues , including automating aspects of our processes , developing more efficient technology and methods , attempting to negotiate improved terms with our suppliers and exploring relocating our operations to a lower-cost facility . operating expenses we classify our operating expenses into three categories : research and development , sales and marketing , and general and administrative . our operating expenses principally consist of personnel costs , outside services , laboratory consumables and overhead , development costs , and legal and accounting fees . research and development expenses . we incur research and development expenses principally in connection with our efforts to develop and improve our tests . our primary research and development expenses consist of direct personnel costs , laboratory equipment and consumables and overhead expenses . we anticipate that research and development expenses will increase in the near-term , principally as a result of hiring additional personnel to develop and validate tests in our pipeline and to perform work associated with clinical utility studies and development collaborations . in addition , we expect that our costs related to collaborations with research and academic institutions will increase . all research and development expenses are charged to operations in the periods in which they are incurred . sales and marketing expenses . our sales and marketing expenses consist principally of personnel and related overhead costs for our sales team and their support personnel , travel and entertainment expenses , and other selling costs including sales collaterals and trade shows . general and administrative expenses . general and administrative expenses consist principally of personnel-related expenses , professional fees , such as legal , accounting and business consultants , occupancy costs , and other general expenses . we expect that our general and administrative expenses will increase as we expand our business operations . we further expect that general and administrative expenses will increase significantly due to increased information technology , legal , insurance , accounting and financial reporting expenses associated with expanded commercial activities . seasonality we expect our test volume to decrease during vacation and holiday seasons , when patients are less likely to visit their health care providers . we expect this trend in seasonality to continue for the foreseeable future . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires us to make estimates 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 based on historical experience and make various assumptions , which management believes to be reasonable under the circumstances , which form the basis for 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 . 59 the notes to our audited financial statements , which are included elsewhere in this annual report , contain a summary of our significant accounting policies . we consider the following accounting policies critical to the understanding of the results of our operations : · revenue recognition ; · accounts receivable and bad debts ; · stock-based compensation ; · common stock valuation ; and · warrant liability . revenue recognition we recognize revenue in accordance with asc 605 , revenue recognition , and asc 954-605 , health care entities , revenue recognition which requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collectability is reasonably assured . for contract partners , revenue is recorded based upon the contractually agreed upon fee schedule . when assessing collectability , we consider whether we have sufficient payment history to reliably estimate a payor 's individual payment patterns . for new tests where there is limited evidence of payment history at the time the tests are completed , we recognize revenue equal to the amount of cash received until such time as reimbursement experience can be established . accounts receivable and bad debts we carry accounts receivable at original invoice amounts , less an estimate for doubtful receivables , based on a review of all outstanding amounts on a periodic basis . the estimate for doubtful receivables is determined from an analysis of the accounts receivable on a quarterly basis , and is recorded as bad debt expense .
| results of operations years ended december 31 , 2014 and 2015 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_4_th revenues revenues were approximately $ 610,000 for the year ended december 31 , 2015 , compared with approximately $ 133,000 for the same period in 2014 , an increase of $ 477,000 , or 359 % . the increase was due to an increase of approximately $ 457,000 in commercial assay revenues resulting primarily from an increase in commercial assay collections , as well as an increase of approximately $ 23,000 in development services revenues with 216 development services assays completed during the year ended december 31 , 2015 as compared to 115 assays during the same period in 2014. costs and expenses costs of revenues . cost of revenues was approximately $ 4,596,000 for the year ended december 31 , 2015 , compared with approximately $ 2,170,000 for the year ended december 31 , 2014 , an increase of $ 2,426,000 , or 112 % . the increase was primarily attributable to an increase of approximately $ 1,723,000 related to the greater proportion of laboratory costs charged to cost of 61 revenues as a result of increased sample volume that related to revenue-generating activities relative to the total number of samples processed during the year ended december 31 , 2015 as compared to the same period in 2014 , as well as an increase of approximately $ 1,064,000 in personnel , materials and other direct costs mainly related to higher assay volume , partially offset by a decrease of approximately $ 258,000 in allocated facilities costs and a decrease of approximately $ 111,000 in non-recurring stock-based compensation and other personnel costs triggered by our initial public offering in february 2014. research and development expenses .
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we are not obligated to publicly update this information , whether as a result of new information , future events or otherwise , except to the extent we are required to do so in connection with our obligation to file reports with the sec . for a discussion of the important risks to our business and future operating performance , see the discussion under the caption “ item 1a . risk factors ” and under the caption “ factors that may influence future results of operations ” below . in light of these risks , uncertainties and assumptions , the forward-looking events discussed in this report might not occur . business overview we are engaged in the design , manufacture and sale of broadband high speed wireless data communication products such as third generation ( “ 3g ” ) and fourth generation ( “ 4g ” ) wireless modules and modems . we focus primarily on wireless broadband universal serial bus ( “ usb ” ) modems , which provide a flexible way for consumers to connect to wireless broadband networks from laptop or desktop computers . our broadband wireless data communication products are positioned at the convergence of wireless communications , mobile computing and the internet , each of which we believe represents a growing market . we market and sell our products through two channels : directly to wireless operators , and indirectly through strategic partners and distributors . our global customer base extends primarily from the united states to south american and caribbean countries . our usb modems are certified by sprint , c-spire wireless and other wireless operators located in the united states and also by wireless operators located in caribbean and south american countries . factors that may influence future results of operations we believe that our revenue growth will be influenced largely by ( 1 ) the successful maintenance of our existing customers , ( 2 ) the rate of increase in demand for wireless data products , ( 3 ) customer acceptance for our new products , ( 4 ) new customer relationships and contracts , and ( 4 ) our ability to meet customers ' demands . we have entered into and expect to continue to enter into new customer relationships and contracts for the supply of our products , and this may require significant demands on our resources , resulting in increased operating , selling , and marketing expenses associated with such new customers . summary of significant accounting policies principles of consolidation the consolidated financial statements include the accounts of the company , a wholly-owned subsidiary , and a subsidiary with a majority voting interest of 51.8 % ( 48.2 % is owned by non-controlling interests ) and 51.5 % ( 48.5 % is owned by non-controlling interests ) as of june 30 , 2012 and june 30 , 2011 , respectively , and 50.6 % ( 49.4 % was owned by non-controlling interests ) prior to january , 2011. in the preparation of consolidated financial statements of the company , intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of subsidiaries applicable to non-controlling interests . as consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity , the retained earnings or deficit of a subsidiary at the date of acquisition , october 1 , 2009 , by the parent are excluded from consolidated retained earnings . when a subsidiary is consolidated , the consolidated financial statements include the subsidiary 's revenues , expenses , gains , and losses only from the date the subsidiary is initially consolidated , and the noncontrolling interest is reported in the consolidated statement of financial position within equity , separately from the parent 's equity . there are no shares of the company held by the subsidiaries as of june 30 , 2012 or june 30 , 2011 . 11 segment reporting accounting standards codification ( “ asc ” ) topic 280 , “ segment reporting , ” requires public companies to report financial and descriptive information about their reportable operating segments . we identify our operating segments based on how management internally evaluates separate financial information , business activities and management responsibility . we have one reportable segment , consisting of the sale of wireless access products . we generate revenues from three geographic areas , consisting of the united states , the caribbean and south america and asia . the following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements . the following table contains certain financial information by geographic area : replace_table_token_3_th replace_table_token_4_th estimates the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could materially differ from those estimates . reclassifications certain reclassifications have been made to prior period amounts to conform to the current period presentation . this reclassification relates to amortization expense associated with capitalized product development previously reported as selling , general and administrative expense that has been reclassified to cost of goods sold for all periods presented . the amortization expense included in cost of goods sold for the years ended june 30 , 2012 and 2011 is $ 716,180 and $ 714,082 , respectively . this reclassification does not affect previously reported net sales , net income ( loss ) , earnings per share , or any portion of our consolidated balance sheets or consolidated statements of cash flow for any period presented . story_separator_special_tag we tested the long-lived assets for impairment as of june 30 , 2012 by comparing the discounted cash flows of the assets to their carrying values and concluded that , as of june 30 , 2012 , no impairment existed . 13 income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . we have evaluated the available evidence supporting the realization of our gross deferred tax assets , including the amount and timing of future taxable income , and have determined it is more likely than not that the assets will be fully realized and no valuation allowance is necessary as of june 30 , 2012. as of june 30 , 2012 , we have federal and state net operating loss carryforwards of approximately $ 4.4 million and $ 1.7 million , which expire through 2023 and 2017 , respectively . the utilization of net operating loss carryforwards may be subject to limitations under the provisions of the internal revenue code section 382 and similar state provisions . we adopted the provision of asc 740 “ a pplication of the uncertain tax position provisions ” related to accounting for uncertain tax positions effective july 1 , 2007 , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return . under this provision , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . recently issued accounting pronouncements in june 2011 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2011-05 , presentation of comprehensive income , eliminates the option of presenting the components of other comprehensive income ( oci ) as part of the statement of changes in stockholders ' equity . the asu instead permits an entity to present the total of comprehensive income , the components of net income , and the components of oci either in a single continuous statement of comprehensive income or in two separate but consecutive statements . with either format , the entity is required to present each component of net income along with total net income , each component of oci along with the total for oci , and a total amount for comprehensive income . also , the asu requires entities to present , for either format , reclassification adjustments for items that are reclassified from oci to net income in the statement ( s ) where the components of net income and the components of oci are presented . this asu is to be applied retrospectively . for public entities , the asu is effective for interim and annual periods beginning after december 15 , 2011. early adoption is permitted , since compliance with the amendments is already permitted . we have adopted this guidance and note that it does not have any material impact on our consolidated financial statements . in september 2011 , the fasb issued asu 2011-08 , testing goodwill for impairment , which permits entities to determine first whether it is necessary to apply the traditional two-step goodwill impairment test , based on qualitative factors . an entity also has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the first step of the two-step goodwill impairment test ; an entity may resume performing the qualitative assessment in any subsequent period . also under the amendments , an entity is no longer permitted to carry forward its detailed calculation of a reporting unit 's fair value from a prior year . the asu also includes examples of events and circumstances for an entity to consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , which supersede the previous examples of events and circumstances that an entity should consider when testing goodwill for impairment between annual tests . an entity having a reporting unit with a zero or negative carrying amount will also consider the revised list of factors in determining whether to perform the second step of the impairment test . the asu is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011. early adoption is permitted , including for annual and interim goodwill impairment tests performed as of a date before september 15 , 2011 , if an entity 's financial statements for the most recent annual or interim period have not yet been issued . we have adopted this guidance and note that it does not have any material impact on our consolidated financial statements . 14 story_separator_special_tag decreased by $ 263,715 , or 41.5 % , to $ 371,211 for the year ended june 30 , 2011 from $ 634,926 for the corresponding period of 2010. the decrease in net sales was primarily due to reduced revenue generated from engineering services for fti , which typically vary from year to year .
| results of operations the following table sets forth , for the years ended june 30 , 2012 , 2011 and 2010 , our statements of operations including data expressed as a percentage of sales : replace_table_token_5_th year ended june 30 , 2012 compared to year ended june 30 , 2011 net sales - net sales decreased by $ 22,247,892 , or 47.8 % , to $ 24,266,604 for the year ended june 30 , 2012 from $ 46,514,496 for the corresponding period of 2011. for the year ended june 30 , 2012 , net sales by geographic regions , consisting of south america and the caribbean , the united states , and asia were $ 6,450,174 ( 26.6 % of net sales ) , $ 13,851,066 ( 57.1 % of net sales ) , and $ 3,965,364 ( 16.3 % of net sales ) , respectively . net sales in the south american and caribbean regions decreased by $ 4,893,347 , or 43.1 % , to $ 6,450,174 for the year ended june 30 , 2012 , from $ 11,343,521 for the corresponding period of 2011. the decrease was primarily due to the general nature of sales in these regions , which often fluctuate significantly from period to period due to by timing of orders placed by a relatively small number of customers . in addition , some carrier customers in these regions are transitioning from cdma to lte or hspa+ networks , which affected the quantity of cdma related products that were sold during the year ended june 30 , 2012. net sales in the united states decreased by $ 20,948,698 , or 60.2 % , to $ 13,851,066 for the year ended june 30 , 2012 , from $ 34,799,764 for the corresponding period of 2011. the decrease in net sales was due to several factors , including increased competition in the dual-mode ( 3g and 4g ) usb modem market , as well as competition from other similar products , which negatively affected volume and price .
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63 replace_table_token_18_th the following table summarizes the components of intangible assets and related accumulated amortization balances at march 31 , 2020 and 2019 , respectively ( in thousands ) : replace_table_token_19_th replace_table_token_20_th amortization of intangible assets of $ 233,000 , $ 267,000 and $ 313,000 was included story_separator_special_tag the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ risk factors ” and elsewhere in this report . the following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this report . overview we are a fabless semiconductor company that designs , develops and markets static random access memories , or srams , that operate at speeds of less than 10 nanoseconds , which we refer to as very fast srams , primarily for the networking and telecommunications markets . we are subject to the highly cyclical nature of the semiconductor industry , which has experienced significant fluctuations , often in connection with fluctuations in demand for the products in which semiconductor devices are used . our revenues have been substantially impacted by significant fluctuations in sales to our largest customer , nokia . we expect that future direct and indirect sales to nokia will continue to fluctuate significantly on a quarterly basis . the networking and telecommunications market has accounted for a significant portion of our net revenues in the past and has declined during the past several years and is expected to continue to decline . however , with no debt , substantial liquidity and a history of positive cash flows from operations , we believe we are in a better financial position than many other companies of our size . 30 on march 11 , 2020 , the world health organization announced that covid-19 , a respiratory illness , caused by a novel coronavirus is a pandemic . covid-19 has spread to many of the countries in which we , our customers , our suppliers and our other business partners conduct business . governments in affected regions have implemented , and may continue to implement , safety precautions which include quarantines , travel restrictions , business closures , cancellations of public gatherings and other measures as they deem necessary . many organizations and individuals , including the company and our employees , are taking additional steps to avoid or reduce infection , including limiting travel and working from home . these measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide . while expected to be temporary , these disruptions may negatively impact our revenue , results of operations , financial condition , and liquidity in fiscal year 2021. we continue to monitor our operations and government recommendations and have made modifications to our normal operations because of the covid-19 global pandemic . we have instituted many preventative measures and are regularly evaluating those measures and others as we continue to better understand our current and future operating environment . except for our employees located in taiwan , the majority of our employees are working from home around the world , and productivity remains high . we have maintained a substantial portion of our manufacturing operational capacity at our primary manufacturing support facility located in hsin chu , taiwan where our suppliers are located and all of our products are manufactured . since the outbreak of covid-19 , aside from the lengthening of lead times for wafers and assembly services , we have experienced minimal impact on our manufacturing operations in taiwan . final testing of our product is conducted in house . shipping and receiving operations are being maintained by a skeleton crew with minimal impact . our revenues may be impacted by possible changes in customer buying patterns and communication limitations related to shelter in place restrictions that require a significant number of our customer contacts to work from home . the disruption to the marketplace resulting from the covid-19 global pandemic that we are currently experiencing is unlike anything we have ever had to deal with . while we continue to monitor the business metrics that we have historically used to predict our financial performance , we are uncertain as to whether these metrics will operate consistently with our historical experience . as of march 31 , 2020 , we had cash , cash equivalents , and short-term and long-term investments of $ 70.7 million , with no debt . we have a team in-place with tremendous depth and breadth of experience and knowledge , with a legacy business that is providing an ongoing source of funding for the development of new product lines . we have a strong balance sheet and liquidity position that we anticipate will provide financial flexibility and security in the current environment of economic uncertainty with no current expectations of additional cash infusions required . generally , our primary source of liquidity is cash generated from operating activities . our level of cash and cash flows from operations have historically been sufficient to meet our operating and capital needs . we believe that during the next 12 months the covid-19 global pandemic could impact general economic activity and demand in our end markets . although we can not estimate the length or gravity of the impact of the covid-19 outbreak at this time , if the pandemic continues , it may have an adverse effect on our results of operations , financial position , and liquidity in fiscal year 2021. on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( “ cares act ” ) was enacted to provide emergency economic stimulus in response to the covid-19 global pandemic . story_separator_special_tag based on information provided to us by its contract manufacturers and our distributors , purchases by nokia represented approximately 38 % , 45 % and 36 % of our net revenues in fiscal 2020 , 2019 and 2018 , respectively . our revenues have been substantially impacted by significant fluctuations in sales to nokia , and we expect that future direct and indirect sales to nokia will continue to fluctuate substantially on a quarterly basis and that such fluctuations may significantly affect our operating results in future periods . to our knowledge , none of our other oem customers accounted for more than 10 % of our net revenues in fiscal 2020 , 2019 or 2018 . cost of revenues . our cost of revenues consists primarily of wafer fabrication costs , wafer sort , assembly , test and burn-in expenses , the amortized cost of production mask sets , stock-based compensation and the cost of materials and overhead from operations . all of our wafer manufacturing and assembly operations , and a significant portion of our wafer sort testing operations , are outsourced . accordingly , most of our cost of revenues consists of payments to tsmc and independent assembly and test houses . because we do not have long-term , fixed-price supply contracts , our wafer fabrication and other outsourced manufacturing costs are subject to the cyclical fluctuations in demand for semiconductors . cost of revenues also includes expenses related to supply chain management , quality assurance , and final product testing and documentation control activities conducted at our headquarters in sunnyvale , california and our branch operations in taiwan . gross profit . our gross profit margins vary among our products and are generally greater on our higher density products and , within a particular density , greater on our higher speed and industrial temperature products . we expect that our overall gross margins will fluctuate from period to period as a result of shifts in product mix , changes in average selling prices and our ability to control our cost of revenues , including costs associated with outsourced wafer fabrication and product assembly and testing . research and development expenses . research and development expenses consist primarily of salaries and related expenses for design engineers and other technical personnel , the cost of developing prototypes , stock-based compensation and fees paid to consultants . we charge all research and development expenses to operations as incurred . we charge mask costs used in production to cost of revenues over a 12-month period . however , we charge costs related to pre-production mask sets , which are not used in production , to research and development expenses at the time they are incurred . these charges often arise as we transition to new process technologies and , accordingly , can cause research and development expenses to fluctuate on a quarterly basis . we believe that continued investment in research and development is critical to our long-term success , and we expect to continue to devote significant resources to product development activities . in particular , we are devoting substantial resources to the development of a new category of in-place associative computing products . accordingly , we expect that our research and development expenses will continue to be substantial in future periods and may lead to operating losses in some periods . such expenses as a percentage of net revenues may fluctuate from period to period . 33 selling , general and administrative expenses . selling , general and administrative expenses consist primarily of commissions paid to independent sales representatives , salaries , stock-based compensation and related expenses for personnel engaged in sales , marketing , administrative , finance and human resources activities , professional fees , costs associated with the promotion of our products and other corporate expenses . we expect that our sales and marketing expenses will increase in absolute dollars in future periods if we are able to grow and expand our sales force but that , to the extent our revenues increase in future periods , these expenses will generally decline as a percentage of net revenues . we also expect that , in support of any future growth that we are able to achieve , general and administrative expenses will generally increase in absolute dollars . acquisition on november 23 , 2015 , we acquired all of the outstanding capital stock of privately held mikamonu group ltd. ( “ mikamonu ” ) , a development-stage , israel-based company that specialized in in-place associative computing for markets including big data , computer vision and cyber security . mikamonu , located in tel aviv , held 12 united states patents and had a number of pending patent applications . the acquisition was undertaken in order to gain access to the mikamonu patents and the potential markets , and new customer base in those markets , that can be served by new products that we are developing using the in-place associative computing technology . the acquisition has been accounted for as a purchase under authoritative guidance for business combinations . the purchase price of the acquisition was allocated to the intangible assets acquired , with the excess of the purchase price over the fair value of assets acquired recorded as goodwill . we perform a goodwill impairment test near the end of each fiscal year . the results of operations of mikamonu and the estimated fair value of the assets acquired were included in our consolidated financial statements beginning november 23 , 2015. under the terms of the acquisition agreement , we paid the former mikamonu shareholders initial cash consideration of approximately $ 4.9 million . we are also required to pay the former mikamonu shareholders future contingent consideration consisting of retention payments and “ earnout ” payments , as described below . we also made cash retention payments totaling $ 2.5 million to the three former mikamonu shareholders , conditioned on the continued employment of dr. avidan akerib , mikamonu 's co-founder and chief technologist . retention payments of $ 743,000 , $ 750,000 and $ 1.0
| results of operations the following table sets forth statement of operations data as a percentage of net revenues for the periods indicated : replace_table_token_3_th fiscal year ended march 31 , 2020 compared to fiscal year ended march 31 , 2019 net revenues . net revenues decreased by 15.8 % from $ 51.5 million in fiscal 2019 to $ 43.3 million in fiscal 2020. the overall average selling price of all units shipped in fiscal 2020 decreased by 0.8 % in fiscal 2020 compared to the prior fiscal year . units shipped declined 14.7 % in fiscal 2020 compared to fiscal 2019. the networking and telecommunications markets represented 50 % and 55 % of shipments in fiscal 2020 and in fiscal 2019 , respectively . direct and indirect sales to nokia , currently our largest customer , decreased by $ 6.8 million from $ 23.1 million in fiscal 2019 to $ 16.3 million fiscal 2020. shipments of our sigmaquad product line accounted for 60.8 % of total shipments in fiscal 2020 compared to 63.6 % of total shipments in fiscal 2019. the decrease in sigmaquad shipments was primarily due to the decreased sales to nokia . we currently expect that net revenues will fluctuate in the future , from period-to-period , based on evolving customer demand for existing products , the pace of adoption of newer products , and macroeconomic conditions . further , due to heightened volatility and uncertainty in customer demand resulting from the covid-19 global pandemic , we may experience decreased sales and revenues . we believe such impact may in particular affect our direct and indirect sales of very fast srams to nokia and our other key oem customers . 35 cost of revenues .
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) and several foreign countries via highly engaging video-rich , interactive shopping experiences . on december 29 , 2017 , we acquired the approximately 62 % of hsn we did not already own in an all-stock transaction ( the “ merger ” ) making hsn a wholly-owned subsidiary . on december 31 , 2018 , qurate retail transferred our 100 % ownership interest in hsn to qvc , inc. through a transaction among entities under common control . following this transaction , cornerstone ( a former subsidiary of hsn ) remains a subsidiary of qurate retail and is included in the “ corporate and other ” reportable segment . on october 1 , 2015 we acquired zulily , inc. , now known as zulily , llc ( “ zulily ” ) , an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day . zulily is a reportable segment . references throughout this annual report to “ qvc ” refer to qvc , inc. , which includes hsn , qvc u.s. and qvc international . our “ corporate and other ” category includes our consolidated subsidiary cornerstone , along with various cost and equity method investments . see discussion below for the entities that were included in corporate and other in prior periods . prior to the transactions ( described and defined below ) , the company utilized tracking stocks in its capital structure . a tracking stock is a type of common stock that the issuing company intends to reflect or `` track '' the economic performance of a particular business or `` group , '' rather than the economic performance of the company as a whole . qurate retail had two tracking stocks—qvc group common stock and liberty ventures common stock , which were intended to track and reflect the economic performance of qurate retail 's businesses , assets and liabilities attributed to the qvc group and the ventures group , respectively . the qvc group was comprised of the company 's wholly-owned subsidiaries qvc , zulily , hsn and cornerstone among other assets and liabilities . the ventures group was comprised of businesses not included in the qvc group including evite , inc. ( “ evite ” ) and our interests in liberty broadband corporation ( “ liberty broadband ” ) , lendingtree , inc. ( “ lendingtree ” ) , investments in charter communications , inc. ( “ charter ” ) and ilg , inc. ( “ ilg ” ) , among other assets and liabilities ( which were all included in the corporate and other category ) . the company 's results are attributed to the qvc group and the ventures group through march 9 , 2018. on march 9 , 2018 , qurate retail completed the transactions contemplated by the agreement and plan of reorganization ( as amended , the “ reorganization agreement , ” and the transactions contemplated thereby , the “ transactions ” ) among general communication , inc. ( “ gci ” ) , an alaska corporation , and liberty interactive llc , a delaware limited liability company and a direct wholly-owned subsidiary of qurate retail ( “ li llc ” ) . pursuant to the reorganization agreement , gci amended and restated its articles of incorporation ( which resulted in gci being renamed gci liberty , inc. ( “ gci liberty ” ) ) and effected a reclassification and auto conversion of its common stock . after market close on march 8 , 2018 , qurate retail 's board of directors approved the reattribution of certain assets and liabilities from qurate retail 's ventures group to its qvc group , which was effective immediately . the reattributed assets and liabilities included cash , qurate retail 's interest in ilg , certain green energy investments , li llc 's exchangeable debentures , and certain tax benefits . following these events , qurate retail acquired gci liberty through a reorganization in which certain qurate retail interests , assets and liabilities attributed to the ventures group were contributed ( the “ contribution ” ) to gci liberty in exchange for a controlling interest in gci liberty . qurate retail and li llc contributed to gci liberty their entire equity interest in liberty broadband , charter , and lendingtree , the evite operating business and other assets and liabilities attributed to qurate retail 's venture group ( following the reattribution ) , in exchange for ( a ) the issuance to li llc of a number of shares of gci liberty class a common stock and a number of shares of gci liberty class b common stock ii-4 equal to the number of outstanding shares of series a liberty ventures common stock and series b liberty ventures common stock on march 9 , 2018 , respectively , ( b ) cash and ( c ) the assumption of certain liabilities by gci liberty . following the contribution , qurate retail effected a tax-free separation of its controlling interest in the combined company ( the “ gci liberty split-off ” ) , gci liberty , to the holders of liberty ventures common stock in full redemption of all outstanding shares of such stock , in which each outstanding share of series a liberty ventures common stock was redeemed for one share of gci liberty class a common stock and each outstanding share of series b liberty ventures common stock was redeemed for one share of gci liberty class b common stock . simultaneous with the closing of the transactions , qvc group common stock became the only outstanding common stock of qurate retail , and thus qvc group common stock ceased to function as a tracking stock . on april 9 , 2018 , liberty interactive corporation was renamed qurate retail , inc. on may 23 , 2018 , qurate retail amended its charter to eliminate the tracking stock capitalization structure and reclassify each share of qvc group common stock into one share of the corresponding series of new common stock of qurate retail . story_separator_special_tag the transition will last until december 31 , 2020 , which can be extended for up to two years if the e.u . and the u.k. agree to do so . however , at present , the u.k. government 's stated intention is not to seek or agree to an extension . a “ no deal ” outcome on trade remains a possibility if the e.u . and the u.k. fail to conclude a new trade agreement before december 31 , 2020 and the transition period is not extended . in that case , with effect from january 1 , 2021 , the basis for e.u.-u.k. trade would automatically default to world trade organization terms . the potential impacts , if any , of the considerable uncertainty relating to brexit or the resulting terms of the new economic and security relationship between the u.k. and the e.u . on the free movement of goods , services , people and capital between the u.k. and the e.u. , customer behavior , economic conditions , interest rates , currency exchange rates , availability of capital or other matters are unclear . qvc 's business could be affected with respect to these matters during this period of uncertainty , and perhaps longer , depending on the resulting terms . in particular , its business could be negatively affected by new trade agreements between the u.k. and other countries , including the u.s. , and by the possible imposition of trade or other regulatory barriers in the u.k. which could result in shipping delays and the shortage of products sold by qvc . additionally , the u.k. economy and consumer demand in the u.k. , including for qvc 's products , could be negatively impacted . further , various geopolitical forces related to brexit may impact the global economy , the european economy and qvc 's business , including , for example , due to other e.u . member states where qvc has operations proposing referendums to , or electing to , exit the e.u . these possible negative impacts , and others resulting from the u.k. 's withdrawal from the e.u. , may adversely affect qvc 's operating results . the president of the u.s. has expressed apprehension towards trade agreements , such as the trans-pacific partnership , and suggested that the u.s. would renegotiate or withdraw from certain trade agreements . he has advocated for and imposed tariffs on certain goods imported into the u.s. , particularly from china . in response to these new u.s. tariffs , some foreign governments , including china , have instituted or are considering instituting tariffs on certain u.s. goods . new tariffs and other changes in u.s. trade policy could trigger retaliatory actions by affected countries . like many other multinational corporations , qvc does a significant amount of business that could be impacted by changes to u.s. and international trade policies ( including governmental action related to tariffs and trade agreements ) . such changes have the potential to adversely impact the u.s. economy or certain sectors thereof , qvc 's industry and the global demand for its products and , as a result , could have a material adverse effect on qvc 's business , financial condition and results of operations . on january 23 , 2017 , the president of the u.s. signed a presidential memorandum to withdraw the u.s. from the trans- pacific partnership . on october 1 , 2018 , the u.s. , mexico and canada agreed to the terms of the united states- ii-6 mexico- canada agreement ( the `` usmca '' ) , a successor to the north american free trade agreement ( `` nafta '' ) , which will impact imports and exports among those countries . the countries agreed to a revised version of the usmca on december 10 , 2019. the usmca has only been ratified by mexico and the u.s. once ratified by the legislature of canada , the usmca would be enacted and replace nafta . as of the date of this report , there is some uncertainty about whether the usmca will be ratified by canada , as well as the timing thereof , and the potential for further re-negotiation , or even termination , of nafta . further , the usmca could undergo changes that lead to further modifications of certain usmca provisions before being passed into law . these and other proposed actions , if implemented , could adversely affect our subsidiaries because they sell imported products . zulily . zulily 's objective is to be the leading online retail destination for shoppers . zulily 's goal is to be part of its customers ' daily routine , allowing them to visit zulily sites and discover a selection of fresh , new and affordable merchandise curated for them every morning . zulily intends to employ the following strategies to achieve these goals and objectives : ( i ) acquire new customers ; ( ii ) increase customer loyalty and repeat purchasing ; ( iii ) add new vendors and strengthen existing vendor relationships ; ( iv ) invest in mobile platform and channels with which its customers want to engage ; and ( v ) invest in low cost supply chain systems in the u.s. and cross border . zulily has limited contractual assurances of continued supply , pricing or access to new products , and vendors could change the terms upon which they sell to zulily or discontinue selling to zulily for future sales at any time . as zulily grows , continuing to identify a sufficient number of new emerging brands and smaller boutique vendors may become more and more of a challenge . if zulily is not able to identify and effectively promote these new brands , it may lose customers to competitors . even if zulily identifies new vendors , it may not be able to purchase desired merchandise in sufficient quantities or on acceptable terms in the future , and products from alternative sources , if any , may be of a lesser quality or more expensive than those from existing vendors .
| operating results replace_table_token_5_th ( a ) due to the gci liberty split-off , including the redemption of outstanding shares of liberty ventures common stock , the ventures group and the qvc group tracking stock structure no longer exists as of march 9 , 2018 , however amounts were attributed to the ventures group and the qvc group from january 1 , 2018 through march 9 , 2018. attributed to the ventures group was revenue of $ 3 million , operating loss of $ 8 million , and an adjusted oibda loss of $ 5 million for the year ended december 31 , 2018. revenue . our consolidated revenue decreased 4.3 % and increased 35.2 % for the years ended december 31 , 2019 and 2018 , respectively , as compared to the corresponding prior year periods . ii-8 qxh , zulily and qvc international revenue decreased $ 267 million , $ 246 million and $ 29 million , respectively , during the year ended december 31 , 2019 , as compared to the same period in the prior year . see `` results of operations - businesses `` below for a more complete discussion of the results of operations of qvc and zulily . corporate and other revenue decreased $ 72 million for the year ended december 31 , 2019 , as compared to the corresponding period in the prior year due to a decrease in cornerstone revenue of $ 70 million due to the shutdown of one of the home brands in cornerstone 's portfolio during the fourth quarter of 2018. qxh , zulily and qvc international revenue increased $ 2,404 million , $ 204 million and $ 107 million during the year ended december 31 , 2018 compared to the same period in the prior year . the qxh increase in 2018 was primarily related to the acquisition of hsn , as no hsn revenue was included in 2017 results due to the timing of the acquisition .
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the company provides a matching contribution to the plan , determined as a percentage of the employees ' contributions . aggregate expense to the company for contributions to the plan was approximately $ 1.2 million in 2018 , $ 0.7 million in 2017 and $ 0.4 million in 2016 , respectively . fair value measurements – financial instruments consist primarily of investments in cash , trade accounts receivable , debt and accounts payable story_separator_special_tag overview 20 systemax inc. , through its subsidiaries , is primarily a direct marketer of brand name and private label industrial and business equipment and supplies in north america going to market through a system of branded e-commerce websites and relationship marketers . the company currently operates and is internally managed in one reportable segment - industrial products group ( `` ipg '' ) . smaller business operations and corporate functions are aggregated and reported as an additional segment - corporate and other ( “ corporate ” ) . industrial products ipg sells a wide array of industrial and general business hard goods and supplies and to a lesser extent products that would fall into the generally recognizable category of maintenance , repair and operational ( “ mro ” ) products , which are marketed in north america . many of these products are manufactured by other companies . some products are manufactured for us to our own design and marketed under the trademarks : global , globalindustrial.com , nexel paramount and interion . ipg accounted for 100 % of our net sales from continuing operations in 2018 and 2017 and 95 % in 2016. corporate and other the company 's smaller operations and corporate functions are aggregated and reported as the corporate and other segment . the results of the company 's former misco germany subsidiary , which was sold in 2016 and had been reported as part of its etg segment , are presented in continuing operations in the consolidated financial statements within the corporate and other segment . corporate and other accounted for none of our sales from continuing operations in 2018 and 2017 and 5 % of our net sales from continuing operations in 2016. discontinued operations the company 's discontinued operations include the results of the france business sold in august 2018 , the sarl businesses sold in march 2017 and the natg business sold in december 2015 ( see note 1 ) . total net sales from discontinued operations were $ 352.0 million , $ 590.6 million and $ 938.8 million in 2018 , 2017 and 2016 , respectively . see note 3 and 13 to the consolidated financial statements included in item 15 of this form 10-k for additional financial information about our business segments as well as information about our geographic operations . operating conditions the north american industrial products market is highly fragmented and we compete against multiple distribution channels . in ipg , distribution is working capital intensive , requiring us to incur significant costs associated with the warehousing of many products , including the costs of maintaining inventory , leasing warehouse space , inventory management systems , and employing personnel to perform the associated tasks . we supplement our on-hand product availability by maintaining relationships with major distributors and manufacturers , utilizing a combination of stock and drop-shipment fulfillment . the primary component of our operating expenses historically has been employee-related costs , which includes items such as wages , commissions , bonuses , employee benefits and equity-based compensation , as well as marketing expenses , primarily comprised of digital marketing spend , and occupancy related charges associated with our distribution and call center facilities . we continually assess our operations to ensure that they are efficient , aligned with market conditions and responsive to customer needs . in the discussion of our results of operations we refer to business to business channel sales and period to period constant currency comparisons . sales in ipg and corporate and other are considered to be b2b sales . constant currency refers to the adjustment of the results of our foreign operations to exclude the effects of period to period fluctuations in currency exchange rates . in order to provide more meaningful information to investors which reflect the full exit of natg , misco germany , sale of the rebate processing business along with the associated gain on the sale , the company is also presenting its results on a non-gaap basis in the `` supplemental continuing operation business unit summary results '' table . this non-gaap presentation reflects the entire natg segment , misco germany operation and rebate processing business as a discontinued operation for all periods presented as well as including adjustments for non-recurring items , intangible amortization and equity compensation in recurring operations . 21 story_separator_special_tag sales channels , with growth rates highest within our managed sales channels , where we are benefiting from improvements in sales force productivity , evidenced by increased penetration of existing customer accounts , as well as growth from new customer acquisition and a continuation of a strong macro-economic environment . ipg net sales benefited from growth in its canada business which delivered its eighth consecutive quarter of double digit growth in the fourth quarter . canada sales increased approximately 30.8 % , 30.7 % on a constant currency basis , compared to prior year . u.s. revenue increased 12.5 % compared to prior year . on a constant currency basis , ipg average daily sales increased 13.3 % compared to prior year . the ipg segment net sales benefited in 2017 from continued growth across its u.s. core business categories including material handling , hvac and storage solutions . ipg u.s. revenue was up 10.3 % for the year while canada sales were up 20.5 % , approximately 18.0 % on a constant currency basis . increased sales included both new customer acquisition as well as increased penetration of existing customer accounts while the u.s. benefited from a strengthening macro economic environment . story_separator_special_tag the company recorded a pre-tax book gain on the sale of the france business , which was reported within the discontinued operations of the company 's etg segment , of approximately $ 178.9 million for the year ended december 31 , 2018. the pre-tax book gain included proceeds from the sale of approximately $ 267.3 million , recorded in the third quarter of 2018 , and a favorable purchase price adjustment of $ 0.7 million which was recorded in the fourth quarter of 2018. the sales price was offset by the $ 82.5 million of net assets sold , $ 1.5 million for accelerated amortization expense of restricted stock and stock options and by $ 5.1 million of transaction costs related to the sale . of the expenses mentioned , $ 5.1 million of transaction costs required the use of cash . the company may incur additional charges related to statutory tax indemnities given at closing . the company is providing limited transition services to the france business for a period of up to six months , following the closing , under a transition services agreement . the company 's natg discontinued operations incurred special charges of approximately $ 1.4 million for the year ended december 31 , 2018. these charges included approximately $ 2.5 million of lease reserves adjustments related to their leased facilities , of which $ 1.7 million was recorded in discontinued operations and $ 0.8 million recorded in continuing operations , and approximately $ 0.1 million of legal and professional fees related to the ongoing restitution proceedings offset by $ 1.0 million in restitution receipts from a former executive of natg and $ 0.2 million in vendor settlement receipts . in 2017 the company incurred special charges of $ 30.9 million , of which $ 0.3 million was included in continuing operations within the discontinued natg segment and $ 30.6 million was included in discontinued operations within the etg and natg segments . the company recorded a pre-tax book loss on the sale of the sarl businesses , which was reported within the discontinued operations of the company 's etg segment , of approximated $ 23.7 million for the year ended december 31 , 2017 , which included an $ 8.2 million loss on the sale of net assets , $ 14.4 million of cumulative translation adjustments , $ 1.1 million of legal , professional and other costs , $ 0.8 million recovery from settlement of an outstanding obligation related to the sale , $ 0.3 million of severance and other personnel costs and $ 0.5 million of costs related to a transitional services agreement . of these charges previously mentioned , $ 1.4 million required the use of cash . 28 natg discontinued operations incurred special charges of approximately $ 6.9 million throughout the year ended december 31 , 2017 , of which $ 6.2 million primarily related to updating our future lease cash flows and $ 0.7 million related to ongoing restitution proceedings against certain former natg executives . amounts that are unpaid at december 31 , 2018 are recorded in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets . the company 's natg segment incurred special charges in 2016 of approximately $ 11.7 million , of which $ 2.2 million is included in continuing operations and $ 9.5 million is included in discontinued operations . charges incurred included approximately $ 10.9 million for lease terminations and other exit costs ( includes $ 3.3 million benefit of previous rent accruals ) for the closing of the two remaining retail stores , a distribution center and the natg corporate headquarters in 2016 , approximately $ 2.0 million of additional lease termination costs ( includes $ 0.1 million benefit of previous rent accruals ) of our previously exited retail stores ( present value of contractual gross lease payments net of sublease rental income , or settlement amount ) , $ 0.6 million for consulting expenses related to the lease terminations and $ 0.2 million for severance and related expenses . natg also incurred in 2016 approximately $ 1.3 million of professional costs , related to the ongoing restitution proceedings against certain former natg executives and professional costs related to the investigation conducted at the request of the us attorney for the southern district of florida . these charges were offset by approximately $ 1.3 million received as a partial payment related to the investigation , settlement , prosecution , and restitution proceedings related to the former natg executives , $ 1.1 million benefit related to the settlement of vendor obligations , $ 0.5 million received from auction proceeds from the sale of fixed assets and approximately $ 0.4 million received when the buyer of natg exercised its option to acquire the consumer customer lists and related information of the natg business . the company 's corporate and other segment incurred special charges , reported within continuing operations , during 2016 of approximately $ 1.7 million related to the sale of certain assets of its german business , including customer relationships and the employees of its misco germany branch . the germany operations charges incurred included approximately $ 1.0 million for lease termination costs ( includes $ 0.3 million benefit related to previous rent accruals ) , $ 0.6 million for professional fees related to the sale and approximately $ 0.1 million for write off of inventory and fixed assets . the company 's discontinued etg segment recorded special charges in 2016 of $ 2.0 million related to impairment charges to goodwill and long-lived assets in the united kingdom operations . operating margin ipg 's operating margin increase of 40 basis points in 2018 compared to 2017 was driven by increased net sales , improved leverage within our fixed cost structure , good spend discipline in regards to marketing and general operating expenses and a net gain related to the settlement of previously disclosed state audits offset by an impairment charge against certain intangible assets .
| highlights from 2018 the following discussion of our results of operations and financial condition will provide information that will assist in understanding our financial statements and information about how certain accounting principles and estimates affect the consolidated financial statements . this discussion should be read in conjunction with the consolidated financial statements included herein . consolidated sales increased 13.3 % to $ 896.9 million compared to $ 791.8 million in the prior year . on a constant currency basis , average daily sales increased 13.3 % compared to prior year . consolidated operating income grew 35.0 % to $ 61.7 million compared to $ 45.7 million last year . net income per diluted share from continuing operations declined 24.7 % to $ 1.31. the full year 2017 comparative period includes a tax benefit of $ 20.0 million primarily related to the reversal of valuation allowances against the company 's deferred tax assets and the impacts of u.s. tax reform enacted in q4 2017. net income per diluted share from discontinued operations was $ 4.62 , primarily related to the $ 160.5 million book gain recognized on the sale of the company 's france business and the inclusion of eight months of france operating results in discontinued operations in 2018 . 22 gaap results of operations key performance indicators * ( in millions ) : replace_table_token_4_th * excludes discontinued operations ( see note 4 of notes to consolidated financial statements ) . * * includes special charges , net ( see note 4 of notes to consolidated financial statements ) . replace_table_token_5_th 23 replace_table_token_6_th * percentages are calculated using sales data in hundreds of thousands . for the year ended december 31 , 2018 and 2017 , ipg had 253 selling days and for the year ended december 31 , 2016 , ipg had 254 selling days .
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executive overview cass provides payment and information processing services to large manufacturing , distribution and retail enterprises from its offices/locations in st. louis , missouri , columbus , ohio , boston , massachusetts , greenville , south carolina , wellington , kansas , jacksonville , florida , and breda , netherlands . the company 's services include freight invoice rating , payment processing , auditing , and the generation of accounting and transportation information . cass also processes and pays energy invoices , which include electricity and gas as well as waste and telecommunications expenses , and is a provider of telecom expense management solutions . cass extracts , stores , and presents information from freight , energy , telecommunication and environmental invoices , assisting its customers ' transportation , energy , environmental and information technology managers in making decisions that will enable them to improve operating performance . the company receives data from multiple sources , electronic and otherwise , and processes the data to accomplish the specific operating requirements of its customers . it then provides the data in a central repository for access and archiving . the data is finally transformed into information through the company 's databases that allow client interaction as required and provide internet-based tools for analytical processing . the company also , through cass commercial bank , its st. louis , missouri-based bank subsidiary , provides banking services in the st. louis metropolitan area , orange county , california , and other selected cities in the united states . in addition to supporting the company 's payment operations , the bank provides banking services to its target markets , which include privately-owned businesses and churches and church-related ministries . 14 the specific payment and information processing services provided to each customer are developed individually to meet each customer 's requirements , which can vary greatly . in addition , the degree of automation such as electronic data interchange , imaging , work flow , and web-based solutions varies greatly among customers and industries . these factors combine so that pricing varies greatly among the customer base . in general , however , cass is compensated for its processing services through service fees and investment of account balances generated during the payment process . the amount , type , and calculation of service fees vary greatly by service offering , but generally follow the volume of transactions processed . interest income from the balances generated during the payment processing cycle is affected by the amount of time cass holds the funds prior to payment and the dollar volume processed . both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management . other factors will also influence revenue and profitability , such as changes in the general level of interest rates , which have a significant effect on net interest income . the funds generated by these processing activities are invested in overnight investments , investment grade securities , and loans generated by the bank . the bank earns most of its revenue from net interest income , or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings . the bank also assesses fees on other services such as cash management services . industry-wide factors that impact the company include the willingness of large corporations to outsource key business functions such as freight , energy , telecommunication and environmental payment and audit . the benefits that can be achieved by outsourcing transaction processing , and the management information generated by cass ' systems can be influenced by factors such as the competitive pressures within industries to improve profitability , the general level of transportation costs , deregulation of energy costs , and consolidation of telecommunication providers . economic factors that impact the company include the general level of economic activity that can affect the volume and size of invoices processed , the ability to hire and retain qualified staff , and the growth and quality of the loan portfolio . the general level of interest rates also has a significant effect on the revenue of the company . as discussed in greater detail in item 7a , quantitative and qualitative disclosures about market risk , a decline in the general level of interest rates can have a negative impact on net interest income . on january 6 , 2012 , the company acquired the assets of waste reduction consultants , inc. , ( wrc ) a provider of environmental expense management services . this acquisition positions the company to expand its portfolio of services for controlling facility-related expenses and accelerates cass ' leadership position as a back-office business processor . the results of operations for this new service are included in the information services business segment . in 2013 , total fee revenue and other income increased $ 5,434,000 , or 8 % , net interest income after provision for loan losses decreased $ 2,140,000 , or 5 % , and total operating expenses increased $ 3,753,000 , or 5 % . these results were driven by a 4,330,000 , or 9 % , increase in items processed and $ 1,927,296,000 , or 6 % , increase in dollars processed in 2013. gains on sales of investments securities were up significantly , by $ 1,389,000 , or 53 % , as the company took advantage of market gains . the asset quality of the company 's loans and investments as of december 31 , 2013 remained strong . currently , management views cass ' major opportunity as the continued expansion of its payment and information processing service offerings and customer base . management intends to accomplish this by maintaining the company 's leadership position in applied technology , which when combined with the security and processing controls of the bank , makes cass unique in the industry . impact of new and not yet adopted accounting pronouncements the new accounting pronouncements are not applicable to the company and or do not materially impact the company . story_separator_special_tag story_separator_special_tag size= '' 2 '' > the following table contains condensed average balance sheets for each of the periods reported , the tax-equivalent interest income and expense on each category of interest-earning assets and interest-bearing liabilities , and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported : replace_table_token_7_th 1 balances shown are daily averages . 2 for purposes of these computations , nonaccrual loans are included in the average loan amounts outstanding . interest on nonaccrual loans is recorded when received as discussed further in item 8 , note 1 of this report . 3 interest income on loans includes net loan fees of $ 339,000 , $ 333,000 , and $ 542,000 for 2013 , 2012 and 2011 , respectively . 4 interest income is presented on a tax-equivalent basis assuming a tax rate 35 % in all years . the tax-equivalent adjustment was approximately $ 4,723,000 , $ 5,301,000 and $ 5,387,000 for 2013 , 2012 and 2011 , respectively . 5 for purposes of these computations , yields on investment securities are computed as interest income divided by the average amortized cost of the investments . 19 analysis of net interest income changes the following table presents the changes in interest income and expense between years due to changes in volume and interest rates . replace_table_token_8_th 1 the change in interest due to the combined rate/volume variance has been allocated in proportion to the absolute dollar amounts of the change in each . 2 average balances include nonaccrual loans . 3 interest income includes net loan fees . 4 interest income is presented on a tax-equivalent basis assuming a tax rate 35 % in all years . loan portfolio interest earned on the loan portfolio is a primary source of income for the company . the loan portfolio was $ 652,177,000 and represented 49 % of the company 's total assets as of december 31 , 2013 and generated $ 32,110,000 in revenue during the year then ended . the company had no sub-prime mortgage loans or residential development loans in its portfolio for any of the years presented . the following tables show the composition of the loan portfolio at the end of the periods indicated and remaining maturities for loans as of december 31 , 2013. replace_table_token_9_th replace_table_token_10_th 1 loans have been classified as having `` floating '' interest rates if the rate specified in the loan varies with the prime commercial rate of interest . note : due to the historically low interest rates , the company instituted a 4 % floor for its prime lending rate . 20 the company has no concentrations of loans exceeding 10 % of total loans , which are not otherwise disclosed in the loan portfolio composition table and as are discussed in item 8 , note 4 , of this report . as can be seen in the loan composition table above and as discussed in item 8 , note 4 , the company 's primary market niche for banking services is privately held businesses and churches and church-related ministries . loans to commercial entities are generally secured by the business assets of the borrower , including accounts receivable , inventory , machinery and equipment , and the real estate from which the borrower operates . operating lines of credit to these companies generally are secured by accounts receivable and inventory , with specific percentages of each determined on a customer-by-customer basis based on various factors including the type of business . intermediate term credit for machinery and equipment is generally provided at some percentage of the value of the equipment purchased , depending on the type of machinery or equipment purchased by the entity . loans secured exclusively by real estate to businesses and churches are generally made with a maximum 80 % loan to value ratio , depending upon the company 's estimate of the resale value and ability of the property to generate cash . the company 's loan policy requires an independent appraisal for all loans over $ 250,000 secured by real estate . company management monitors the local economy in an attempt to determine whether it has had a significant deteriorating effect on such real estate loans . when problems are identified , appraised values are updated on a continual basis , either internally or through an updated external appraisal . loan portfolio changes from december 31 , 2012 to december 31 , 2013 : total loans decreased $ 35,556,000 , or 5 % , to $ 652,177,000. additional details regarding the types and maturities of loans in the loan portfolio are contained in the tables above and in item 8 , note 4. loan portfolio changes from december 31 , 2011 to december 31 , 2012 : total loans increased $ 16,168,000 , or 2 % , to $ 687,733,000. additional details regarding the types and maturities of loans in the loan portfolio are contained in the tables above and in item 8 , note 4. provision and allowance for loan losses the company recorded a provision for loan losses of $ 500,000 in 2013 , $ 2,400,000 in 2012 and $ 2,150,000 in 2011. the amount of the provisions for loan losses was derived from the company 's quarterly analysis of the allowance for loan losses . the amount of the provision will fluctuate as determined by these quarterly analyses . the decrease in provision for loan losses in 2013 was due to the decrease in loan balances described above and improved credit quality . the company had net loan charge-offs of $ 1,178,000 , $ 2,997,000 and $ 1,087,000 in 2013 , 2012 and 2011 , respectively .
| summary of results replace_table_token_4_th * presented on a tax-equivalent basis 16 the results of 2013 compared to 2012 include the following significant items : payment and processing fee revenue increased as the number of transactions processed increased . this increase was due to increased activity from new customers . net interest income after provision for loan losses decreased $ 2,140,000 , or 5 % , due to the decrease in the net interest margin on a tax equivalent basis from 4.00 % in 2012 to 3.63 % in 2013. the decrease in average earning assets was the result of a decrease in accounts and drafts payable , partially offset by an increase in deposits . gains from the sale of securities were $ 4,024,000 in 2013 and $ 2,635,000 in 2012. bank service fees were down $ 57,000 , or 4 % , and other income was approximately the same as last year . operating expenses increased $ 3,753,000 , or 5 % , primarily in the area of salaries and benefits resulting from the increase in business volume . the results of 2012 compared to 2011 include the following significant items : payment and processing fee revenue increased as the number of transactions processed increased . this increase was due to increased activity from both base and new customers . net interest income after provision for loan losses decreased $ 3,326,000 , or 8 % , due to the decrease in the net interest margin on a tax equivalent basis from 4.31 % in 2011 to 4.00 % in 2012. the growth in average earning assets was $ 14,000 funded by increases in deposits .
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” ) is provided to assist readers in understanding our performance , as reflected in the results of our operations , our financial condition and our cash flows . the following discussion summarizes the significant factors affecting our consolidated operating results , financial condition , liquidity and cash flows as of and for the periods presented below . this md & a should be read in conjunction with the “ selected financial data ” and our consolidated financial statements and related notes thereto included under the section entitled “ financial statements and supplementary data. ” our future results could differ materially from our historical performance as a result of various factors such as those discussed in “ risk factors ” and “ forward-looking statements. ” overview of our business phibro animal health corporation is a global diversified animal health and mineral nutrition company . we develop , manufacture and market products for a broad range of food animals including poultry , swine , beef and dairy cattle and aquaculture . our products help prevent , control and treat diseases , enhance nutrition to help improve health and performance and contribute to balanced mineral nutrition . in addition to animal health and mineral nutrition products , we manufacture and market specific ingredients for use in the personal care , automotive , industrial chemical and chemical catalyst industries . we sell more than 1,200 product presentations in over 65 countries to approximately 2,900 customers . factors affecting our performance industry growth according to vetnosis , a research and consulting firm specializing in global animal health and veterinary medicine , the global livestock animal health sector represented approximately $ 13.3 billion of sales in 2013. the market grew at a compound annual growth rate of 6 % between 2006 and 2012 and , excluding the impact of foreign exchange , the market is projected to grow at a compound annual growth rate of approximately 6 % per year between 2012 and 2017. as discussed below , we believe several trends have supported and will continue to support this growth . regulatory developments the issue of the potential transfer of antibacterial resistance from bacteria from food-producing animals to human bacterial pathogens , and the causality and impact of that transfer , are the subject of global scientific and regulatory discussion . antibacterials refer to molecules that can be used to treat or prevent bacterial infections and are a sub-categorization of the products that make up our medicinal feed additives portfolios . in some countries , this issue has led to government restrictions on the use of specific antibacterials in some food-producing animals , regardless of the route of administration ( in feed , water , intramammary , topical , injectable or other route of administration ) . these restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty . in december 2013 , the fda announced a plan to phase out over a three-year period the use of medically important antibacterials administered in animal feed or water for growth promotion in food producing animals . medically important antibacterials include classes that are prescribed in animal and human health and are listed in the appendix of the fda-cvm guidance for industry ( gfi ) # 152. the fda plan objectives are described in gfi # 209 and provide for the continued use of medically important antibacterials in food-producing animals for treatment , control and prevention of disease ( “ therapeutic ” use ) under the supervision of a veterinarian . the fda indicated that it took this action to help preserve the efficacy of medically important antibacterials to treat infections in humans . in the united states , the antibacterial products within our poultry business , our largest business in this region , as well as our cattle business , have both approved therapeutic and non-therapeutic indications . we believe , based on current producer usage patterns , that the large majority of use of our products in these segments is for therapeutic purposes . we currently generate a portion of our revenues from antibacterial 56 products sold for use in turkey and swine in the united states where we do not currently have therapeutic claims that match our customers ' usage patterns . we intend to ensure that our antibacterial product offerings are in full alignment with the fda 's guidance documents within the fda 's three-year implementation period , and will pursue both new and additional therapeutic claims for these products with the fda . however , there can be no assurance that we will be successful in obtaining such claims . while it is difficult to predict exactly what impact the removal of non-therapeutic claims for our products that are medically important antibacterials will ultimately have on our sales , we estimate that , based on our customers ' usage patterns , had we voluntarily decided to withdraw all of our non-therapeutic claims for these products in the united states , and did not add any new therapeutic claims for these products , our mfa & other net sales would have been reduced by approximately $ 15 to $ 20 million for our fiscal year ended june 30 , 2014. competition the animal health industry is highly competitive . we believe many of our competitors are conducting r & d activities in areas served by our products and in areas in which we are developing products . our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses . in addition to competition from established participants , there could be new entrants to the animal health medicines and vaccines industry in the future . principal methods of competition vary depending on the region , species , product category or individual products , including reliability , reputation , quality , price , service and promotion to veterinary professionals , pet owners and livestock producers . foreign exchange we conduct operations in many areas of the world , involving transactions denominated in a variety of currencies . story_separator_special_tag adjusted ebitda would have increased by $ 2.0 million and $ 4.0 million for the years ended june 30 , 2013 and 2012 , respectively , on a pro forma basis as if the transaction occurred at the beginning of fiscal year 2012. the improvement results from the elimination of royalties previously paid to ogr , net of operating expenses related to acquired r & d activities . license agreement in june 2012 , we entered into a long-term license agreement with a major global animal health company to share in the use of our proprietary vaccine delivery technology . under the arrangement , use of the technology is limited to the licensee for animal uses worldwide , and to us and our respective affiliates . financial terms of the agreement included a $ 5 million non-refundable payment to us which we received at signing and contingent future payments totaling $ 8 million , based on the earlier of achievement of technical and regulatory milestones and specified dates corresponding to such milestones . in addition , we will receive royalties on future sales by the licensee of products that utilize the technology , with required minimum annual royalties for the years 2016 to 2026 , subject to the licensee 's right to terminate the license agreement for any reason upon payment of a termination payment . 59 analysis of the consolidated statements of operations summary results of operations replace_table_token_13_th certain amounts and percentages may reflect rounding adjustments * calculation not meaningful changes in net sales from period to period primarily result from changes in volumes and average selling prices . although a portion of our net sales is denominated in various currencies , the selling prices of the majority of our sales outside the united states are referenced in u.s. dollars , and as a story_separator_special_tag 10pt ; text-transform : none ; color : # 000000 ; font-style : normal ; font-weight : normal ; '' > 0.6 million due to lower unit costs , $ 4.5 million due to higher average selling prices and other items and a $ 2.3 million benefit from the ogr acquisition . lower unit costs primarily were due to improved operating efficiencies from capital expenditures and reduced production costs from favorable currency movements related to the brazilian real . mfas and other contributed $ 12.7 million of the increase due to volume growth , favorable product mix and lower unit costs . nutritional specialty products contributed $ 8.2 million of the increase primarily due to volume growth , higher average selling prices and a $ 2.3 million benefit from the ogr acquisition , which was a result of the elimination of royalty expense previously included in cost of goods sold . vaccines gross profit increased $ 9.3 million principally due to volume growth . mineral nutrition gross profit decreased $ 0.1 million due to reduced margins from competitive conditions which were partially offset by increased volumes of low - margin products . performance products gross profit decreased $ 1.2 million due to lower average selling prices and lower volumes , partially offset by lower product costs . selling , general and administrative expenses sg & a expenses of $ 144.0 million increased $ 21.7 million , or 18 % . included in the increase is a $ 5.4 million loss on an insurance claim as described in the next paragraph . excluding the loss attributable to the insurance claim , sg & a expenses increased $ 16.4 million , or 13 % . animal health accounted for $ 14.4 million of the increase , driven by sales and marketing and development spending . selling headcount and related marketing support increased in brazil , mexico and china to support mfa and vaccine initiatives and in the u.s. and europe to support the expansion of our products to the dairy industry . development spending focused on product lifecycle extensions . increased amortization of intangible assets and other depreciation added $ 1.9 million . the ogr acquisition added $ 0.6 million of costs which primarily consisted of research and development expenditures . performance products expenses decreased $ 2.7 million 63 primarily due to lower environmental remediation costs . corporate expenses , excluding the loss on the insurance claim , increased $ 4.2 million due to increases in salary and wage related costs , business development costs , consulting fees and professional fees , in part related to the costs of being a public company . during the quarter ended june 30 , 2014 , we recognized a $ 5.4 million loss in our consolidated statement of operations on the insurance claim previously recorded as an asset . in 2010 , certain customers claimed damages to their poultry resulting from the use of one of our animal health products . we believed we were entitled to coverage for the claimed damages under our insurance policies , above any applicable self-insured retention or deductible . our insurance carrier refused to cover the damages claimed and denied coverage . we instituted a legal action to enforce our rights under the policies but in june 2014 the trial court ruled against us . we have appealed the trial court 's decision . in july of 2014 , we reached settlements with and made payments to our customers for their claims in amounts approximately equal to the liability previously accrued . adjusted ebitda adjusted ebitda of $ 90.6 million increased $ 14.8 million , or 20 % . animal health adjusted ebitda increased $ 17.3 million , or 21 % , due to sales growth and increased gross profit , partially offset by increased sg & a expenses . mineral nutrition decreased $ 0.4 million , or 4 % , due to slightly lower operating margins . performance products increased $ 1.7 million , or 58 % , primarily due to reduced environmental remediation costs . corporate expense increased $ 3.7 million due to increases in salary and wage related costs , business development costs , consulting fees and professional fees , in part related to the costs of being a public company .
| result , our revenues are not significantly directly affected by currency movements . our effective income tax rate varies significantly from period to period and from the federal statutory rate , primarily due to the mix of income tax provisions on profitable foreign jurisdictions and no income tax benefit being recorded on domestic pre-tax losses . we have approximately $ 43.9 million of federal nols and the provision does not recognize income tax benefits or the related deferred tax assets until it is more likely than not that such assets will be realized . our fiscal year 2014 effective tax rate was affected by $ 3.2 million of withholding taxes on the repatriation of certain foreign earnings . our fiscal year 2013 effective rate was affected by a $ 9.1 million benefit that resulted from the accounting for the ogr acquisition . at the point when our domestic tax provision is no longer affected by valuation allowances , we expect our normalized effective tax rate in the future periods to approximate 30 % . we also expect we will continue to not record u.s. income taxes on most undistributed earnings of our foreign subsidiaries . 60 net sales , adjusted ebitda and reconciliation of gaap net income to adjusted ebitda we report net sales and adjusted ebitda by segment to understand the operating performance of each segment . this enables us to monitor changes in net sales , costs and other actionable operating metrics at the segment level . see “ —general description of non-gaap financial measures ” for descriptions of ebitda and adjusted ebitda . segment net sales and adjusted ebitda : replace_table_token_14_th replace_table_token_15_th ( 1 ) reflects ratio to total net sales 61 a reconciliation of net income , as reported under gaap , to adjusted ebitda : replace_table_token_16_th adjusted net income we report adjusted net income to portray the results of our operations prior to considering certain income statement elements . see “ —general description of non-gaap financial measures ” for more information .
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these include statements about our expectations , beliefs , intentions or strategies for the future , which we indicate by words or phrases such as “ anticipate , ” “ expect , ” “ intend , ” “ plan , ” “ will , ” “ we believe , ” “ nnvc believes , ” “ management believes ” and similar language . the forward-looking statements are based on the current expectations of nnvc and are subject to certain risks , uncertainties and assumptions , including those set forth in the discussion under “ management 's discussion and analysis of financial condition and results of operations ” in this report . actual results may differ materially from results anticipated in these forward-looking statements . we base the forward-looking statements on information currently available to us , and we assume no obligation to update them . investors are also advised to refer to the information in our previous filings with the securities and exchange commission ( sec ) , especially on forms 10-k , 10-q and 8-k , in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results . it is not possible to foresee or identify all such factors . as such , investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions . management 's plan of operation the company 's drug development business model was formed in may 2005 with a license to the patents and intellectual property held by theracour that enabled creation of drugs engineered specifically to combat viral diseases in humans . this exclusive license from theracour serves as a foundation for our intellectual property . the company was granted a worldwide exclusive license to this technology for several drugs with specific targeting mechanisms for the treatment of the following human viral diseases : human immunodeficiency virus ( hiv/aids ) , hepatitis b virus ( hbv ) , hepatitis c virus ( hcv ) , rabies , herpes simplex virus ( hsv-1 and hsv-2 ) , influenza and asian bird flu virus . the company entered into an additional license agreement with theracour granting the company the exclusive licenses for technologies developed by theracour for the additional virus types : dengue viruses , japanese encephalitis virus , west nile virus , viruses causing viral conjunctivitis ( a disease of the eye ) and ocular herpes , and ebola/marburg viruses . the company completed a license agreement for the field of vzv indications in november 2019 from theracour . the company and theracour have signed a memorandum of understanding for the field of human coronavirus drug indications in june 2020. this mou grants the company a limited license for the development of drugs for the treatment of human coronavirus indications . there was no compensation paid to theracour for this coronavirus mou . the company has initiated an independent valuation for this field . a definitive agreement is expected to be negotiated between the parties thereafter . theracour has not denied any licenses sought by the company in the past . page 81 of 106 the company discloses the risk that while we are working with the assumption that we will be able to come to mutually agreeable terms for an additional license for the human coronavirus indications area with theracour . however , there can be no assurance that the company will be able to enter into an agreement with theracour for such license or that the agreement will be on terms that are favorable to the company . the company may want to add further virus types to its drug pipeline as the company progresses further . the company would then need to negotiate with theracour appropriate license agreements to include those of such additional viruses that the company determines it wants to follow for further development . we are seeking to add to our existing portfolio of products through our internal discovery pre-clinical development programs and through an in-licensing strategy . the licenses granted by theracour are for entire set of pathologies that the licensed virus is a causative agent for . the licenses are not for single drug/indication pairs , which is the customary mode of licensing in the pharmaceutical industry . thus these are very broad licenses and enable nanoviricides to pursue a number of indications as well as develop drug candidates with different characteristics as is best suited for the indications , without having to license the resulting drugs for each indication separately , as with normal pharmaceutical industry licensing . the company plans to develop several drugs through the preclinical studies and clinical trial phases with the goal of eventually obtaining approval from the united states food and drug administration ( “ fda ” ) and international regulatory agencies for these drugs . the company plans , when appropriate , to seek regulatory approvals in several international markets , including developed markets such as europe , japan , canada , australia , and emerging regions such as southeast asia , india , china , central and south america , as well as the african subcontinent . the seeking of these regulatory approvals would only come when and if one or more of our drugs have significantly advanced through the us fda and international regulatory process . if and as these advances occur , the company may attempt to partner with more established pharmaceutical companies to advance the various drugs through the approval process . the company intends to perform the regulatory filings and own all the regulatory licenses for the drugs it is currently developing . the company will develop these drugs in part via subcontracts to theracour , the exclusive source for these nanomaterials . the company may manufacture these drugs itself , or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have appropriate capabilities . the company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements . story_separator_special_tag sales pursuant to the sales agreement will be made only upon instructions by the company to the sales agents , and the company can not provide any assurances that it will issue any shares pursuant to the sales agreement . actual sales will depend on a variety of factors to be determined by the company from time to time , including ( among others ) market conditions , the trading price of the company 's common stock , capital needs and determinations by the company of the appropriate sources of funding for the company . the company is not obligated to make any sales of common stock under the sales agreement and the company can not provide any assurances that it will issue any shares pursuant to the sales agreement . the company will pay a commission rate of up to 3.5 % of the gross sales price per share sold and agreed to reimburse the sales agents for certain specified expenses , including the fees and disbursements of its legal counsel in an amount not to exceed $ 50,000 and have agreed to reimburse the sales agents an amount not to exceed $ 2,500 per quarter during the term of the sales agreement for legal fees to be incurred by the sales agents . the company has also agreed pursuant to the sales agreement to provide each sales agent with customary indemnification and contribution rights . the company has incurred significant operating losses since its inception resulting in an accumulated deficit of $ 105,563,124 at june 30 , 2020. for the year ended june 30 , 2020 , the company had a net loss of $ 13,446,538. such losses are expected to continue for the foreseeable future and until such time , if ever , as the company is able to attain sales levels sufficient to support its operations . the company believes that it has several important milestones that it will be achieving in the ensuing year . management believes that as it achieves these milestones , the company 's ability to raise additional funds in the public markets would be enhanced . management believes that the company 's existing resources will be sufficient to fund the company 's planned operations and expenditures through october 2021. however , the company can not provide assurance that its plans will not change or that changed circumstances will not result in the depletion of its capital resources more rapidly than it currently anticipates . the accompanying audited financial statements do not include any adjustments that may result from the outcome of such unidentified uncertainties . page 83 of 106 story_separator_special_tag to a redemption agreement . the company amortized the discount on its series b and series c debenture , which were calculated at issuance . the company recognized an amortization of bond discount expense of $ 0 and $ 359,214 for the years ended june 30 , 2019 and 2018 , respectively . change in fair value of derivative - change in fair value of derivative for the year ended june 30 , 2019 decreased $ 2,374,275 to $ 179,745 from $ 2,554,020 for the year ended june 30 , 2018. the decrease was due to the reduction of the fair value of derivative liability in the fiscal year ending june 30 , 2018 of the obligation to issue shares related to the redemption of the company 's series c convertible debenture of $ 819,994 , a change of the fair value of the derivative liability of the series c convertible debenture , and a change of the fair value in the derivative liabilities of the company 's warrants expiring september 12 , 2018 and january 14 , 2019. for the year ended june 30 , 2019 , the change in the fair value of derivative liabilities was calculated primarily on the change in fair value of 5.5 year warrants issued on february 27 , 2019. income taxes - there is no provision for income taxes due to ongoing operating losses . as of june 30 , 2019 , we had estimated cumulative tax benefits and development tax credits and other deferred tax credits resulting in a deferred tax asset of approximately $ 34,157,707. this amount has been offset by a full valuation allowance . net loss - for the year ended june 30 , 2019 , the company had a net loss of $ 8,424,440 , or a basic and fully diluted loss per share of $ 2.35 compared to a net loss of $ 8,563,455 , or a basic and fully diluted loss per share of $ 2.64 for the year ended june 30 , 2018. the decrease in the company 's net loss for the year ended june 30 , 2019 from the year ended june 30 , 2018 of $ 139,015 is generally attributable to the decrease in general and administrative expenses , decreases in interest expenses , and discount on convertible debentures , offset by the net of a loss on extinguishment of debt and change in fair value of derivatives for the year ended june 30 , 2018. liquidity and capital reserves the company had cash and cash equivalents of $ 13,708,594 and $ 2,555,207 as of june 30 , 2020 and 2019 , respectively . on the same dates , current liabilities outstanding totaled $ 2,156,377 and $ 2,848,153 , respectively . as of june 30 , 2020 , the total current liabilities included a mortgage note payable-related party of $ 1,081,987 and loan payable of $ 62,843. as of june 30 , 2020 and 2019 , the derivative liability associated with its outstanding warrants was reported as a current liability of $ 0 and $ 1,645,606 , respectively . page 85 of 106 since inception , the company has expended substantial resources on research and development . consequently , we have sustained substantial losses . the company has an accumulated deficit of $ 105,563,124 and $ 92,116,586 at june 30 , 2020 and 2019 , respectively . the company anticipates several important milestones that it will be achieving in the ensuing year .
| results of operations the company is a biopharmaceutical company and does not have any revenue for the years ended june 30 , 2020 , 2019 and 2018. comparison of the year end june 30 , 2020 to the year ended june 30 , 2019 revenues - the company is a non-revenue producing entity . operating expenses - research and development expenses for the year ended june 30 , 2020 decreased $ 1,226,196 to $ 4,695,524 from $ 5,921,720 for the year ended june 30 , 2019. this year-to-year decrease is generally attributable to a decrease in lab supplies and chemicals , and a decrease in employee compensation expenses and by a decrease in lab fees for pre ind studies . general and administrative expenses increased $ 562,973 to $ 3,300,935 for the year ended june 30 , 2020 from $ 2,737,962 for the year ended june 30 , 2019. the increase in general and administrative expenses is generally attributable to an increase in legal and professional expenses offset by a decrease in salary and stock compensation paid to retired executive officers and to employees other than research scientists and a decrease in consultants costs unrelated to research and development . interest income - interest income was $ 17,079 and $ 55,497 for the years ended june 30 , 2020 and 2019 , respectively . interest income decreased due to lower cash and cash equivalents for the majority of the year ended june 30 , 2020 as well as lower interest rates . interest expense- the company has incurred interest expense of $ 93,670 and $ 0 for the years ended june 30 , 2020 and june 30 , 2019 , respectively . the increase is as a result of interest paid on the mortgage note , amortization of the mortgage loan origination fee , and interest paid on a short term loan payable .
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as at december 31 , 2019 , the company is required to maintain the following financial covenants in respect of this facility : financial covenant required ratio total leverage ratio not greater than 3.00:1.00 interest coverage ratio not less than 3.00:1.00 the company is in compliance with all covenants at december 31 , 2019. the bank of nova scotia ( “ scotia facility ” ) on november 24 , 2015 , the company entered into a credit facility with the bank of nova scotia . the facility , which had a maturity story_separator_special_tag f financial condition and results of operation the following discussion should be read in conjunction with the attached financial statements and notes thereto . the company prepares its financial statements in accordance with u.s. generally accepted accounting principles ( “ u.s. gaap ” ) . this annual report on form 10-k , including the following section , contains forward-looking statements within the meaning of the u.s. private securities litigation reform act of 1995. these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see item 1a , “ risk factors ” of this annual report on form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this annual report on form 10-k. we undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this annual report on form 10-k , except as required by law . throughout this discussion , unless the context specifies or implies otherwise , the terms “ crh , ” “ we , ” “ us , ” and “ our ” refer to crh medical corporation and its subsidiari es . overview crh is a north american company focused on providing gis with innovative services and products for the treatment of gi diseases . in 2014 , crh acquired a full service gastroenterology anesthesia company , gaa , which provides anesthesia services for patients undergoing endoscopic procedures . crh has complemented this transaction with twenty-four additional acquisitions of gi anesthesia companies since gaa . according to the cdc , colorectal cancer is the second leading cause of cancer-related deaths in the united states and recent research indicates that the incidence of colon cancer in young adults is on the rise . the cdc has implemented campaigns to raise awareness of gi health and drive colorectal cancer screening rates among at risk populations . colon cancer is treatable if detected early and screening colonoscopies are the most effective way to detect colon cancer in its early stages . anesthesia-assisted endoscopies are the standard of care for colonoscopies and upper endoscopies . crh 's goal is to establish itself as the premier provider of innovative products and essential services to gis throughout the united states . the company 's crh o'regan system distribution strategy focuses on physician education , patient outcomes , and patient awareness . the o'regan system is a single use , disposable , hemorrhoid banding technology that is safe and highly effective in treating hemorrhoid grades i – iv . crh distributes the crh o'regan system , treatment protocols , operational and marketing expertise as a complete , turnkey package directly to physicians , allowing crh to create meaningful relationships with the physicians it serves . the company has financed its cash requirements primarily from revenues generated from the sale of its product directly to physicians , gi anesthesia revenue , equity financings , debt financing and revolving and term credit facilities . the company 's ability to maintain the carrying value of its assets is dependent on successfully marketing its products and services , obtaining reasonable rates for anesthesia services and maintaining future profitable operations , the outcome of which can not be predicted at this time . the company has also stated its intention to acquire or develop additional gi anesthesia businesses . in the future , it may be necessary for the company to raise additional funds for the continuing development of its business plan , including additional acquisitions . recent events anesthesia care associates llc ( “ aca ” ) – january 2019 on january 1 , 2019 , a subsidiary of the company entered into a membership interest purchase agreement to acquire a 100 % interest in anesthesia care associates , llc ( ” aca ” ) , a gastroenterology anesthesia services provider in indiana . the purchase consideration , paid via cash , for the acquisition of the company 's 100 % interest was $ 5,239,003. the allocated cost of the exclusive professional service agreement which was acquired as part of this acquisition was $ 5,355,028. arapahoe gastroenterology anesthesia associates llc ( “ arapahoe ” ) – april 2019 on april 3 , 2019 , a subsidiary of the company entered into a membership interest purchase agreement to purchase the remaining 49 % interest in arapahoe gastroenterology anesthesia associates llc not held by the company . the purchase consideration , paid via cash , for the acquisition of the remaining 49 % interest was $ 2,300,000 plus 49 % of arapahoe 's working capital as at march 31 , 2019. additionally , the company also incurred deferred acquisition costs of $ 26,086 . 42 appointment of new ceo – april 2019 on april 9 , 2019 , the company announced the appointment of dr. tushar ramani as ceo of the company , replacing outgoing ceo edward wright . dr. ramani , a 30-year veteran of the anesthesia industry , has also joined the company 's board as a director . dr. ramani brings with him extensive experience in both managing and providing healthcare services , growing companies and creating shareholder value . story_separator_special_tag 1 in the year ended december 31 , 2019 , the anesthesia services segment serviced 345,393 patient cases compared to 276,766 patient cases during the year ended december 31 , 2018. patient cases serviced in the fourth quarter of 2019 were 94,503 compared to 80,923 patient cases in the fourth quarter of 2018. the tables below summarize our approximate payor mix as a percentage of all patient cases for the years ended december 31 , 2019 and 2018 and for the fourth quarters of 2019 and 2018. replace_table_token_7_th the payor mix for the three months and year ended december 31 , 2019 includes acquisitions completed during 2019 and 2018 and as a result is not directly comparable to the three months and year ended december 31 , 2018. as we acquire anesthesia providers , these providers may have different payor mix profiles and impact our overall payor mix above . 1 see `` use of non-gaap financial measures '' below for definitions of non-gaap-based measures and reconciliations of gaap-based measures to non-gaap-based measures 46 the table below sum marizes our approximate payor mix as a percentage of all patient cases for the three months and year ended december 31 , 201 9 and 201 8 , but exclude patient cases related to acquisitions completed in 201 8 and 201 9 as inclusion of these acquisitions would red uce comparability of the data presented . replace_table_token_8_th the table below summarizes our approximate payor mix as a percentage of all patient cases for the year ended december 31 , 2019 , by quarter , and excludes patient cases related to acquisitions completed in 2018 and 2019 as inclusion of these acquisitions would reduce the comparability of the date presented . replace_table_token_9_th seasonality is driven by both patient cases and seasonal payor mix . as a result , revenue per patient will fluctuate quarterly . the seasonality of patient cases for fiscal 2019 is provided below for organic patient cases ; it excludes patient cases relating to acquisitions completed in 2019. seasonality q4 2019 q3 2019 q2 2019 q1 2019 patient cases 26.3 % 25.4 % 25.2 % 23.2 % revenues from product sales for the year ended december 31 , 2019 were $ 10,078,843 compared to $ 10,959,215 for 2018. the decrease in product sales is the result of decreased sales of the crh o'regan system at previously trained practices due to changes in practice emphasis and to a lesser extent the introduction of competitive products . throughout 2019 we have initiated additional practice support initiatives , including a greater emphasis on re-training physicians in practices where usage has decreased . we continue to engage in re-training initiatives where usage has decreased . as of december 31 , 2019 , the company has trained 3,158 physicians to use the o'regan system , representing 1,209 clinical practices . this compares to 2,944 physicians trained , representing 1,124 clinical practices , as of december 31 , 2018. total operating expenses total operating expense for the year ended december 31 , 2019 was $ 105,703,079 compared to $ 92,454,250 for the year ended december 31 , 2018. total operating expense for the three months ended december 31 , 2019 was $ 27,811,635 compared to $ 25,093,657 for the three months ended december 31 , 2018. the increase in operating expenses is largely driven by increases seen in total adjusted operating expense ( refer to the “ total adjusted operating expenses – non-gaap section below ) as well as increases in amortization expense related to acquisitions completed in 2019 and throughout 2018 , offset by a decrease in stock-based compensation expense . amortization expense increased by 11 % from 2018. this is a result of acquisitions completed in 2018 and 2019 and the related intangible assets that were acquired . stock-based compensation expense decreased by 65 % when compared to 2018. this decrease is largely due actual forfeitures experienced in q2 2019 , primarily related to the departure and replacement of the company 's ceo on april 9 , 2019 . 47 total adjusted operating expenses – non-gaa p 1 for the year ended december 31 , 2019 , total adjusted operating expenses were $ 68,681,627 compared to $ 58,060,387 for the year ended december 31 , 2018. for the three months ended december 31 , 2019 , total adjusted operating expenses were $ 18,099,185 compared to $ 16,151,179 for the three months ended december 31 , 2018. increases in adjusted operating expenses are primarily related to adjusted operating expenses in the anesthesia services business . anesthesia services adjusted operating expenses for the year ended december 31 , 2019 were $ 59,011,532 , compared to $ 49,119,072 for the year ended december 31 , 2018. anesthesia services adjusted operating expenses primarily include labor related costs for certified registered nurse anesthetists and md anesthesiologists , billing and management related expenses , medical drugs and supplies , and other related expenses . the company 's first anesthesia acquisition was in the fourth quarter of 2014 , with twenty-four further acquisitions completed in 2015 , 2016 , 2017 , 2018 and 2019. as a result , fiscal 2019 is not directly comparable to 2018 , with the majority of the increase relating to operating expenses for acquired companies . though revenue may fluctuate significantly , adjusted operating expenses , which are primarily employee related costs , due to their fixed nature , increase as a result of the company 's acquisition strategy .
| results of operations the following tables provide a detailed analysis of our results of operations and financial condition . for each of the periods indicated below , we present our revenues by business segment , as well as present key metrics , such as operating expenses , operating income and net and comprehensive income attributable to shareholders of the company and non-controlling interest , from our statements of operations . the selected financial information provided below has been prepared in accordance with united states generally accepted accounting principles ( “ us gaap ” ) . selected us gaap financial information replace_table_token_4_th 1 non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the company . non-gaap financial measures in addition to results reported in accordance with us gaap , the company uses certain non-gaap financial measures , including adjusted operating expenses ( in total and broken down by operating segment ) , adjusted operating ebitda ( in total and broken down as attributable to non-controlling interest and shareholders of the company ) and adjusted operating ebitda margin as supplemental indicators of its financial and operating performance . these non-gaap measures are not recognized measures under us gaap and do not have a standardized meaning prescribed by us gaap , and are therefore unlikely to be comparable to measures presented by other companies . these measures are provided as additional information to complement us gaap measures by providing further understanding of the company 's results of operations from management 's perspective . accordingly , they should not be considered in isolation nor as a substitute for analyses of the company 's financial information reported under us gaap .
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the company has entered into purchase agreements primarily for various key raw materials at market related prices , all made in the normal course of business . the commitments include both fixed and variable price provisions . raw material prices as of june 30 , 2016 were used for commitments with variable pricing . the purchase commitments covered by these agreements aggregate story_separator_special_tag background and general our discussions below in this item 7 should be read in conjunction with our consolidated financial statements , including the notes thereto , included in this annual report on form 10-k. we are engaged in the manufacturing , fabrication and distribution of specialty metals . we primarily process basic raw materials such as nickel , cobalt , titanium , manganese , chromium , molybdenum , iron scrap and other metal alloying elements through various melting , hot forming and cold working facilities to produce finished products in the form of billet , bar , rod , wire and narrow strip in many sizes and finishes . we also produce certain metal powders . our sales are distributed directly from our production plants and distribution network as well as through independent distributors . unlike many other specialty steel producers , we operate our own worldwide network of service and distribution centers . these service centers , located in the united states , canada , mexico , europe and asia allow us to work more closely with customers and to offer various just-in-time stocking programs . we also manufacture and rent down-hole drilling tools and components used in the oil and gas industry . as part of our overall business strategy , we have sought out and considered opportunities related to strategic acquisitions , divestitures and joint collaborations as well as possible business unit dispositions aimed at broadening our offering to the marketplace . we have participated with other companies to explore potential terms and structures of such opportunities and expect that we will continue to evaluate these opportunities . while we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we also utilize and present certain financial measures that are not based on or included in u.s. gaap ( we refer to these as “ non-gaap financial measures ” ) . please see the section “ non-gaap financial measures ” below for further discussion of these financial measures , including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest u.s. gaap financial measures . 16 business trends selected financial results for the past three fiscal years are summarized below : replace_table_token_6_th ( 1 ) see the section “ non-gaap financial measures ” below for further discussion of these financial measures . ( 2 ) includes specialty and titanium alloys , stainless steel and powder materials . as a result of the realignment of the commercial team during fiscal year 2016 , we changed the manner in which sales are classified by end-use market so that we could better evaluate our sales results from period to period . in order to make the discussion of sales by end-use market meaningful , we have reclassified the fiscal year 2015 and 2014 sales by end-use market to conform to the fiscal year 2016 presentation . our sales are across a diversified list of end-use markets . the table below summarizes our sales by market over the past three fiscal years : replace_table_token_7_th 17 impact of raw material prices and product mix we value most of our inventory utilizing lifo inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher cost of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower cost of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . approximately 25 percent of our net sales are sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . in order to reduce the risk of fluctuating profit margins on these sales , we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold . firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established . story_separator_special_tag the non-cash impairment charges consist of : excess inventory write-down charges totaling $ 22.5 million goodwill impairment charges totaling $ 12.5 million impairment of intangible assets and property , plant and equipment charges totaling $ 7.6 million in addition , the company recorded $ 10.4 million of restructuring charges consisting primarily of an early retirement incentive offered to certain employees funded by the company 's pension plan . net sales net sales for fiscal year 2016 were $ 1,813.4 million , which was a 19 percent decrease from fiscal year 2015 . excluding surcharge revenue , sales were 13 percent lower than fiscal year 2015 on 13 percent lower volume . the results reflect weakness in demand for materials used in the energy end-use market which also affected order patterns for customers in the industrial and consumer end-use market . geographically , sales outside the united states decreased 12 percent from fiscal year 2015 to $ 569.9 million . the decrease is primarily due to sales to asia and canada in the energy and industrial and consumer end-use markets . in addition , sales to europe decreased in the aerospace and defense , energy , medical and industrial and consumer end-use markets . a portion of our sales outside the united states are denominated in foreign currencies . the impact of fluctuations in foreign currency exchange rates resulted in a $ 9.5 million decrease in sales during the fiscal year 2016 compared to fiscal year 2015. international sales as a percentage of our total net sales represented 31 percent and 29 percent for fiscal year 2016 and fiscal year 2015 , respectively . sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our net sales , which includes surcharge revenue , by principal end-use markets . we believe this is helpful supplemental information in analyzing the performance of the business from period to period . replace_table_token_10_th 20 the following table includes comparative information for our net sales by the same principal end-use markets , but excluding surcharge revenue : replace_table_token_11_th sales to the aerospace and defense market decreased 7 percent from fiscal year 2015 to $ 981.5 million . excluding surcharge revenue , sales were flat on similar shipment volume . the results reflect stronger demand for materials used in structural applications and an increase in sales of engine materials as a result of additional activity across the new platforms offset by a decrease in sales of titanium fastener material . in addition , we are experiencing strength in our defense related sales with continued spending on supported programs . sales to the energy market of $ 130.6 million reflected a 54 percent decrease from fiscal year 2015 . excluding surcharge revenue , sales decreased 53 percent on 50 percent lower shipment volume . the results reflect the impact of low oil and gas prices and slowing demand , which has significantly reduced drilling and exploration activity . the north american average directional rig count , a leading indicator of drilling activity , decreased 53 percent from the same period a year ago . transportation market sales decreased 6 percent from fiscal year 2015 to $ 160.6 million . excluding surcharge revenue , sales increased 5 percent on 3 percent lower shipment volume . the results reflect a strengthening mix for our materials used in engine , valve and fuel system materials . low fuel prices drove up sales for vehicle platforms with higher carpenter material content . in addition , sales of light trucks increased from the year ago period . sales to the medical market decreased 6 percent to $ 121.5 million from fiscal year 2015 . excluding surcharge revenue , sales decreased 3 percent on 2 percent lower shipment volume . the results reflect pricing pressures on transactional business for titanium and stainless steel materials . industrial and consumer market sales were $ 300.9 million for fiscal year 2016 . excluding surcharge revenue , sales decreased 26 percent on 22 percent lower shipment volume . the results reflect decreased demand for materials used in capital equipment and industrial components due in part to the drilling and exploration activity . distribution sales decreased 14 percent from the same period a year ago to $ 118.3 million . excluding surcharge revenue , sales decreased 13 percent from the same period a year ago . gross profit gross profit in fiscal year 2016 decreased to $ 255.9 million , or 14.1 percent of net sales from $ 318.3 million , or 14.3 percent of net sales for fiscal year 2015 . during the year ended june 30 , 2016 , we recorded a $ 22.5 million excess inventory adjustment in our oil and gas businesses within the pep segment due to the prolonged weakness in oil and gas businesses . excluding the impacts of the excess inventory write-down and surcharge revenue , our gross margin in fiscal year 2016 was 17.7 percent as compared 17.6 percent in the same period a year ago . the results reflect lower operating costs driven by the implementation of the carpenter operating model which were offset by lower volume principally in our energy and industrial and consumer end-use markets compared to the same period a year ago . 21 our surcharge mechanism is structured to recover increases in raw material costs , although in certain cases with a lag effect as discussed above . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharge on gross margin excluding the impact of the excess inventory write-down . we present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period . see the section “ non-gaap financial measures ” below for further discussion of these financial measures .
| business segment results summary information about our operating results on a segment basis is set forth below . for more detailed segment information , see note 18 to the consolidated financial statements included in item 8 , “ financial statements and supplementary data ” . the following table includes comparative information for volumes by business segment : replace_table_token_21_th * pounds sold data for pep segment includes dynamet and carpenter powder products businesses only . the following table includes comparative information for net sales by business segment : replace_table_token_22_th the following table includes comparative information for our net sales by business segment , but excluding surcharge revenue : replace_table_token_23_th specialty alloys operations segment net sales in fiscal year 2015 for the sao segment increased 3 percent to $ 1,796.6 million , as compared with $ 1,741.6 million in fiscal year 2014. excluding surcharge revenue , sales increased 2 percent from a year ago . the fiscal year 2015 net sales reflected 5 percent lower shipment volume as compared to fiscal year 2014. the increase in sales combined with lower shipment volumes reflects a favorable shift in product mix despite challenging market conditions . operating income for the sao segment in fiscal year 2015 was $ 155.2 million , or 8.6 percent of net sales ( 11.3 percent of net sales excluding surcharge revenue ) , compared to $ 232.7 million , or 13.4 percent of net sales ( 17.3 percent of net sales excluding surcharge revenue ) , for fiscal year 2014. the decrease in operating income reflects the impacts of a strengthening mix which was more than offset by the operational issues , higher operating costs and incremental depreciation expense related to our athens facility .
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the following discussion is based upon our consolidated financial statements included elsewhere in this report , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . in the course of operating our business , we routinely make decisions as to the timing of the payment of invoices , the collection of receivables , the manufacturing and shipment of products , the fulfillment of orders , the purchase of supplies , and the building of inventory and spare parts , among other matters . each of these decisions has some impact on the financial results for any given period . in making these decisions , we consider various factors including contractual obligations , customer satisfaction , competition , internal and external financial targets and expectations , and financial planning objectives . for further information about our critical accounting policies and estimates , see “ critical accounting policies and estimates ” section included in this “ management 's discussion and analysis of financial condition and results of operations. ” to aid in understanding our operating results for the periods covered by this report , we have provided an executive overview and a summary of the business and market environment . these sections should be read in conjunction with the more detailed discussion and analysis of our consolidated financial condition and results of operations in this item 7 , our “ risk factors ” section included in item 1a of part i , and our consolidated financial statements and notes thereto included in item 8 of part ii of this report . business and market environment at juniper networks , we design , develop , and sell products and services for high-performance networks , which combine scale and performance with agility and efficiency , so customers can build the best networks for their businesses . our routing , switching and security products address the high-performance networking requirements of global service providers , enterprises , governments , and research and public sector organizations that view the network as critical to their success . our silicon , systems , and software represent innovations that transform the economics and experience of networking , helping customers achieve superior performance , greater choice , and flexibility , while reducing overall total cost of ownership . we do business in three geographic regions : americas , emea , and apac . during 2013 , we operated under two business segments : platform systems division ( `` psd '' ) and software solutions division ( `` ssd '' ) . our psd segment primarily offers scalable routing and switching products that are used in service provider , enterprise , and public sector networks to control and direct network traffic between data centers , core , edge , aggregation , campus , wide area networks ( `` wans '' ) , and consumer and business devices . our ssd segment offers solutions focused on network security and network services applications for both service providers and enterprise customers . both segments offer worldwide services , including technical support and professional services , as well as educational and training programs to our customers . during 2013 , we realigned certain products from our psd segment to our ssd segment in connection with our acquisition of contrail systems inc ( `` contrail '' ) . in addition , we consolidated operational oversight and management of all security products within the ssd segment . as a result of this product realignment , security products previously reported in the psd segment ( including the branch srx , branch firewall , and j series product families ) are now reported in the ssd segment . we reclassified the segment data for the prior years to conform to the current year presentation . we believe these changes provide investors with increased financial reporting transparency and enable better insight into the market and performance trends driving our business . during 2013 , we saw revenue growth in both our service provider and enterprise markets as well as a shift in product mix towards edge routing , switching and data center solutions . we continue to remain focused on turning around the security business as customers build high-iq networks and cloud environments . further , we believe that we are experiencing an improving but still uncertain global macroeconomic environment in which our customers exercise care and conservatism in their investment prioritization and project deployments . we expect that our customers will remain thoughtful with their capital spending . we believe our product gross margins may decline in the future due to competitive pricing pressures , which may be offset by additional operational improvements and cost efficiencies . nevertheless , we are focused on executing our strategy to address the market trends of mobile internet and cloud computing and we continue to believe there are positive long-term fundamentals for high-performance networking , including high-iq networking , as well as cloud environments for data centers . 33 we continued to invest in innovation and strengthening our product portfolio , which resulted in new product offerings during 2013 , including a series of new products for the enterprise campus and data center infrastructures , including the ex9200 ethernet switch , a programmable core switch , to support emerging applications and growing workloads . additionally , we enhanced our mx series portfolio with the release of the mx104 , the mx2010 , and the mx2020 , service provider edge routers designed for rapid service delivery and application enablement . we also released the world 's smallest supercore , the ptx3000 , to address the scale and flexibility challenges facing service providers as they converge their networks to optimize their business . furthermore , to help enterprise organizations and service providers address the challenges associated with managing multiple , geographically dispersed data centers , we unveiled metafabric , a new architecture for next generation data centers . metafabric simplifies and accelerates the deployment and delivery of applications within and across multiple data center locations . story_separator_special_tag on an ongoing basis , we evaluate our estimates , including those related to sales returns , pricing credits , warranty costs , allowance for doubtful accounts , impairment of long-term assets , especially goodwill and intangible assets , contract manufacturer exposures for carrying and obsolete material charges , assumptions used in the valuation of share-based compensation , and litigation . we base our estimates and assumptions on current facts , historical experience , and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . for further information about our significant accounting policies , see note 2 , significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this report , which describes the significant accounting policies and methods used in the preparation of the consolidated financial statements . the accounting policies described below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . goodwill . we make significant estimates , assumptions , and judgments when valuing goodwill and other intangible assets in connection with the initial purchase price allocation of an acquired entity , as well as when evaluating impairment of goodwill and other intangible assets on an ongoing basis . these estimates are based upon a number of factors , including historical experience , market conditions , and information obtained from the management of the acquired company . critical estimates in valuing certain intangible assets include , but are not limited to , historical and projected customer retention rates , anticipated growth in revenue from the acquired customer and product base , and the expected use of the acquired assets . these factors are also considered in determining the useful life of the acquired intangible assets . the amounts and useful lives assigned to identified intangible assets impacts the amount and timing of future amortization expense . we evaluate goodwill on an annual basis as of november 1 st or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting units below their carrying amount . goodwill is tested for impairment at the reporting unit level , which is one level below our operating segment level , by comparing the reporting unit 's carrying value , including goodwill , to the fair value of the reporting unit . the fair values of the reporting units are estimated using significant judgment based on a combination of the income and the market approaches . under the income approach , we estimate fair value of a reporting unit based on the present value of forecasted future cash flows that the reporting unit is expected to generate over its remaining life . under the market approach , we estimate fair value of our reporting units based on an analysis that compares the value of the reporting units to values of publicly-traded companies in similar lines of business . if the fair value of the reporting unit does not exceed the carrying value of the net assets assigned to the reporting unit , then we perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . when the carrying value of a reporting unit 's goodwill exceeds its implied fair value , we record an impairment loss equal to the difference . determining the fair value of a reporting unit is highly judgmental in nature and involves the use of significant estimates and assumptions . these estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows , operating trends , risk-adjusted discount rates , future economic and market conditions and determination of appropriate market comparables . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and 36 inherently uncertain . actual future results may differ from those estimates . in addition , we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units . as of december 31 , 2013 , goodwill recorded for our psd segment and ssd segment was $ 1,616.6 million and $ 2,441.1 million , respectively . the fair value of our reporting units , in particular ssd , are sensitive to events or changes in circumstances , such as adverse changes in operating results or macro-economic conditions , changes in management 's business strategy , or declines in our stock price . a hypothetical 5 % decrease in the estimated fair value of our reporting units would result in the fair value of our ssd segment to be equal to its carrying value . see item 1a of part i , `` risk factors , '' for more information . inventory valuation and contract manufacturer liabilities . inventory consists primarily of component parts to be used in the manufacturing process and is stated at lower of average cost or market . a provision is recorded when inventory is determined to be in excess of anticipated demand or obsolete , to adjust inventory to its estimated realizable value . in determining the provision , we also consider estimated recovery rates based on the nature of the inventory . as of december 31 , 2013 and december 31 , 2012 , our inventory balances were $ 52.7 million and $ 57.2 million , respectively .
| summary of cash flows as of december 31 , 2013 , our cash and cash equivalents decreased by $ 123.8 million from december 31 , 2012 primarily due to cash used in our investing and financing activities related to the repurchase of our common stock , purchase of investments , and capital expenditures . the following table summarizes cash flows from our consolidated statements of cash flows ( in millions , except percentages ) : replace_table_token_17_th operating activities 2013 compared to 2012 cash flows from operations increased by $ 199.9 million in 2013 , compared to 2012 , primarily due to higher consolidated net income , the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of collections on our outstanding receivables . 2012 compared to 2011 cash flow from operations decreased by $ 344.3 million in 2012 , compared to 2011 , primarily due to lower consolidated net income , higher taxes paid , timing of payments to our vendors , and a decrease in deferred revenue , offset by the timing of collections of our outstanding receivables . investing activities 2013 compared to 2012 net cash used in investing activities decreased by $ 32.3 million in 2013 , compared to 2012 , primarily due to lower spending on acquisitions and asset purchases as well as lower capital expenditures as we completed our phased campus build-out , partially offset by higher purchases of investments . 2012 compared to 2011 net cash used in investing activities decreased by $ 110.5 million in 2012 , compared to 2011 , primarily due to fewer purchases of investments , offset by higher spending on asset purchases , property and equipment , and acquisitions .
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section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 , submitted with this report 101 the following financial information from aspen insurance holdings limited 's annual report on form 10-k for the year ended december 31 , 2018 formatted in xbrl : ( i ) consolidated statements of operations and comprehensive income for the twelve months ended december 31 , 2018 , 2017 and 2016 ; ( ii ) consolidated balance sheets at december 31 , 2018 and december 31 , 2017 ; ( iii ) consolidated statements of shareholders ' equity for the twelve months ended december 31 , 2018 , 2017 and 2016 ; ( iv ) consolidated statements of cash flows for the twelve months ended december 31 , 2018 , 2017 and 2016 ; and ( v ) notes to the audited consolidated financial statements , tagged as blocks of text and in detail * * * * this exhibit is a management contract or compensatory plan or arrangement . * * confidential treatment has been requested with respect to certain portions of this exhibit . omitted portions have been separately filed with the sec . 121 * * * as provided in rule 406t of regulation s-t , this information is “ furnished ” herewith and not “ filed ” story_separator_special_tag the following is a discussion and analysis of our financial condition and results of operations for the twelve months ended december 31 , 2018 , 2017 and 2016 . this discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes contained in this report . this discussion contains forward-looking statements that involve risks and uncertainties and that are not historical facts , including statements about our beliefs and expectations . 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 particularly under the headings “ risk factors , ” “ business ” and “ cautionary statement regarding forward-looking statements ” contained in item 1a , item 1 , and part i of this report , respectively . aspen 's year in review business combination . on august 27 , 2018 , the company entered into a definitive agreement and plan of merger ( the “ merger agreement ” ) with highlands holdings , ltd. , a bermuda exempted company ( “ highlands ” ) , and highlands merger sub , ltd. , a bermuda exempted company and wholly owned subsidiary of highlands ( “ merger sub ” ) . under the merger agreement , subject to the satisfaction or waiver of certain conditions set forth therein , and in the related statutory merger agreement , the company will merge with and into merger sub in accordance with the bermuda companies act ( the “ merger ” ) , with the company surviving the merger as a wholly-owned subsidiary of highlands . highlands and merger sub are affiliates of certain investment funds managed by affiliates of apollo global management , llc , a leading global alternative investment manager . as previously announced , christopher o'kane will step down from his position as group chief executive officer and director of the board on or shortly after the completion of the merger and , subject to and contingent upon the merger , will be replaced by mark cloutier . pursuant to the merger agreement , at the effective time of the merger , each ordinary share of the company issued and outstanding immediately prior to such time ( other than ordinary shares owned by aspen as treasury shares , owned by any subsidiary of the company or owned by highlands , merger sub or any of their respective subsidiaries , which will be canceled as set forth in the merger agreement ) will be converted into the right to receive $ 42.75 in cash , without interest and less any required withholding taxes . at the effective time of the merger , each of the company 's issued and outstanding 5.95 % fixed-to-floating rate perpetual non-cumulative preference shares and 5.625 % perpetual non-cumulative preference shares ( collectively , the “ preference shares ” ) will remain issued and outstanding . the merger agreement restricts the company from declaring or paying any dividends other than the quarterly dividends on aspen 's ordinary shares that were previously declared and publicly announced prior to the date of the merger agreement and periodic cash dividends on the preference shares in accordance with the terms of the applicable certificate of designation . all required regulatory approvals in connection with the merger have been obtained and we anticipate that the merger will be completed shortly . the merger is subject to the satisfaction or waiver of a number of conditions , including , among others , the maintenance of certain financial strength ratings of the operating subsidiaries . the merger agreement also contains certain termination rights , including highlands ' right to terminate if we suffered aggregate net losses exceeding $ 350 million resulting from certain catastrophic events occurring between july 1 , 2018 and january 31 , 2019. we do not believe that the net catastrophe losses arising from such catastrophic events during the specified period exceeded $ 350 million . for further details on the potential risks related to the merger , refer to part i , item 1a , “ risk factors — risks relating to the merger. ” for further details on the merger , refer to part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations — aspen 's year in review ” and note 19 ( d ) of our consolidated financial statements , “ commitments and contingencies — contingent liabilities. ” effectiveness and efficiency program . we launched the effectiveness and efficiency program in october 2017 to allow us to be a more nimble organization with faster decision-making ability and a more competitive expense ratio . story_separator_special_tag the decrease in expenses in 2018 compared to 2017 was largely due to reductions in administration costs in the reinsurance segment following the sale of agrilogic , and a reduction in operating expenses in the insurance segment . these reductions were offset by a $ 44.5 million increase in non-operating expenses , which included $ 39.0 million of advisor fees related to the merger and a $ 22.3 million increase in costs associated with the effectiveness and efficiency program , offset by a reduction in other non-operating expenses primarily due to the write back of a $ 14.1 million buyout provision . the increase in 2017 compared to 2016 was largely due to $ 15.2 million of costs associated with the effectiveness and efficiency program and increased costs associated with growth in our insurance business , partially offset by lower provisions for performance-related remuneration . net investment income . we generated net investment income of $ 198.2 million in 2018 , an increase of 4.9 % compared to the prior year ( 2017 — $ 189.0 million ; 2016 — $ 187.1 million ) primarily due to increased income from our fixed income portfolio . the increase in investment income in 2017 compared to 2016 was also primarily due to the increase in the book yield of the fixed income portfolio . taxes . we recognized an income tax benefit for the twelve months ended december 31 , 2018 of $ 10.2 million compared to a benefit of $ 15.4 million and an expense of $ 6.1 million in 2017 and 2016 , respectively . the effective tax rate for the twelve months ended december 31 , 2018 on our loss before tax was 6.5 % ( 2017 — 5.5 % ; 2016 — 2.9 % ) . 81 the increase in the tax rate , ( defined as the tax charge or credit , divided by the profit or loss before tax ) for 2018 was due to the successful conclusion of a u.k. tax inquiry which enabled the release of a $ 12.8 million provision we were holding against the potential disallowance of a prior period adjustment . the tax benefit was partially offset by the introduction of u.s. beat on premium ceded from u.s. subsidiaries to non-u.s. related parties . in addition , the tax rate for 2017 benefited from a tax credit associated with the adoption of asu 2016-09 , “ compensation - stock compensation ” and a tax credit regarding deductions available for certain research and development expenditure . the tax benefit in 2017 was not materially affected by the u.s. tax cuts and jobs act which was signed on december 22 , 2017. the impact of the u.s. federal income tax rate reduction from 34 % in 2017 to 21 % in 2018 has been reflected in measuring deferred taxes . the effective tax rate is subject to revision in future periods if circumstances change and depends on the relative profitability of the business underwritten in bermuda ( where the rate of tax on corporate profits is zero ) , the united kingdom ( where the corporation tax rate is 19 % and will be reduced to 17 % effective april 1 , 2020 ) and the united states ( where the federal income tax rate was previously 34 % and was reduced to 21 % effective january 1 , 2018 ) . the tax in each of the years is representative of the geographic spread of our business between taxable and non-taxable jurisdictions in such years . net income . we reported a net loss after taxes of $ 145.8 million in 2018 compared to a net loss of $ 266.4 million in 2017 and net income of $ 203.4 million in 2016 . the decrease in net loss in 2018 was primarily due to the $ 412.2 million increase in underwriting income as a result of the $ 301.3 million decrease in catastrophe losses and a $ 39.4 million reduction in expenses , partially offset by a $ 91.9 million reduction in net earned premiums . the net loss in 2017 was due primarily to a $ 625.5 million decrease in underwriting income mainly from a $ 409.6 million increase in catastrophe losses , a $ 330.7 million reduction in net earned premiums and a $ 23.9 million reduction in reserve releases , partially offset by a $ 116.3 million reduction in expenses . other comprehensive income . total other comprehensive income decrease d by $ 66.0 million ( 2017 — $ 50.8 million decrease ) , net of taxes , for the twelve months ended december 31 , 2018 . the decrease in total other comprehensive income includes a net unrealized loss of $ 81.0 million in the available for sale investment portfolio ( 2017 — $ 9.2 million net unrealized loss ) largely attributable to the impact of rising interest rates on our bond portfolios , a $ 4.5 million reclassification of net realized loss to net income ( 2017 — $ 3.6 million reclassified realized gains ) , a $ 1.8 million unrealized loss ( 2017 — $ 2.6 million unrealized gain ) on the hedged derivative contracts and an unrealized gain in foreign currency translation of $ 12.3 million ( 2017 — $ 40.6 million unrealized loss ) largely attributable to the impact from the continued strengthening of the u.s. dollar . dividends . dividends paid on our ordinary shares in 2018 were $ 42.9 million ( 2017 — $ 56.2 million ; 2016 — $ 52.7 million ) . the decrease in dividends on our ordinary shares in 2018 was because , effective august 27 , 2018 , we are restricted from declaring or paying any dividends on our ordinary shares under the merger agreement . dividends paid on our outstanding preference shares in 2018 were $ 30.5 million ( 2017 — $ 36.2 million ; 2016 — $ 41.8 million ) .
| operating highlights gross written premiums of $ 3,446.9 million in 2018 , an increase of 2.6 % from 2017 . combined ratio of 110.0 % for 2018 , including $ 262.9 million , or 12.1 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements , compared with 125.7 % for 2017 , which included $ 561.9 million or 24.6 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements , and 98.5 % for 2016 , which included $ 164.4 million , or 6.3 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements . net favorable development on prior year loss reserves of $ 111.1 million , or 5.0 combined ratio points , for 2018 compared with $ 105.4 million , or 4.6 combined ratio points , for 2017 and $ 129.3 million , or 4.9 combined ratio points , for 2016 . annualized net return on average equity of a 7.7 % loss for 2018 compared with an 11.1 % loss in 2017 and a 5.4 % gain in 2016 . gross written premiums . the changes in our business segments ' gross written premiums for the twelve months ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_13_th overall gross written premiums in 2018 increased by 2.6 % compared to 2017 . in 2018 , gross written premiums in our reinsurance segment decrease d by 3.4 % compared to 2017 due primarily to reductions in mortgage business written within our specialty reinsurance business line . the 7.7 % increase in gross written premiums in our insurance segment in 2018 was due to growth in property and casualty insurance , and financial and professional lines insurance , partially offset by reductions in marine , aviation and energy insurance where we exited certain lines of business as we continue to experience challenging market conditions .
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our comprehensive process solutions are used across a range of industries including agriculture , architecture , civil engineering , construction , environmental management , government , natural resources , transportation and utilities . representative trimble customers include engineering and construction firms , contractors , surveying companies , farmers and agricultural companies , enterprise firms with large-scale fleets , energy , mining and utility companies , and state , federal and municipal governments . trimble focuses on integrating its broad technological and application capabilities to create vertically-focused , system-level solutions that transform how work is done within the industries we serve . the integration of sensors , software , connectivity , and information in our portfolio gives us the unique ability to provide an information model specific to the customer 's workflow . for example , in construction our strategy is centered on the concept of a “ constructible model , ” which will provide a real-time , connected , and cohesive information environment for the design , build , and operational phases of a project . in agriculture , we continue to develop “ connected farm ” solutions to optimize operations across the agriculture workflow . in transportation and logistics , we provide transportation companies with tools to enhance fuel efficiency , safety , and transparency across the enterprise . our growth strategy is centered on multiple elements : focus on attractive markets with significant growth and profitability potential - we focus on large markets historically underserved by technology that offer significant potential for long-term revenue growth , profitability and market leadership . our core industries such as construction , agriculture , and transportation markets are each multi-trillion dollar global industries which operate in increasingly demanding environments with technology adoption in the early phases relative to other industries . with the emergence of mobile computing capabilities , the increasing technological know-how of end users and the compelling return on investment to our customers , we believe many of our markets are ripe for substituting trimble 's technology and solutions in place of traditional operating methods . domain knowledge and technological innovation that benefit a diverse customer base we have over time redefined our technological capabilities from hardware-driven point solutions to integrated work process solutions by developing domain expertise and heavily reinvesting in r & d , capex and acquisitions . we have been spending approximately 13 % of revenue historically on r & d and currently hold over 1,000 unique patents . we intend to continue to leverage our divisional structure to take advantage of our technology portfolio and deep domain knowledge to quickly and cost-effectively deliver specific , targeted solutions to each of the verticals we serve . we look for opportunities where the need for technological change is high and which have a requirement for the integration of multiple technologies into complete vertical solutions . increasing focus on software and services - software and services are increasingly important elements of our solutions and are core to our growth strategy . trimble has an open application programming interface ( api ) philosophy and open vendor environment which leads to increased adoption of our software offerings . professional services constitute an additional growth channel that helps our customers integrate and optimize the use of our offerings in their environment . the increased recurring revenue from these solutions will provide us with enhanced business visibility over time . geographic expansion with localization strategy - we view international expansion as an important element of our strategy and we continue to position ourselves in geographic markets that will serve as important sources of future growth . we currently have a physical presence in over 35 countries and third party representation in over 100 countries . in 2014 , 52 % of our sales occurred in countries outside of the u.s. optimized distribution channels to best access our markets - we utilize vertically-focused distribution channels that leverage domain expertise to best serve the needs of individual markets domestically and abroad . these channels include independent dealers , joint ventures , original equipment manufacturers ( oem ) sales , and distribution alliances with key partners , such as cnh global , caterpillar , and nikon , as well as direct sales to end-users , that provide us with broad market reach and localization capabilities to effectively serve our markets . strategic acquisitions - organic growth continues to be our primary focus , while acquisitions serve to enhance our market position . we acquire businesses that bring technology , products , or distribution capabilities that augment our portfolio and allow us to penetrate existing markets more effectively , or to establish a market beachhead . our level of success in targeting and effectively integrating acquisitions is an important aspect of our growth strategy . 30 trimble 's focus on these growth drivers has led to growth in revenue and profitability as well as an increasingly diversified business model . software and services growth is driving increased recurring revenue , leading to improved visibility in our business . as our solutions have expanded , our go to market model has also evolved , with a balanced mix between direct , distribution and oem customers , and an increasing number of enterprise level customer relationships . finally , profitability has improved over time , in large part through expansion of gross margins , as software and services have grown both organically and through acquisitions . critical accounting policies and estimates our accounting policies are more fully described in note 2 of the notes to the consolidated financial statements . the preparation of financial statements and related disclosures in conformity with u.s. generally accepted accounting principles requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements . we consider the accounting polices described below to be our critical accounting policies . story_separator_special_tag the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . we determine besp for a product or service by considering multiple factors including , but not limited to , pricing practices , market conditions , competitive landscape , internal costs , geographies and gross margin . the determination of besp is made through consultation with and formal approval by our management , taking into consideration our go-to-market strategy . allowance for doubtful accounts our accounts receivable balance , net of allowance for doubtful accounts and sales returns reserve , was $ 362.0 million at the end of fiscal 2014 , as compared with $ 337.9 million at the end of fiscal 2013. the allowance for doubtful accounts was $ 7.8 million and $ 6.3 million at the end of fiscal 2014 and 2013 , respectively . we evaluate ongoing collectibility of our trade accounts receivable based on a number of factors such as age of the accounts receivable balances , credit quality , historical experience , and current economic conditions that may affect a customer 's ability to pay . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations to us , a specific allowance for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding . inventory valuation our inventories , net balance was $ 278.1 million at the end of fiscal 2014 as compared with $ 254.3 million at the end of fiscal 2013 . our inventory allowances at the end of fiscal 2014 were $ 41.1 million , as compared with $ 40.6 million at the end of fiscal 2013 . our inventories are stated at the lower of cost or market . adjustments are also made to reduce the cost of inventory for estimated excess or obsolete balances . factors influencing these adjustments include declines in demand , technological changes , product life cycle and development plans , component cost trends , product pricing , physical deterioration and quality issues . income taxes income taxes are accounted for under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income . a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized . relative to uncertain tax positions , we only recognize the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . our practice is to recognize interest and or penalties related to income tax matters in income tax expense . 32 our valuation allowance is primarily attributable to foreign net operating losses and state research and development credit carryforwards . management believes that it is more likely than not that we will not realize these deferred tax assets , and , accordingly , a valuation allowance has been provided for such amounts . valuation allowance adjustments associated with an acquisition after the measurement period are recorded through income tax expense . business combinations we allocate the fair value of purchase consideration to the assets acquired , liabilities assumed , and non-controlling interests in the acquiree based on their fair values at the acquisition date . the excess of the fair value of purchase consideration over the fair value of these assets acquired , liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill . when determining the fair values of assets acquired , liabilities assumed , and non-controlling interests in the acquiree , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , expected future cash flows , which includes consideration of future growth rates and margins , customer attrition rates , future changes in technology and brand awareness , loyalty and position , and discount rates . fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability . amounts recorded in a business combination may change during the measurement period , which is a period not to exceed one year from the date of acquisition , as additional information about conditions existing at the acquisition date becomes available . goodwill and purchased intangible assets goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination . intangible assets acquired individually , with a group of other assets , or in a business combination , are recorded at fair value . identifiable intangible assets are comprised of distribution channels and distribution rights , patents , licenses , technology , acquired backlog , trademarks , and in-process research and development . the fair value of intangible assets acquired is generally determined based on a discounted cash flow analysis .
| results of operations overview the following table is a summary of revenue , gross margin and operating income for the periods indicated and should be read in conjunction with the narrative descriptions below . replace_table_token_4_th basis of presentation we have a 52-53 week fiscal year , ending on the friday nearest to december 31 , which for fiscal 2014 was january 2 , 2015. fiscal 2014 and 2012 were both 52-week years . fiscal 2013 was a 53-week year . revenue in fiscal 2014 , total revenue increased by $ 107.4 million , or 5 % , to $ 2.40 billion from $ 2.29 billion in fiscal 2013 . of this increase , product revenue increased $ 63.6 million , or 4 % , service revenue increased $ 31.8 million , or 9 % , and subscription revenue increased $ 12.0 million , or 4 % . the product and service increase in fiscal 2014 as compared to fiscal 2013 was driven primarily by growth across engineering and construction and mobile solutions , which included organic growth , and to a lesser extent , the impact of acquisitions . product revenue growth was partially offset by a significant decrease in field solutions revenue primarily due to softness in agriculture . subscription growth was driven by growth in mobile solutions , partially offset by our change in accounting for virtual site solutions , our joint venture with caterpillar , which is now treated as an equity method investment . in the prior year , as a majority owner , we consolidated virtual site solutions results and virtual site solutions revenue was included in engineering and construction subscription revenue . we consider organic growth to include all revenue except for revenue associated with acquisitions made within the last four quarters .
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( 2 ) capitalized costs related to client conversion/set-up services related to long-term processing or managed services arrangements are generally amortized proportionately over story_separator_special_tag forward-looking statements this report contains a number of forward-looking statements relative to our future plans and our expectations concerning our business and the industries we serve . these forward-looking statements are based on assumptions about a number of important factors , and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements . some of the risks that are foreseen by management are outlined above within item 1a. , “ risk factors ” . item 1a . constitutes an integral part of this report , and readers are strongly encouraged to review this section closely in conjunction with md & a . md & a basis of discussion - impact of divestitures and acquisitions our consolidated statements of income ( “ income statements ” or “ income statement ” ) for the years ended december 31 , 2013 and 2012 reflect the results of operations for the following acquisitions and divestitures : · on december 31 , 2013 , we sold our marketing analytics business marketed under the quaero brand , which generated approximately $ 11 million of revenue in both 2013 and 2012. as part of this transaction , we retained certain clients , thus we expect that approximately $ 2 million of this revenue will recur in 2014 . · on december 3 , 2013 , we acquired certain key assets of volubill , which had a minimal impact to our 2013 results of operations due to the timing of the acquisition . we currently expect revenues from volubill for 2014 to be approximately $ 5 million . · on july 1 , 2013 , we sold a small print operation , which generated revenues of approximately $ 5 million and $ 8 million , respectively , in 2013 and 2012 . · on july 13 , 2012 , we acquired ascade , which generated revenues of approximately $ 14 million and $ 9 million , respectively , in 2013 and 2012. as a result of these acquisitions and divestitures , amounts may not be comparable between years due to the timing of the transactions . the comparable differences have been described below where relevant or significant . as a result of the divestitures of the two businesses mentioned above , 2014 revenue levels will be approximately $ 14 million lower as compared to our 2013 revenues generated from these businesses . this , however , will be partially offset by the $ 5 million of revenues expected to be generated from the volubill acquisition . we expect that the 2013 acquisition and divestiture activity will have a minimal impact to earnings in 2014. the ascade and volubill acquisitions are discussed in greater detail in note 3 to our financial statements . management overview results of operations . a summary of our results of operations for 2013 and 2012 , and other key performance metrics are as follows ( in thousands , except percentages and per share amounts ) : replace_table_token_7_th 26 revenues . our revenues for 2013 were $ 747.5 million , a decrease of 1 % when compared to $ 756.9 million for 2012. the decrease in total revenues can be attributed to the impact of the pricing discounts associated with the comcast and time warner contract renewals discussed in further detail below , and to a lesser degree , the divestiture of a small print operation , mentioned above . the impact of these revenue reductions have been partially offset by the full year impact of the revenues from the ascade acquisition and growth in other areas of our business . operating results . operating income for 2013 was $ 76.7 million , or a 10.3 % operating income margin percentage , compared to $ 96.6 million , or a 12.8 % operating income margin percentage , for 2012. the year-over-year decreases in operating income and operating income margin percentage are mainly driven by an additional $ 9.9 million of restructuring charges in 2013 , increased sg & a costs for 2013 , and the impact of the comcast and time warner pricing discounts in early 2013. diluted eps . diluted eps for 2013 was $ 1.56 compared to $ 1.51 for 2012 , with the increase primarily related to an unusually low effective income tax rate ( “ etr ” ) for 2013 of 17 % . the 2013 etr benefited primarily from the recognition of incremental r & d income tax credits claimed for development activities from previous years and by the reduction of certain tax allowances related to foreign operations . the lower tax rate provided a benefit of approximately $ 13 million , or $ 0.42 per diluted share , to 2013. additionally , diluted eps for 2013 , when compared to diluted eps for 2012 , was negatively impacted by restructuring charges of $ 12.4 million , or $ 0.31 per diluted share , for 2013 compared to $ 2.5 million , or $ 0.05 per diluted share , for 2012. balance sheet and cash flows . as of december 31 , 2013 , we had cash , cash equivalents , and short-term investments of $ 210.8 million , as compared to $ 169.3 million as of december 31 , 2012 , with the increase mainly due to our strong cash flow generation . cash flows from operating activities for 2013 were $ 126.6 million , compared to $ 127.4 million for 2012 , as discussed in further detail in the liquidity section . significant client relationships comcast . comcast continues to be our largest client . for 2013 and 2012 , revenues from comcast were $ 144 million and $ 150 million , respectively , representing approximately 19 % and 20 % of our total revenues . story_separator_special_tag the revenue recognition policy that involves the most complex or subjective decisions or assessments that may have a material impact on our business ' operations relates to the accounting for software license arrangements . our software and services revenue relates primarily to : ( i ) software license sales ; and ( ii ) professional services to implement the software . our maintenance revenue relates primarily to support of our software once it has been implemented . the accounting for software license arrangements , especially when software is sold in a multiple-element arrangement , can be complex and may require considerable judgment . key factors considered in accounting for software license and related services include the following criteria : ( i ) the identification of the separate elements of the arrangement ; ( ii ) the determination of whether any undelivered elements are essential to the functionality of the delivered elements ; ( iii ) the assessment of whether the software , if hosted , should be accounted for as a services arrangement and thus outside the scope of the software revenue recognition literature ; ( iv ) the determination of vendor specific objective evidence ( “ vsoe ” ) of fair value for the undelivered element ( s ) of the arrangement ; ( v ) the assessment of whether the software license fees are fixed or determinable ; ( vi ) the determination as to whether the fees are considered collectible ; and ( vii ) the assessment of whether services included in the arrangement represent significant production , customization or modification of the software . the evaluation of these factors , and the ultimate revenue recognition decision , requires significant judgments to be made by us . the judgments made in this area could have a significant effect on revenues recognized in any period by changing the amount and or the timing of the revenue recognized . in addition , because software licenses typically have little or no direct , incremental costs related to the recognition of the revenue , these judgments could also have a significant effect on our results of operations . the initial sale of our software products generally requires significant production , modification or customization and thus falls under the guidelines of contract accounting . in these software license arrangements , the elements of the arrangements are typically a software license , professional services , and maintenance . when we have vsoe of fair value for the maintenance , which we generally do , we allocate a portion of the total arrangement fee to the maintenance element based on its vsoe of fair value , and the balance of the arrangement fee is subject to contract accounting using the percentage-of-completion ( “ poc ” ) method of accounting . under the poc method of accounting , software license and professional services revenues are typically recognized as the professional services related to the software implementation project are performed . we are using hours performed on the project as the measure to determine the percentage of the work completed . in certain instances , we sell software license volume upgrades , which provide our clients the right to use our software to process higher transaction volume levels . in these instances , if : ( i ) maintenance is the only undelivered element of the software arrangement ; ( ii ) we have vsoe of fair value for the maintenance related to the volume upgrade ; and ( iii ) we meet the other revenue recognition criteria , we recognize the software license revenue on the effective date of the volume upgrade . a portion of our professional services revenues does not include an element of software delivery ( e.g. , business consulting services , etc . ) , and thus , do not fall within the scope of specific authoritative accounting literature for software arrangements . in these cases , revenues from fixed-price , professional service contracts are recognized using a method consistent with the proportional performance method , which is relatively consistent with our poc methodology . under a proportional performance model , revenue is recognized by allocating revenue between reporting periods based on relative service provided in each reporting period , and costs are generally recognized as incurred . we utilize an input-based approach ( i.e. , hours worked ) for purposes of measuring performance on these types of contracts . our input measure is considered a reasonable surrogate for an output measure . in instances when the work performed on fixed price agreements is of relatively short duration , or if we are unable to make reasonably dependable estimates at the outset of the arrangement , we use the completed contract method of accounting whereby revenue is recognized when the work is completed . our use of the poc and proportional performance methods of accounting on professional services engagements requires estimates of the total project revenues , total project costs and the expected hours necessary to complete a project . changes in estimates as a result of additional information or experience on a project as work progresses are inherent characteristics of the poc and proportional performance methods of accounting as we are exposed to various business risks in completing these engagements . the estimation process to support these methods of accounting is more difficult for projects of greater length and or complexity . the judgments and estimates made in this area could : ( i ) have a significant effect on revenues recognized in any period by changing the amount and or the timing of the revenue recognized ; and or ( ii ) impact the expected profitability of a project , including whether an overall loss on an arrangement has occurred . to mitigate the inherent risks in using the poc and proportional performance methods of accounting , we track our performance on projects and reevaluate the appropriateness of our estimates as part of our monthly accounting cycle .
| detailed discussion of results of operations total revenues . total revenues for : ( i ) 2013 decreased 1 % to $ 747.5 million , from $ 756.9 million for 2012 ; and ( ii ) 2012 increased 3 % to $ 756.9 million , from $ 734.7 million for 2011 . · the 1 % year-over-year decrease between 2013 and 2012 can attributed to the impact of the pricing discounts associated with the comcast and time warner contract renewals , and to a lesser degree , the divestiture of a small print operation , discussed above . the impact of these revenue reductions have been offset by the full year impact of the revenues from the ascade acquisition and growth in other areas of our business . · the 3 % year-over-year increase between 2012 and 2011 can be primarily attributed to increased client spending on various ancillary services and increased software sales , and to a lesser degree , the revenues from our ascade acquisition in july 2012 . 31 the components of total revenues , discussed in more detail below , are as follows : replace_table_token_10_th processing and related services revenues . processing and related services revenues for : ( i ) 2013 decreased 1 % to $ 537.5 million , from $ 544.6 million for 2012 ; and ( ii ) 2012 increased 4 % to $ 544.6 million , from $ 524.7 million for 2011 . · the year-over-year decrease between 2013 and 2012 can be attributed to the impact of the pricing discounts associated with the comcast and time warner contract renewals , discussed in the significant client relationships section above , and to a lesser degree , by approximately $ 3 million of divested revenues from the sale of a small print operation on july 1 , 2013. the impact of these revenue reductions have been partially offset by the growth in other areas of our business . · the year-over-year increase between 2012 and 2011 is almost entirely due to increased client spending on various ancillary services .
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the company 's software development story_separator_special_tag overview citrix solutions power business mobility through secure , mobile workspaces that provide people with instant access to apps , desktops , data and communications on any device , over any network or cloud . we market and license our products directly to customers , over the web , and through systems integrators , or sis , in addition to indirectly through value-added resellers , or vars , value-added distributors , or vads , original equipment manufacturers , or oems and service providers . we are a delaware corporation founded on april 17 , 1989. executive summary we develop and sell products and services that enable the secure and reliable delivery of applications and data over public , private or hybrid clouds or networks , to virtually any type of device . our technologies mobilize desktops , apps , data , and people to help our customers drive value . we continue driving innovation in the datacenter with our unique technologies across both physical and software defined networking platforms while powering some of the world 's largest clouds and giving enterprises the capabilities to combine best-in-class application networking services on a single , consolidated footprint . our work with citrix service providers , or csps , and our cloud-based offerings in xenapp and xenmobile are how we 're meeting customer demand for subscription-based services for the delivery of apps - from windows to web to mobile . in january 2015 , we announced the implementation of a restructuring program designed to increase strategic focus and operational efficiency and began to execute against the program in february 2015. as a result , we eliminated approximately 700 full-time positions in the first half of 2015. during the year ended december 31 , 2015 , we incurred costs of $ 68.9 million , primarily related to employee severance arrangements and the consolidation of leased facilities . the majority of the activities related to the 2015 restructuring program were substantially completed by the end of 2015. in the first quarter of 2015 , we saw a greater than anticipated impact on our execution as a result of the implementation of our 2015 restructuring program , organizational and leadership evolution and changes to our field and channel strategies . we made progress during the second half of 2015 in absorbing and adjusting to these changes , which is reflected in our improved results from operations during the second half of 2015. in july 2015 , we announced that our board formed an operations committee to work with our management team on a comprehensive operational review , including , among other things , a review of our operating margins , profitability and capital . in november 2015 , we announced key conclusions and initial plans from our operational review , which included plans to increase emphasis and resources to core enterprise products for secure and reliable application and data delivery , including xenapp , xendesktop , xenmobile , sharefile and netscaler . to achieve this focus , the company will end investment in certain other products and programs , in some cases moving technologies that are currently stand alone products to features of strategic products , in other cases providing an orderly end-of-life to non-core products . also announced in november 2015 , was a plan to spinoff our goto family of products into a separate , publicly traded company . the company established as a result of the spinoff will be made up of the following products and services : gotoassist , gotomeeting , gotomypc , gototraining , gotowebinar , grasshopper and openvoice . the proposed separation , which is intended to be a tax-free spinoff to our stockholders , is expected to be completed in the second half of 2016. upon completion of the separation , chris hylen , who currently serves as our senior vice president and general manager of our mobility apps business unit , will serve as chief executive officer of the new spinoff company . the proposed spinoff is subject to customary closing conditions and final approval by our board of directors . we expect to incur significant costs in connection with our planned separation of our goto business . these costs relate primarily to third-party advisory and consulting services , retention payments to certain employees , incremental stock-based compensation and other costs directly related to the separation . costs related to employees for retention or stock-based compensation are classified on a basis consistent with their regular compensation charges and included within cost of net revenues , research and development , sales , marketing and services , or general and administrative expense in our consolidated statements of income as applicable . costs other than those paid to employees are included within general and administrative expense in our consolidated statements of income . during 2015 , we incurred approximately $ 6.4 million related to separation costs . we expect to incur additional separation costs in 2016 until we complete the separation of our goto business . we currently expect to record in the aggregate approximately $ 100.0 million to $ 110.0 million in separation costs , although that estimate is subject to a number of assumptions and uncertainties . 33 further , we also announced the implementation of a restructuring program that will focus on simplification of our enterprise go-to-market motion and roles while improving coverage , reflect changes in our product focus , and balance resources with demand across our marketing , general and administration areas . the 2015 other restructuring program calls for the elimination of approximately 700 full-time positions , of which 350 were communicated in 2015. during the year ended december 31 , 2015 , we incurred costs of $ 29.7 million primarily related to employee severance arrangements . we currently expect to record in the aggregate approximately $ 55.0 million to $ 60.0 million in pre-tax restructuring charges associated with this program . the majority of these charges are related to employee severance , outplacement , professional service fees , and facility closing costs . story_separator_special_tag we assess collectability based primarily on the creditworthiness of the customer . management 's judgment is required in assessing the probability of collection , which is generally based on an evaluation of customer specific information , historical experience and economic market conditions . if we determine from the outset of an arrangement that collectability is not probable , revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved . the majority of our product and license revenue consists of revenue from the sale of software products . software sales generally include a perpetual license to our software and are subject to the industry specific software revenue recognition guidance . in accordance with this guidance , we allocate revenue to license updates related to our software and any other undelivered elements of the arrangement based on vsoe of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described above have been met . the balance of the revenues , net of any discounts inherent in the arrangement , is recognized at the outset of the arrangement using the residual method as the product licenses are delivered . if management can not objectively determine the fair value of each undelivered element based on vsoe of fair value , revenue recognition is deferred until all elements are delivered , all services have been performed , or until fair value can be objectively determined . we also make certain judgments to record estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives , at the time sales are recorded . for hardware appliance and software transactions , the arrangement consideration is allocated to stand-alone software deliverables as a group and the non-software deliverables based on the relative selling prices of using the selling price hierarchy in the revenue recognition guidance . the selling price hierarchy for a deliverable is based on its vsoe if available , third-party evidence , or tpe , if vsoe is not available , or estimated selling price if neither vsoe nor tpe is available . we then recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition . vsoe of selling price is based on the price charged when the element is sold separately . in determining vsoe , we require that a substantial majority of the selling prices fall within a reasonable range based on historical discounting trends for specific products and services . tpe of selling price is established by evaluating competitor products or services in stand-alone sales to similarly situated customers . however , as our products contain a significant element of proprietary technology and our solutions offer substantially different features and functionality , the comparable pricing of products with similar functionality typically can not be obtained . additionally , as we are unable to reliably determine what competitors products ' selling prices are on a stand-alone basis , we are not typically able to determine tpe . the estimate of selling price is established considering multiple factors including , but not limited to , pricing practices in different geographies and through different sales channels and competitor pricing strategies . for our non-software transactions we allocate the arrangement consideration based on the relative selling price of the deliverables . for our hardware appliances we use esp as our selling price . for our support and services , we generally use vsoe as our selling price . when we are unable to establish selling price using vsoe for our support and services , we use esp in our allocation of arrangement consideration . our mobility apps products are considered hosted service arrangements per the authoritative guidance ; accordingly , fees related to online service agreements are recognized ratably over the contract term . in addition , saas revenues may also include set-up fees , which are recognized ratably over the contract term or the expected customer life , whichever is longer . generally , our mobility apps products are sold separately and not bundled with enterprise and service provider products and services . see note 2 to our consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2015 for further information on our revenue recognition . valuation and classification of investments the authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ( an exit price ) . our available-for-sale investments are measured to fair value on a recurring basis . in addition , we hold investments that are accounted for based on the cost method . these investments are periodically reviewed for impairment and when indicators of impairment exist , are measured to fair value as appropriate on a non-recurring basis . in determining the fair value of our investments we are sometimes required to use various alternative valuation techniques . the authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available . 37 the authoritative guidance establishes a three-tier fair value hierarchy , which prioritizes the inputs used in measuring fair value as follows : level 1 , observable inputs such as quoted prices in active markets for identical assets or liabilities , level 2 , inputs , other than quoted prices in active markets , that are observable either directly or indirectly , and level 3 , unobservable inputs in which there is little or no market data , which requires us to develop our own assumptions . observable inputs are those that market participants would use in pricing the asset or liability that are based on market data obtained from independent sources , such as market quoted prices .
| summary of results for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , we delivered the following financial performance : product and license revenue decreased ( 2.7 ) % to $ 875.8 million ; software as a service revenue increased 12.2 % to $ 731.3 million ; license updates and maintenance revenue increased 7.4 % to $ 1.5 billion ; professional services revenue decreased ( 16.0 ) % to $ 147.5 million ; gross margin as a percentage of revenue increased 0.9 % to 81.2 % ; operating income increased 15.8 % to $ 350.1 million ; and diluted earnings per share increased 35.4 % to $ 1.99 . the decrease in our product and licenses revenue was primarily driven by lower sales of our workspace services solutions and certain delivery networking products , primarily bytemobile smart capacity and cloudbridge , partially offset by an increase in sales of netscaler . our software as a service revenues increased due to increased sales of our communications cloud products , led by gotomeeting and grasshopper , and our workflow cloud products , primarily sharefile . the increase in license updates and maintenance revenue was primarily due to increased sales of maintenance revenues across our workspace services and delivery networking products , partially offset by a decrease in our subscription advantage product . the decrease in professional services revenue was primarily due to decreased product training and certification and implementation services related to our workspace services products . we currently target total revenue to increase when comparing the first quarter of 2016 to the first quarter of 2015. in addition , when comparing the 2016 fiscal year to the 2015 fiscal year , we target total revenue to increase . the increase in 2015 in gross margin as a percentage of net revenue was not significant .
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effective july 2 , 2020 , we changed our name from vistra energy corp. to vistra corp. to distinguish from companies that are involved in the exploring for , producing , refining , or transporting fossil fuels ( many of which use `` energy '' in their names ) and to better reflect our integrated business model , which combines a retail electricity and natural gas business focused on serving its customers with new and innovative products and services and an electric power generation business powering the communities we serve with safe , reliable power . operating segments vistra has six reportable segments : ( i ) retail , ( ii ) texas , ( iii ) east ( iv ) west , ( v ) sunset and ( vi ) asset closure . in the third quarter of 2020 , vistra updated its reportable segments to reflect changes in how the company 's codm makes operating decisions , assesses performance and allocates resources . management believes that the revised reportable segments provide enhanced transparency into the company 's long-term sustainable assets and its commitment to managing the retirement of economically and environmentally challenged plants . see notes 1 and 20 to the financial statements for further information concerning the updates to our reportable business segments . 51 significant activities and events and items influencing future performance winter storm uri in february 2021 , the u.s. experienced an unprecedented winter storm uri , bringing extreme cold temperatures to the central u.s. , including texas . on february 12 , 2021 , the governor of texas declared a state of disaster for all 254 counties in the state in response to the then-forecasted weather conditions . the declaration certified that severe winter weather posed an imminent threat due to prolonged freezing temperatures , heavy snow , and freezing rain statewide . on february 14 , 2021 , president biden issued a federal emergency declaration for all 254 texas counties . as part of its annual winter season preparations , our power plant teams executed a significant winter preparedness strategy , which included installing windbreaks and large radiant heaters to supplement existing freeze protection and insulation and performing preventative maintenance on freeze protection equipment such as the insulation and automatic circuitry designed to keep pipes at the power plants from freezing . in addition , in anticipation of winter storm uri we took additional steps to prepare , including procuring additional demineralized water supply trailers to ensure sufficient water availability to run for extended periods and verifying that freeze protection circuits were operational . this severe weather resulted in surging demand for power , gas supply shortages , operational challenges for generators , and a significant load shed event ( i.e . , involuntary outages to customers across the system for varying periods of time ) that was ordered by ercot beginning on february 15 , 2021 and continuing through february 18 , 2021. the biggest challenges to our plants throughout the storm were securing adequate natural gas supplies for our gas plants and the handling of frozen fuel at our coal plants . despite these challenges , we estimate that our fleet generated approximately 25 to 30 % of the power on the grid during the height of the outages , as compared to our approximately 18 % market share . the overall financial impact from winter storm uri is still being calculated , but vistra expects it will have a material adverse impact on its financial results driven by generation output being constrained due to challenges with receiving a steady supply of fuel for some plants as well as challenges with handling fuel already on site given the freezing conditions . as a result of these challenges , vistra had to procure power in the ercot market at prices at or near the price cap to meet its supply obligations . while the financial impacts of winter storm uri to vistra are not yet finalized , vistra management preliminarily estimates the one-time adverse impact on pre-tax net income will be in the range of approximately $ 900 million to $ 1.3 billion . this estimated range is preliminary and based on currently available information and management estimates . the final amount of the estimated loss is subject to a variety of factors including , but not limited to , outstanding pricing , load , and settlement data from ercot ( which is released at various intervals during a period of up to 180 days after the transaction day ) ; the outcome of potential litigation arising from this event ( including any litigation that we may pursue or be a party to ) ; or any corrective action taken by the state of texas , ercot , the rct , or the puct to resettle pricing across any portion of the supply chain that is currently being considered or may be considered by any such parties . there have already been several announced efforts by the state and federal governments and regulatory agencies to investigate and determine the causes of this event and its impact on consumers . we have received a civil investigative demand from the attorney general of texas as well as a request for information from ercot related to this event and may receive additional inquiries . we are cooperating with these entities and are working to respond to these requests . those efforts may result in changes in regulations that impact our industry including but not limited to additional requirements for winterization of various facets of the electricity supply chain including generation , transmission , and fuel supply ; improvements in coordination among the various participants in the electricity supply chain during any future event ; potential revisions to the way in which the ercot market compensates and incentivizes the continued operation of assets that only run during times of scarcity ; and potential changes to the types of plans permitted to be marketed to residential customers . story_separator_special_tag the puct ceased accepting new enrollments under the covid-19 electricity relief program after august 31 , 2020 , and the disconnection protections and financial assistance expired after september 30 , 2020. see note 7 to the financial statements for a summary of certain anticipated tax-related impacts of the cares act to the company . 53 the covid-19 pandemic has presented potential new risks to the company 's business . although there have been logistical and other challenges to date , there has been no material adverse impact on the company 's 2020 results of operations . the situation surrounding covid-19 remains fluid and the potential for a material impact on the company 's results of operations , financial condition and liquidity increases the longer the virus impacts the level of economic activity in the u.s. and globally . as a result , covid-19 may have a range of impacts on the company 's operations , the full extent and scope of which are currently unknown . see part i , item 1a risk factors — the outbreak of covid-19 , or the future outbreak of any other highly infectious or contagious diseases , could have a material and adverse effect on our business , financial condition , and results of operations . acquisitions and merger ambit transaction — on november 1 , 2019 ( ambit acquisition date ) , volt asset company , inc. , an indirect , wholly owned subsidiary of vistra , completed the acquisition of ambit ( ambit transaction ) . see note 2 to the financial statements for a summary of the ambit transaction and business combination accounting . crius transaction — on july 15 , 2019 , vienna acquisition b.c . ltd. , an indirect , wholly owned subsidiary of vistra , completed the acquisition of the equity interests of two wholly owned subsidiaries of crius that indirectly own the operating business of crius ( crius transaction ) . see note 2 to the financial statements for a summary of the crius transaction and business combination accounting . dynegy merger transaction — on the merger date , vistra and dynegy completed the transactions contemplated by the merger agreement . see note 2 to the financial statements for a summary of the merger transaction and business combination accounting . dividend program in november 2018 , we announced that the board had adopted a dividend program which we initiated in the first quarter of 2019. see note 14 to the financial statements for more information about our dividend program . share repurchase program in september 2020 , we announced that the board had authorized a new share repurchase program ( share repurchase program ) under which up to $ 1.5 billion of our outstanding common stock may be repurchased . the share repurchase program was effective january 1 , 2021 , at which time the prior share repurchase plan terminated . from january 1 , 2021 through february 23 , 2021 , 5,902,720 shares of our common stock had been repurchased under the share repurchase program for $ 125 million at an average price per share of common stock of $ 21.15 , and at february 23 , 2021 , $ 1.375 billion was available for repurchase under the share repurchase program . see note 14 to the financial statements for more information concerning the share repurchase program and the prior share repurchase program . debt activity we have stated our objective to reduce our consolidated net leverage . we also intend to continue to simplify and optimize our capital structure , maintain adequate liquidity and pursue opportunities to refinance our long-term debt to extend maturities and or reduce ongoing interest expense . in 2019 and 2020 , we completed several transactions , including the redemption and repayment of all of parent 's previously outstanding senior notes , that we believe , in the aggregate , advanced all of these goals . see note 11 to the financial statements for details of our long-term debt activity and note 10 to the financial statements for details of our accounts receivable financing . 54 capacity markets pjm — reliability pricing model ( rpm ) auction results , for the zones in which our assets are located , are as follows for each planning year : replace_table_token_7_th ( a ) planning year 2020-2021 includes duke energy ohio kentucky ( deok ) zone , which cleared at $ 130.00 per mw-day . rto zone excluding deok zone was $ 76.53 per mw-day . our capacity sales , net of purchases , aggregated by planning year and capacity type through planning year 2022-2023 , are as follows : replace_table_token_8_th nyiso — the most recent seasonal auction results for nyiso 's rest-of-state zones , in which the capacity for our independence plant clears , are as follows for each planning period : replace_table_token_9_th due to the short-term , seasonal nature of the nyiso capacity auctions , we monetize the majority of our capacity through bilateral trades . our capacity sales , aggregated by season through winter 2022-2023 , are as follows : replace_table_token_10_th iso-ne — the most recent forward capacity auction results for iso-ne rest-of-pool , in which most of our assets are located , are as follows for each planning year : replace_table_token_11_th performance incentive rules increase capacity payments for those resources that are providing excess energy or reserves during a shortage event , while penalizing those that produce less than the required level .
| results of operations vistra consolidated financial results — year ended december 31 , 2020 compared to year ended december 31 , 2019 and year ended december 31 , 2019 compared to year ended december 31 , 2018 replace_table_token_18_th replace_table_token_19_th 65 replace_table_token_20_th replace_table_token_21_th 66 in 2020 , our operating segments delivered strong operating performance with a disciplined focus on cost management , while generating and selling essential electricity in a safe and reliable manner during a period of significant economic disruption . our performance reflected the stability of our integrated model , including a diversified generation fleet , retail and commercial and hedging activities in support of our integrated business , to produce results that exceeded expectations and generated significant cash from operations of $ 3.337 billion for the year ended december 31 , 2020. the increase of 22 % versus 2019 was particularly strong given the general uncertainty in the overall economy and the challenges of dealing with covid-19 . consolidated results decreased $ 302 million to net income of $ 624 million in the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the change in results was driven by a $ 465 million pre-tax decrease in unrealized gains on commodity hedging transactions , a $ 356 million pre-tax impairment of assets related to our kincaid , zimmer and joppa/eei coal generation facilities and a $ 29 million pre-tax loss on disposal of our equity method investment in nelp , offset by strong operating results , particularly in the texas segment , and the addition of crius and ambit . see note 21 to the financial statements .
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the aggregate amounts of principal payable under the company 's debt obligations , for the five years subsequent to december 31 , 2013 and thereafter are as follows story_separator_special_tag this annual report contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . forward-looking statements are typically identified by use of terms such as “ may , ” “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ project , ” “ target , ” “ goal , ” “ plan , ” “ should , ” “ will , ” “ predict , ” “ potential , ” and similar expressions that convey the uncertainty of future events or outcomes . such statements involve known and unknown risks , uncertainties , and other factors which may cause the actual results , performance , or achievements of the company to be materially different from future results , performance or achievements expressed or implied by such forward-looking statements . such factors include , but are not limited to , the successful execution of the company 's recent mergers with apple reit seven , inc. and apple reit eight , inc. ; the ability of the company to implement its operating strategy ; changes in general political , economic and competitive conditions and specific market conditions ; adverse changes in the real estate and real estate capital markets ; financing risks ; the outcome of current and future litigation , regulatory proceedings or inquiries ; and changes in laws or regulations or interpretations of current laws and regulations that impact the company 's business , assets or classification as a real estate investment trust . although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate , and therefore there can be no assurance that such statements included in this annual report will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by the company or any other person that the results or conditions described in such statements or the objectives and plans of the company will be achieved . in addition , the company 's qualification as a real estate investment trust involves the application of highly technical and complex provisions of the internal revenue code . readers should carefully review the company 's financial statements and the notes thereto , as well as the risk factors described in the company 's filings with the securities and exchange commission ( “ sec ” ) and item 1a in this report . any forward-looking statement that the company makes speaks only as of the date of this report . the company undertakes no obligation to publically update or revise any forward-looking statements or cautionary factors , as a result of new information , future events , or otherwise , except as required by law . story_separator_special_tag million unsecured credit facility , which as of december 31 , 2013 had no borrowings outstanding and entered into a new $ 345 million unsecured credit facility ( comprised of a $ 245 million revolving credit facility and $ 100 million term loan ) and the company borrowed $ 150 million under the new facility which was used to repay apple seven and apple eight 's outstanding balances on their respective credit facilities and to pay closing costs . hotel operations although hotel performance can be influenced by many factors including local competition , local and general economic conditions in the united states and the performance of individual managers assigned to each hotel , performance of the hotels as compared to other hotels within their respective local markets , in general , has met the company 's expectations for the period owned . the hotel industry and the company continue to see improvement in both revenues and operating income as compared to the prior year . although there is no way to predict future general economic conditions , and there are several key factors that may continue to negatively affect the economic recovery in the united states and add to general market uncertainty , including but not limited to , the continued high levels of unemployment , the slow pace of the economic recovery in the united states and the ongoing uncertainty surrounding the national and local government fiscal policies ( including tax increases and potential government spending cuts ) , the company , both on a comparable and pro forma basis following the a7 and a8 mergers , is forecasting a mid-single digit percentage increase in revenue for 2014 as compared to 2013. in evaluating financial condition and operating performance , the most important indicators on which the company focuses are revenue measurements , such as average occupancy , average daily rate ( “ adr ” ) , revenue per available room ( “ revpar ” ) and market yield which compares an individual hotel 's results to others in its local market , and expenses , such as hotel operating expenses , general and administrative expenses and other expenses described below . 24 index the following is a summary of the results from continuing operations of the 89 hotels owned as of december 31 , 2013 for their respective periods of ownership by the company : replace_table_token_8_th ( 1 ) calculated from data provided by smith travel research , inc. ® excludes hotels under renovation or opened less than two years during the applicable periods . legal proceedings the apple reit entities , including the company , apple reit six , inc. , apple reit seven , inc. , apple reit eight , inc. and apple reit ten , inc. are currently subject to an appeal of the dismissal of one securities class action lawsuit . story_separator_special_tag the hilton franchise agreements generally provide for an initial term of 10 to 21 years . fees associated with the agreements generally include the payment of royalty fees and program fees based on room revenues . the marriott franchise agreements generally provide for initial terms of 13 to 28 years . fees associated with the agreements generally include the payment of royalty fees , marketing fees , reservation fees and a communications support fee based on room revenues . for the years ended december 31 , 2013 , 2012 and 2011 , the company incurred approximately $ 16.0 million , $ 14.5 million and $ 12.8 million in franchise royalty fees . results of operations for years 2013 and 2012 as of december 31 , 2013 , the company owned 89 hotels with 11,371 rooms ( including one newly constructed hotel acquired on may 31 , 2012 , the same day the hotel opened for business ) . no other hotels have been purchased since the beginning of january 1 , 2012. hotel performance is impacted by many factors , including the economic conditions in the united states as well as each locality . although hampered by government spending uncertainty , economic indicators in the united states have shown evidence of a sustainable recovery , which continues to overall positively impact the lodging industry . as a result , the company 's revenue and operating income improved during 2013 as compared to 2012 and the company expects continued improvement in revenue and operating income in 2014 as compared to 2013. the company 's hotels in general have shown results consistent with industry and brand averages for the period of ownership . revenues the company 's principal source of revenue is hotel revenue consisting of room and other related revenue . for the years ended december 31 , 2013 and 2012 , the company had hotel revenue of $ 388.0 million and $ 365.6 million , respectively . this revenue reflects hotel operations for the 89 hotels owned as of december 31 , 2013 for their respective periods of ownership by the company . for the years ended december 31 , 2013 and 2012 , the hotels achieved combined average occupancy of 74 % and 72 % , adr of $ 115 and $ 111 and revpar of $ 85 and $ 80. adr is calculated as room revenue divided by the number of rooms sold , and revpar is calculated as occupancy multiplied by adr . during the year ended 2013 , the company experienced an increase in demand as demonstrated by the improvement in average occupancy for its hotels of 3 % during 2013 as compared to 2012. in addition , also signifying a progressing economy , the company experienced an increase in adr of 4 % for its hotels during 2013 as compared to the prior year . although certain markets have been negatively impacted by reduced government spending , with overall continued demand and room rate improvement , the company , both on a comparable and pro forma basis following the a7 and a8 mergers , is forecasting a mid-single digit percentage increase in revenue for 2014 as compared to 2013. the company 's hotels continue to be leaders in their respective markets . the company 's average market yield for 2013 and 2012 was 122 and 120 , respectively . the market yield is a measure of each hotel 's revpar compared to the average in the market , with 100 being the average ( the index excludes hotels under renovation or open less than two years ) and is provided by smith travel research , inc.® , an independent company that tracks historical hotel performance in most markets throughout the world . the company will continue to pursue market opportunities to improve revenue . 28 index expenses hotel operating expenses relate to the 89 hotels owned as of december 31 , 2013 for their respective periods owned and consist of direct room expenses , hotel administrative expense , sales and marketing expense , utilities expense , repair and maintenance expense , franchise fees and management fees . for the years ended december 31 , 2013 and 2012 , hotel operating expenses totaled $ 220.2 million and $ 206.6 million , or 57 % of total revenue for each respective period . overall hotel operational expenses for 2013 reflect the impact of increases in revenues and occupancy at most of the company 's hotels , and the company 's efforts to control costs . certain operating costs such as management costs , certain utility costs and minimum supply and maintenance costs are relatively fixed in nature . the company has been successful in reducing , relative to revenue increases , certain labor costs , hotel supply costs , maintenance costs and utility costs by continually monitoring and sharing utilization data across its hotels and management companies . the company has experienced an increase in labor benefit costs compared to the prior year , which are likely to continue to grow at increased rates due to new government regulations surrounding healthcare . in addition , operating expenses were impacted by several hotel renovations with approximately 21,000 room nights out of service during 2013 and 22,000 during 2012. although operating expenses will increase as revenue increases , the company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property . property taxes , insurance , and other expense for the years ended december 31 , 2013 and 2012 totaled $ 20.9 million and $ 20.0 million , or 5 % of total revenue for each respective period . for comparable hotels , real estate taxes during the year ended december 31 , 2013 increased due to higher taxes for certain properties as a result of the reassessment of property values by localities and from the improved economy , partially offset by a decrease in 2013 due to successful appeals of tax assessments at certain locations .
| overview apple hospitality reit , inc. , formerly known as apple reit nine , inc. , together with its wholly owned subsidiaries ( the “ company ” ) , was formed to invest in income-producing real estate in the united states . the company was initially capitalized november 9 , 2007 , with its first investor closing on may 14 , 2008. the company completed its best-efforts offering of units ( each unit consists of one common share and one series a preferred share ) in december 2010. the company has elected to be treated as a real estate investment trust ( “ reit ” ) for federal income tax purposes . the company 's first hotel was acquired on july 31 , 2008. as of december 31 , 2013 , the company owned 89 hotels ( one acquired during 2012 , 11 acquired and one newly constructed hotel opened during 2011 , 43 acquired during 2010 , 12 acquired during 2009 and 21 acquired during 2008 ) . accordingly , the results of operations include only results from the date of ownership of the properties . recent mergers with apple reit seven , inc. and apple reit eight , inc. effective march 1 , 2014 , the company completed its previously announced mergers with apple reit seven , inc. ( “ apple seven ” ) and apple reit eight , inc. ( “ apple eight ” ) ( the “ a7 and a8 mergers ” ) . pursuant to the agreement and plan of merger entered into on august 7 , 2013 , as amended ( the “ merger agreement ” ) , apple seven and apple eight merged with and into apple seven acquisition sub , inc. ( “ seven acquisition sub ” ) , a wholly owned subsidiary of the company and apple eight acquisition sub , inc. ( “ eight acquisition sub ” ) , a wholly owned subsidiary of the company , respectively .
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97 resolute forest products inc. notes to consolidated financial statements note 8. inventories , net inventories , net as of december story_separator_special_tag the following management 's discussion and analysis is intended to help the reader understand resolute forest products , our results of operations , cash flows and financial condition . the discussion is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes ( or the “ consolidated financial statements ” ) contained in item 8 - financial statements and supplementary data of this annual report on form 10-k ( or “ form 10-k ” ) . when we refer to “ resolute forest products , ” “ we , ” “ our , ” “ us ” or the “ company , ” we mean resolute forest products inc. with its subsidiaries and affiliates , either individually or collectively , unless otherwise indicated . o verview resolute forest products is a global leader in the forest products industry with a diverse range of products , including market pulp , tissue , wood products , newsprint and specialty papers , which are marketed in over 70 countries . the company owns or operates over 40 pulp , paper , tissue and wood products facilities , as well as power generation assets in the united states and canada . we are the largest canadian producer of wood products east of the canadian rockies and one of the most significant pulp producers in north america . by capacity , we are the number one producer of newsprint in the world and the largest producer of uncoated mechanical papers in north america . we are also an emerging tissue producer . we report our activities in five business segments : market pulp , tissue , wood products , newsprint and specialty papers . we are guided by our vision and values , focusing on safety , profitability , accountability , sustainability and teamwork . these are the elements that we believe best define us : competitive cost structure and diversified asset base - through our large-scale , efficient and integrated operations , competitive sources of energy and fiber , strategically located mills , and cost-effective management structure , we believe we are well positioned to compete in the global marketplace . we maintain a rigorous focus on reducing costs , optimizing production across our network , adjusting to market dynamics , as well as capitalizing on our access to international markets . conservative capital structure - our low debt and solid liquidity levels are key to our continued transformation to a more sustainable company . in order to maintain financial strength and flexibility , we continue to spend our capital in a disciplined , strategic and focused manner , concentrating on our most successful sites . strategic perspectives - we pursue initiatives that improve our cost position , advance diversification , provide synergies or position us to expand into future growth markets . all are key to our long-term success . to that end , we take an opportunistic approach that aligns with our strategic plan and that we believe positions us favorably for the long-term evolution of the paper and forest products industry . 24 our business products we operate seven pulp mills , five in the u.s. and two in canada , with total capacity of 1.7 million metric tons , or approximately 10 % of total north american capacity , making us the third largest pulp producer in north america . approximately 80 % of our virgin pulp capacity is softwood-based : northern bleached softwood kraft ( or “ nbsk ” ) pulp , southern bleached softwood kraft ( or “ sbsk ” ) pulp and fluff pulp . we are also the world 's largest producer of recycled bleached kraft ( or “ rbk ” ) pulp and a competitive producer of northern bleached hardwood kraft ( or “ nbhk ” ) pulp and southern bleached hardwood kraft ( or “ sbhk ” ) pulp . wood pulp is the most commonly used material to make paper . pulp not converted into paper is sold as market pulp , which is used to make a range of consumer products including tissue , packaging , specialty paper products , diapers and other absorbent products . approximately 27 % of our 2016 market pulp shipments were exported outside of north america , including significant exports to europe , asia and latin america . we produce tissue products at two facilities in north america , both located in florida . with total capacity of 62,000 short tons ( 56,000 metric tons ) , we are a fully integrated manufacturer operating three tissue machines and 11 converting lines . we manufacture a range of tissue products for the away-from-home and at-home markets , including recycled and virgin paper products , covering premium , value and economy grades . we also sell parent rolls not converted into tissue products . during the first quarter of 2017 , we expect to start another tissue machine , at our facility in calhoun , tennessee , which will manufacture premium and ultra-premium tissue products and have a total annual capacity of 66,000 short tons ( 60,000 metric tons ) . three additional converting lines are in operation at calhoun . in 2016 , we shipped 1.7 billion board feet of construction-grade lumber within north america , mostly on the east coast . our sawmills produce dimension spruce-pine-fir lumber and provide wood chips to our pulp and paper mills in canada . our sawmills also supply wood residue to our other segments , to be used as fuel to produce renewable electricity and steam . we also operate two remanufactured wood products facilities that manufacture bed frame components , finger joints and furring strips , two engineered wood products facilities that manufacture i-joists for the construction industry , and one wood pellet facility , all of which are located in canada . story_separator_special_tag this significant strategic decision supports our firm belief in adding value through the integration of our market pulp , particularly as paper utilization continues its steady decline . in addition , we believe that the tissue market will provide a more stable source of revenue and profitability . our atlas tissue operations are now almost entirely supplied from our pulp mills , creating synergies and effectively mitigating risks associated with volatile market pulp pricing . for our new tissue facility at calhoun , we believe that integration benefits will be even stronger , as local pulp production will be directly transferred as slush pulp into the tissue operation , eliminating significant process , handling and logistics costs . equipped with three modern converting lines sized specifically for the tissue machine , we expect to sell only converted products from the calhoun tissue facility , targeting the fast growing premium private-label markets of the united states . 28 our transformation since 2011 is summarized below : ( 1 ) by acquiring fibrek inc. , we grew our market pulp capacity by over 70 % , increasing our presence in a market that we believe will continue to grow over the long term . ( 2 ) we installed a 65 mw steam turbine at our thunder bay pulp and paper mill , which reduces the mill 's energy costs as well as maximizes our local woodlands , sawmill , pulp and paper , and energy operations by fully utilizing forest-based biomass to produce green electricity . ( 3 ) including our ignace and atikokan sawmills in northern ontario , as well as the acquisition of a second sawmill in senneterre , we have added approximately 400 million board feet of annualized wood products capacity since 2014 . ( 4 ) we acquired atlas tissue , gaining an immediate position in the north american consumer tissue market and tissue industry experience for the execution of the planned calhoun tissue expansion . ( 5 ) we completed a $ 100 million project to build a continuous pulp digester at the calhoun pulp and paper mill . when the digester reaches full capacity , we expect to have an additional 100,000 metric tons of market pulp available on an annualized basis . this incremental capacity will also serve to supply slush pulp to our new calhoun tissue machine ( see note 6 below ) . ( 6 ) we commissioned all three converting lines installed at the calhoun tissue facility . converting capacity will be operational for the targeted start-up of the tissue machine during the first quarter of 2017. the new facility will have a total annualized capacity of 66,000 short tons ( 60,000 metric tons ) of at-home , premium bathroom tissue and toweling products , focused on the growing private-label market . 29 capital management we make capital management a priority . building on our focus to reduce manufacturing costs , we will continue our efforts to decrease overhead and spend our capital in a disciplined , strategic and focused manner , concentrated on our most successful sites . maintaining our strong financial position and financial flexibility is one of our primary financial goals . in 2013 , we refinanced the remaining balance of our senior secured notes with 5.875 % senior unsecured notes due 2023 ( or the “ 2023 notes ” ) . in addition to adding five years to maturity , the refinancing reduced our annual cash interest burden by $ 16 million and improves our financial flexibility . in 2015 , we refinanced our senior secured asset-based revolving credit facility ( or “ abl credit facility ” ) . the new five-year credit agreement provides more flexible terms and conditions , improves pricing and immediately lowers our cost of capital , to better support the execution of our growth and diversification initiatives . in 2016 , we entered into a senior secured credit facility ( or “ senior secured credit facility ” ) for up to $ 185 million , comprised of a $ 46 million nine-year term loan ( or “ term loan ” ) and a $ 139 million six-year revolving credit facility ( or “ revolving credit facility ” ) . this new facility increases our liquidity levels and will further enhance our flexibility in the execution of our growth and diversification strategy . in 2014 , we modified our u.s. other postretirement benefit ( or “ opeb ” ) plans to encourage greater participation in a medicare exchange program . in addition to securing high-quality healthcare for participants , this modification , along with similar initiatives undertaken since mid-2013 , helped to reduce our u.s. opeb liability on the balance sheet from $ 250 million to $ 77 million as of december 31 , 2014. in 2016 , following an amendment to the regulations that govern our material canadian registered pension plans ( or “ funding relief regulations ” ) in the province of ontario , we voluntarily exited the quebec funding relief regulation . as a result , since january 1 , 2017 , our pension plans in quebec are subject to quebec 's supplemental pension plans act , as amended ( or “ sppa ” ) , which provides for funding pension deficits on a going concern basis . our annual basic contribution to the ontario plans under funding relief regulation will be fixed at cdn $ 9 million , from july 2017 through december 2020. these changes are expected to reduce the volatility in the amount of the company 's contributions as well as the amount of contributions required until 2020. when compared to the baseline contributions of 2016 , we estimate that pension contributions will drop by approximately $ 127 million between 2017 and 2020. sustainable performance and development our sustainability strategy is based on a balanced approach to environmental , social and economic performance , designed to enhance our competitive position .
| highlights replace_table_token_30_th replace_table_token_31_th ( 1 ) net income ( loss ) including noncontrolling interests is equal to operating income ( loss ) in this segment . ( 2 ) ebitda , a non-gaap financial measure , is reconciled below . for more information on the calculation and reasons we include this measure , see note 1 under “ results of operations – consolidated results – selected annual financial information ” above . replace_table_token_32_th industry trends demand for uncoated mechanical papers in 2016 was down by 6.2 % in north america . sc and standard papers were down by 9.6 % and 1.9 % , respectively . industry production was down by 6.3 % , keeping operating rates at around 90 % . 58 north american coated mechanical demand was down by 6.2 % in 2016. after retreating in the first half of the year , imports rose significantly in the latter part of 2016 , pushed by weaker global currencies compared to the u.s. dollar , and declining demand in western europe . north american production was also down significantly , by 245,000 short tons ( 222,000 metric tons ) , which represented a reduction of 8.4 % . consequently , operating rates in north america were 93 % . operational performance 59 2016 vs. 2015 operating income variance analysis sales specialty paper sales decreased by $ 89 million , or 8 % , to $ 1,015 million in 2016 . the average transaction price dropped by $ 28 per short ton as a result of lower market prices across all grades , but mostly for coated mechanical and sc grades . shipments were 66,000 short tons ( 60,000 metric tons ) lower , or 4 % . we recorded 22,000 short tons ( 20,000 metric tons ) of downtime in 2016 , compared to 66,000 short tons ( 60,000 metric tons ) in the prior year . that year included downtime related to a paper machine at our alma , quebec , mill , which has since been permanently closed .
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in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ might , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ project , ” “ believe , ” “ estimate , ” “ predict , ” “ potential , ” “ intend ” or “ continue , ” the negative of terms like these or other comparable terminology , and other words or terms of similar meaning in connection with any discussion of future operating or financial performance . these statements are only predictions . all forward-looking statements included in this annual report on form 10-k are based on information available to us on the date hereof , and we assume no obligation to update any such forward-looking statements . any or all of our forward-looking statements in this document may turn out to be wrong . actual events or results may differ materially . our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks , uncertainties and other factors . we discuss many of these risks , uncertainties and other factors in this annual report on form 10-k in greater detail in “ part i item 1a—risk factors. ” we caution investors that our business and financial performance are subject to substantial risks and uncertainties . you should read the following discussion and analysis in conjunction with the selected financial data and our consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview seattle genetics is a biotechnology company that develops and commercializes therapies targeting cancer . we are commercializing adcetris ® , or brentuximab vedotin , for the treatment of certain cd30-expressing lymphomas , and padcev tm , or enfortumab vedotin-ejfv , for the treatment of certain metastatic urothelial cancers . additionally , we have submitted applications to the fda , ema and other regulatory agencies requesting approval of tucatinib for the treatment of patients with her2-positive metastatic breast cancer . we are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients . many of our programs , including adcetris and padcev , are based on our antibody-drug conjugate , or adc , technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells . we are headquartered in bothell , washington , and have offices in california , switzerland and the european union . also refer to part i item 1 “ business ” for more information about our products , pipeline , technologies , research programs , including key events in 2019 and 2020 to date and future plans for our clinical programs . 75 outlook we recognize revenue from adcetris product sales in the u.s. and canada and padcev products sales in the u.s. while adcetris product sales have grown over time , and our future plans assume that sales of adcetris will increase , we expect lower sales growth for adcetris in 2020 as compared to growth in 2019. we can not assure you that adcetris sales will continue to grow or that we can maintain sales of adcetris at or near current levels . we expect that our ability to continue to grow our adcetris sales , if at all , will depend primarily on our ability to establish or demonstrate to the medical community the value of adcetris and its potential advantages compared to existing and future therapeutics in its approved indications , including in the frontline hodgkin lymphoma and ptcl indications , and the extent to which physicians make prescribing decisions with respect to adcetris . other important factors affecting adcetris sales include the extent to which takeda obtains further regulatory approvals of adcetris in its territories , the incidence flow of patients eligible for treatment in adcetris ' approved indications , the extent to which coverage and adequate levels of reimbursement for adcetris are available from governments and other third-party payors , the impact of any healthcare reform measures that may be adopted in the future , including measures that could potentially result in more rigorous coverage criteria and additional downward pressure on the price that we receive for adcetris , increasing competition from competing therapies and the potential future approval of adcetris in any additional indications . in addition , as a result of these and other factors , our future adcetris product sales can be difficult to accurately predict from period to period . our ability to realize the anticipated benefits from our investment in padcev is subject to a number of risks and uncertainties , including our and astellas ' ability to successfully jointly launch , market and commercialize padcev in the u.s. in its approved indication , the extent to which we and astellas are able to obtain regulatory approvals of padcev in additional indications , including in the frontline metastatic urothelial cancer setting , and in territories outside the u.s. , our ability and astellas ' ability to successfully comply with rigorous post-marketing requirements , including the successful completion of the required confirmatory post-marketing study that we and astellas are subject to as a result of an accelerated approval by the fda , the acceptance of padcev by the medical community and patients , the extent to which physicians make prescribing decisions with respect to padcev , the incidence flow of patients eligible for treatment in padcev 's approved indication , the duration of therapy for patients receiving padcev , the extent to which coverage and adequate levels of reimbursement for padcev are available from governments and other third-party payors , the impact of any healthcare reform measures that may be adopted in the future , including measures that could potentially result in more rigorous coverage criteria and additional downward pressure on the price that we receive for padcev and potential competition from competing therapies . 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 our basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from those estimates under different assumptions and conditions . revenue recognition . our revenues are comprised of adcetris and padcev net product sales , amounts earned under our collaboration and licensing agreements , and royalties . revenue recognition occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services . the period between when we transfer control of promised goods or services and when we receive payment is expected to be one year or less , and that expectation is consistent with our historical experience . as such , we do not adjust our revenues for the effects of a significant financing component . we apply significant judgment to our estimates in the following revenue recognition areas , each as discussed in more detail in the corresponding sections after this list : net product sales - sales deductions related to government-mandated rebates and chargebacks , such as for the medicaid and 340b programs collaboration and license agreement revenues - assessing the probability of future reversal of variable consideration and evaluating whether contractual obligations represent distinct performance obligations royalty revenues - estimating takeda 's net sales of adcetris and genentech 's net sales of polivy to the extent actual information is not available net product sales we sell adcetris through a limited number of specialty distributors in the u.s. and canada . we and our collaboration partner astellas jointly sell padcev through a limited number of specialty distributors in the u.s. customers order our products through these distributors , and we typically ship product directly to the customer . the 78 delivery of our products represents a single performance obligation for these transactions and we record product sales at the point in time when title and risk of loss pass , which generally occurs upon delivery of the product to the customer . the transaction price for product sales represents the amount we expect to receive , which is net of estimated government-mandated rebates and chargebacks , distribution fees , estimated product returns , and other deductions . accruals are established for these deductions , and actual amounts incurred are offset against applicable accruals . we reflect these accruals as either a reduction in the related account receivable from the distributor or as an accrued liability , depending on the nature of the sales deduction . sales deductions are based on management 's estimates that consider payor mix in target markets and experience to-date . these estimates involve a substantial degree of judgment . we have applied a portfolio approach as a practical expedient for estimating net product sales . government-mandated rebates and chargebacks : we have entered into a medicaid drug rebate agreement , or mdra , with the centers for medicare & medicaid services . this agreement provides for a rebate based on covered purchases of our products . medicaid rebates are invoiced to us by the various state medicaid programs . we estimate medicaid rebates using the expected value approach , based on a variety of factors , including payor mix and our experience to-date . we have a federal supply schedule , or fss , agreement under which certain u.s. government purchasers receive a discount on eligible purchases of our products . in addition , we have entered into a pharmaceutical pricing agreement with the secretary of health and human services , which enables certain entities that qualify for government pricing under the public health services act , or phs , to receive discounts on their qualified purchases of our products . under these agreements , distributors process a chargeback to us for the difference between wholesale acquisition cost and the applicable discounted price . as a result of our direct-ship distribution model , we can identify the entities purchasing our products and this information enables us to estimate expected chargebacks for fss and phs purchases based on the expected value of each entity 's eligibility for the fss and phs programs . we also review historical rebate and chargeback information to further refine these estimates . distribution fees , product returns and other deductions : our distributors charge a volume-based fee for distribution services that they perform for us . we allow for the return of product that is within 30 days of its expiration date or that is damaged , or within 90 days past expiration date . we estimate product returns based on our experience to-date using the expected value approach . in addition , we consider our direct-ship distribution model , our belief that product is not typically held in the distribution channel , and the expected rapid use of the product by healthcare providers . we provide financial assistance to qualifying patients that are underinsured or can not cover the cost of commercial coinsurance amounts through seagen secure . seagen secure is available to patients in the u.s. and its territories who meet various financial and treatment need criteria . estimated contributions for commercial coinsurance under seagen secure are deducted from gross sales and are based on an analysis of expected plan utilization . these estimates are adjusted as necessary to reflect our actual experience . collaboration and license agreement revenues we have collaboration and license agreements for our adc technology with a number of biotechnology and pharmaceutical companies . under these agreements , which we have entered into in the ordinary course of business , we typically receive or are entitled to receive upfront cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events , and annual maintenance fees and support fees for research and development services and materials provided under the agreements .
| financial summary for 2019 , our total revenues increase d to $ 916.7 million , compared to $ 654.7 million in 2018 . this increase was driven primarily by 32 % higher adcetris net product sales . net product sales of adcetris increased to $ 627.7 million in 2019 as compared to $ 476.9 million in 2018 , primarily driven by adcetris label expansions received during 2018. collaboration and license agreement revenues increase d to $ 150.2 million in 2019 as compared to $ 94.4 million in 2018 , primarily driven by the achievement of various regulatory and development milestones in 2019 as well as revenues earned under a license agreement executed in 2019. royalty revenues increase d to $ 138.5 million in 2019 as compared to $ 83.4 million in 2018 , primarily driven by takeda 's achievement of a sales-based milestone during 2019. for 2019 , total costs and expenses increase d to $ 1,137.3 million , compared to $ 914.7 million in 2018 . this primarily reflected higher research and development expenses , due to continued investment in our late-stage pipeline , as well as higher sales , general , and administrative cost related to staffing , to support our commercialized products , and for our late-stage product candidates . for 2019 , net loss of $ 158.7 million was favorably impacted by a net gain of $ 50.1 million from the change in the fair value of our equity securities . as of december 31 , 2019 , we had $ 868.3 million in cash , cash equivalents and investments and $ 1.9 billion in total stockholders ' equity . comparability we adopted asc topic 842—leases on january 1 , 2019 , resulting in a change to our accounting policy for leases .
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interest expense represents amounts we incur on our outstanding indebtedness at the then-applicable interest rate . 43 income tax expense . we incur federal , state , and local income tax expense . critical accounting policies understanding our accounting policies is key to understanding our financial statements . management considers some of these policies to be very important to the presentation of our financial results because they require us to make significant estimates and assumptions . these estimates and assumptions affect the reported amounts of our assets , liabilities , revenues and expenses and related disclosures . some of the estimates result from judgments that can be subjective and complex and , consequently , actual results in future periods might differ from these estimates . management believes that the most critical accounting policies relate to the reporting of reserves for loss and loss adjustment expenses , including losses that have occurred but have not been reported prior to the reporting date , amounts recoverable from reinsurers , premiums receivable , assessments , deferred policy acquisition costs , deferred income taxes , the impairment of investment securities and share-based compensation . the following is a description of our critical accounting policies . reserves for loss and loss adjustment expenses . we record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses , which include defense and cost containment , or dcc , and adjusting and other , or ao expenses , related to the investigation and settlement of policy claims . our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances . our reserves for loss and dcc expenses are estimated using case-by-case valuations based on our estimate of the most likely outcome of the claim at that time . in addition to these case reserves , we establish reserves on an aggregate basis that have been incurred but not reported , or ibnr . our ibnr reserves are also intended to provide for aggregate changes in case incurred amounts as well as for recently reported claims which an initial case reserve has not been established . the third component of our reserves for loss and loss adjustment expenses is our ao reserve . our ao reserve is established for those future claims administration costs that can not be allocated directly to individual claims . the final component of our reserves for loss and loss adjustment expenses is the reserve for mandatory pooling arrangements . in establishing our reserves , we review the results of analyses using actuarial methods that utilize historical loss data from our more than 29 years of underwriting workers ' compensation insurance . the actuarial analysis of our historical data provides the factors we use in estimating our loss reserves . these factors are primarily measures over time of the number of claims paid and reported , average paid and incurred claim amounts , claim closure rates and claim payment patterns . in evaluating the results of our analyses , management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses , including changes in business mix , claims management , regulatory issues , medical trends , employment and wage patterns , insurance policy coverage interpretations , judicial determinations and other subjective factors . due to the inherent uncertainty associated with these estimates , and the cost of incurred but unreported claims , our actual liabilities may vary significantly from our original estimates . on a quarterly basis , we review our reserves for loss and loss adjustment expenses to determine whether adjustments are required . any resulting adjustments are included in the results for the current period . in establishing our reserves , we do not use loss discounting , which would involve recognizing the time value of money and offsetting estimates of future payments by future expected investment income . additional information regarding our reserves for loss and loss adjustment expenses and the actuarial method and other factors used in establishing these reserves can be found under the caption businessloss reserves in item 1 of this report . amounts recoverable from reinsurers . amounts recoverable from reinsurers represent the portion of our paid and unpaid loss and loss adjustment expenses that are assumed by reinsurers and related commissions due 44 from reinsurers . these amounts are separately reported on our balance sheet as assets and do not reduce our reserves for loss and loss adjustment expenses because reinsurance does not relieve us of liability to our policyholders . we are required to pay claims even if a reinsurer fails to pay us under the terms of a reinsurance contract . we calculate amounts recoverable from reinsurers based on our estimates of the underlying loss and loss adjustment expenses , as well as the terms and conditions of our reinsurance contracts , which could be subject to interpretation . in addition , we bear credit risk with respect to our reinsurers , which can be significant because some of the unpaid loss and loss adjustment expenses for which we have reinsurance coverage remain outstanding for extended periods of time . premiums receivable . premiums receivable represents premium-related balances due from our policyholders based on annual premiums for policies written , including surcharges and deposits and adjustments for premium audits , endorsements , cancellations , cash transactions and charge offs . the balance is shown net of the allowance for doubtful accounts and includes an estimate for ebub . the ebub estimate is subject to significant variability and can either increase or decrease premiums receivable and earned premiums based upon several factors , including changes in premium growth , industry mix and economic conditions . ebub assumptions include historical development factors , current economic outlook and current trends in particular sectors of our business . assessments . we story_separator_special_tag interest expense represents amounts we incur on our outstanding indebtedness at the then-applicable interest rate . 43 income tax expense . we incur federal , state , and local income tax expense . critical accounting policies understanding our accounting policies is key to understanding our financial statements . management considers some of these policies to be very important to the presentation of our financial results because they require us to make significant estimates and assumptions . these estimates and assumptions affect the reported amounts of our assets , liabilities , revenues and expenses and related disclosures . some of the estimates result from judgments that can be subjective and complex and , consequently , actual results in future periods might differ from these estimates . management believes that the most critical accounting policies relate to the reporting of reserves for loss and loss adjustment expenses , including losses that have occurred but have not been reported prior to the reporting date , amounts recoverable from reinsurers , premiums receivable , assessments , deferred policy acquisition costs , deferred income taxes , the impairment of investment securities and share-based compensation . the following is a description of our critical accounting policies . reserves for loss and loss adjustment expenses . we record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses , which include defense and cost containment , or dcc , and adjusting and other , or ao expenses , related to the investigation and settlement of policy claims . our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances . our reserves for loss and dcc expenses are estimated using case-by-case valuations based on our estimate of the most likely outcome of the claim at that time . in addition to these case reserves , we establish reserves on an aggregate basis that have been incurred but not reported , or ibnr . our ibnr reserves are also intended to provide for aggregate changes in case incurred amounts as well as for recently reported claims which an initial case reserve has not been established . the third component of our reserves for loss and loss adjustment expenses is our ao reserve . our ao reserve is established for those future claims administration costs that can not be allocated directly to individual claims . the final component of our reserves for loss and loss adjustment expenses is the reserve for mandatory pooling arrangements . in establishing our reserves , we review the results of analyses using actuarial methods that utilize historical loss data from our more than 29 years of underwriting workers ' compensation insurance . the actuarial analysis of our historical data provides the factors we use in estimating our loss reserves . these factors are primarily measures over time of the number of claims paid and reported , average paid and incurred claim amounts , claim closure rates and claim payment patterns . in evaluating the results of our analyses , management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses , including changes in business mix , claims management , regulatory issues , medical trends , employment and wage patterns , insurance policy coverage interpretations , judicial determinations and other subjective factors . due to the inherent uncertainty associated with these estimates , and the cost of incurred but unreported claims , our actual liabilities may vary significantly from our original estimates . on a quarterly basis , we review our reserves for loss and loss adjustment expenses to determine whether adjustments are required . any resulting adjustments are included in the results for the current period . in establishing our reserves , we do not use loss discounting , which would involve recognizing the time value of money and offsetting estimates of future payments by future expected investment income . additional information regarding our reserves for loss and loss adjustment expenses and the actuarial method and other factors used in establishing these reserves can be found under the caption businessloss reserves in item 1 of this report . amounts recoverable from reinsurers . amounts recoverable from reinsurers represent the portion of our paid and unpaid loss and loss adjustment expenses that are assumed by reinsurers and related commissions due 44 from reinsurers . these amounts are separately reported on our balance sheet as assets and do not reduce our reserves for loss and loss adjustment expenses because reinsurance does not relieve us of liability to our policyholders . we are required to pay claims even if a reinsurer fails to pay us under the terms of a reinsurance contract . we calculate amounts recoverable from reinsurers based on our estimates of the underlying loss and loss adjustment expenses , as well as the terms and conditions of our reinsurance contracts , which could be subject to interpretation . in addition , we bear credit risk with respect to our reinsurers , which can be significant because some of the unpaid loss and loss adjustment expenses for which we have reinsurance coverage remain outstanding for extended periods of time . premiums receivable . premiums receivable represents premium-related balances due from our policyholders based on annual premiums for policies written , including surcharges and deposits and adjustments for premium audits , endorsements , cancellations , cash transactions and charge offs . the balance is shown net of the allowance for doubtful accounts and includes an estimate for ebub . the ebub estimate is subject to significant variability and can either increase or decrease premiums receivable and earned premiums based upon several factors , including changes in premium growth , industry mix and economic conditions . ebub assumptions include historical development factors , current economic outlook and current trends in particular sectors of our business . assessments . we
| overview of operating results year ended december 31 , 2014 compared to year ended december 31 , 2013 gross premiums written . gross premiums written for 2014 were $ 393.8 million , compared to $ 372.2 million for 2013 , an increase of 5.8 % . the increase was attributable to a $ 16.3 million increase in annual premiums on voluntary policies written during the period , a $ 1.3 million increase in premiums from mandatory pooling arrangements , and a $ 0.8 million increase in direct assigned risk premiums and a $ 3.3 million increase in premiums resulting from payroll audits and related premium adjustments . related premium adjustments in 2014 include a $ 0.9 million increase in earned but unbilled , or ebub , premium . net premiums written . net premiums written for 2014 were $ 380.0 million , compared to $ 353.8 million for 2013 , an increase of 7.4 % . the increase was primarily attributable to the increase in gross premiums written . as a percentage of gross premiums earned , ceded premiums were 3.5 % for 2014 compared to 5.3 % for 2013. net premiums earned . net premiums earned for 2014 were $ 375.7 million , compared to $ 330.0 million for 2013 , an increase of 13.9 % . the increase was attributable to the increase in net premiums written . net investment income . net investment income in 2014 was $ 27.2 million , an increase of 0.7 % from the $ 27.0 million reported in 2013. the pre-tax investment yield on our investment portfolio was 2.6 % per annum for 2014 and 2.8 % for 2013. the tax-equivalent yield on our investment portfolio was 3.5 % per annum for 2014 , compared to 3.9 % per annum for 2013. the tax-equivalent yield is calculated using the effective interest rate and a 35 % marginal tax rate .
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deloitte & touche llp minneapolis , minnesota february 12 , 2020 f-4 northwestern corporation consolidated statements of income ( in thousands , except per share amounts ) replace_table_token_26_th see notes to consolidated financial statements story_separator_special_tag the following includes a discussion of our results of operations and cash flows for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , on both a consolidated basis and on a segment basis . for a discussion of our financial results and cash flows for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 , see management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the year ended december 31 , 2018 . this should be read in conjunction with item 6. selected financial data and our consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. for additional information related to our segments , see note 20 - segment and related information , to the consolidated financial statements , which is included in item 8 herein . for information regarding our revenues , net income and assets , see our consolidated financial statements included in item 8. overview northwestern corporation , doing business as northwestern energy , provides electricity and or natural gas to approximately 734,800 customers in montana , south dakota and nebraska . as you read this discussion and analysis , refer to our consolidated statements of income , which present the results of our operations for 2019 , 2018 and 2017 . following is a discussion of our strategy and significant trends . we are working to deliver safe , reliable and innovative energy solutions that create value for customers , communities , employees and investors . this includes bridging our history as a regulated utility safely providing low-cost and reliable service with our future as a globally-aware company offering a broader array of services performed by highly-adaptable and skilled employees . we seek to deliver value to our customers by providing high reliability and customer service , and an environmentally sustainable generation mix at an affordable price . we are focused on delivering long-term shareholder value by continuing to invest in our system including : infrastructure investment focused on a stronger and smarter grid to improve the customer experience , while enhancing grid reliability and safety . this includes automation in distribution and substations that enables the use of changing technology . integrating supply resources that balance reliability , cost , capacity , and sustainability considerations with more predictable long-term commodity prices . continually improving our operating efficiency . financial discipline is essential to earning our authorized return on invested capital and maintaining a strong balance sheet , stable cash flows , and quality credit ratings . we expect to pursue these investment opportunities and manage our business in a manner that allows us to be flexible in adjusting to changing economic conditions by adjusting the timing and scale of the projects . 31 how we performed in 2019 compared to our 2018 results replace_table_token_7_th consolidated net income in 2019 was $ 202.1 million as compared with $ 197.0 million in 2018 . this increase was primarily due to a reduction in revenue in 2018 due to the impact of the tax cuts and jobs act regulatory settlements , higher volumes due to colder winter weather and customer growth , and a larger income tax benefit in 2019. these improvements were partly offset by the adjustment of our electric qf liability and higher operating expenses . significant trends and regulation electric resource planning - montana in august 2019 , we issued our final 2019 electricity supply resource procurement plan ( montana resource plan ) that included responses to public comments . the montana resource plan supports the goal of developing resources that will address the changing energy landscape in montana to meet our customers ' electric energy needs in a reliable and affordable manner . we are currently 630 mw short of our peak needs , which we procure in the market . we forecast that our energy portfolio will be 725 mw short by 2025 , considering expiring contracts and a modest increase in customer demand . based on our customers ' future energy resource needs as identified in the montana resource plan , we issued an all-source competitive solicitation request in february 2020 for up to 280 mws of peaking and flexible capacity to be available for commercial operation in early 2023. an independent evaluator is being used to administer the solicitation process and evaluate proposals , with the successful project ( s ) selected by the first quarter of 2021. we expect the process will be repeated in subsequent years to provide a resource-adequate energy and capacity portfolio by 2025. the proposed solicitation process will allow us to consider a wide variety of resource options . these options include power purchase agreements and owned energy resources comprised of different structures , terms and technologies that are cost-effective resources . the staged approach is designed to allow for incremental steps through time with opportunities for different resource type of new technologies while also building a reliable portfolio to meet local and regional conditions and minimizing customer impacts . 32 proposed colstrip unit 4 capacity acquisition - in february 2020 , we filed an application for pre-approval with the mpsc to acquire puget sound energy 's 25 % interest , 185 megawatts of generation , in colstrip unit 4 for one dollar . in addition , we are seeking approval to sell 90 megawatts to puget sound energy for roughly 5 years at a price indexed to hourly prices at the mid-columbia power hub , with a price floor reflecting the recovery of fixed operating and maintenance costs and variable generation costs . story_separator_special_tag hazard trees are those trees that are structurally unsound and could fall into our lines if the trees failed . hazard trees may be located inside or outside our electric transmission and distribution lines ' rights of way and pose 34 risks to our system including disruption of service , property damage , loss of life , and or fires . we worked with third parties , including the u.s. forest service , to develop a plan to remove these hazard trees and began work in 2018. the work related to this initiative is reflected in operating expenses in the consolidated income statements . during 2019 and 2018 , we incurred approximately $ 7.5 million and $ 3.3 million , respectively , in costs , which is incremental to costs for vegetation management within our rights of way . we expect to continue the program over the next several years with anticipated 2020 costs ranging from approximately $ 4 million to $ 5 million , with cumulative operating expense for the program exceeding $ 20 million . results of operations our consolidated results include the results of our divisions and subsidiaries constituting each of our business segments . the overall consolidated discussion is followed by a detailed discussion of gross margin by segment . non-gaap financial measure the following discussion includes financial information prepared in accordance with gaap , as well as another financial measure , gross margin , that is considered a “ non-gaap financial measure. ” generally , a non-gaap financial measure is a numerical measure of a company 's financial performance , financial position or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . we define gross margin as revenues less cost of sales as presented in our consolidated statements of income . the following discussion includes a reconciliation of gross margin to operating revenues , the most directly comparable gaap measure . management believes that gross margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory mechanisms . this information is intended to enhance an investor 's overall understanding of results . under our various state regulatory mechanisms , as detailed below , our supply costs are generally collected from customers . in addition , gross margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow recovery of operating costs , as well as to analyze how changes in loads ( due to weather , economic or other conditions ) , rates and other factors impact our results of operations . our gross margin measure may not be comparable to that of other companies ' presentations or more useful than the gaap information provided elsewhere in this report . factors affecting results of operations our revenues may fluctuate substantially with changes in supply costs , which are generally collected in rates from customers . in addition , various regulatory agencies approve the prices for electric and natural gas utility service within their respective jurisdictions and regulate our ability to recover costs from customers . revenues are also impacted by customer growth and usage , the latter of which is primarily affected by weather . very cold winters increase demand for natural gas and to a lesser extent , electricity , while warmer than normal summers increase demand for electricity , especially among our residential and commercial customers . we measure this effect using degree-days , which is the difference between the average daily actual temperature and a baseline temperature of 65 degrees . heating degree-days result when the average daily temperature is less than the baseline . cooling degree-days result when the average daily temperature is greater than the baseline . the statistical weather information in our regulated segments represents a comparison of this data . 35 story_separator_special_tag font-size:10pt ; '' > higher technology costs associated with security measures and maintenance agreements ; higher employee benefit costs due primarily to increased pension expense as a result of higher funding of our montana plan , partly offset by lower medical costs ; and higher costs associated with preparation to enter the western eim . the change in consolidated operating , general and administrative expenses also includes the following items that had no impact on net income : the regulatory treatment of the non-service cost components of pension and postretirement benefit expense , which is offset in other income ; 38 lower operating expenses included in trackers recovered through revenue ; and a change in value of non-employee directors deferred compensation due to changes in our stock price , offset in other income . property and other taxes were $ 171.9 million in 2019 , as compared with $ 171.3 million in 2018 . this increase was primarily due to plant additions and higher estimated property valuations in montana . depreciation and depletion expense was $ 172.9 million in 2019 , as compared with $ 174.5 million in 2018 . this decrease was primarily due to the depreciation adjustment consistent with the final order in our montana electric rate case , as discussed above , partly offset by plant additions . consolidated operating income in 2019 was $ 276.9 million as compared with $ 266.3 million in 2018 . this increase was primarily due to higher gross margin , as discussed above , offset in part by the overall increase in operating , general , and administrative expenses . consolidated interest expense in 2019 was $ 95.1 million , as compared with $ 92.0 million in 2018 , due primarily to higher borrowings . see `` liquidity and capital resources '' for additional information regarding our financing activities . consolidated other income in 2019 was $ 0.4 million , as compared with $ 4.0 million in 2018 .
| overall consolidated results year ended december 31 , 2019 compared with year ended december 31 , 2018 consolidated net income in 2019 was $ 202.1 million as compared with $ 197.0 million in 2018 , an increase of $ 5.1 million . as described in more detail below , this increase was primarily due to a reduction in revenue in 2018 due to the impact of the tax cuts and jobs act regulatory settlements , higher volumes due to colder winter weather and customer growth , and a larger income tax benefit in 2019. these improvements were partly offset by the adjustment of our electric qf liability and higher operating expenses . consolidated operating revenues in 2019 were $ 1,257.9 million as compared with $ 1,192.0 million , an increase of $ 65.9 million . this increase was primarily due to a reduction in revenue in 2018 due to the impact of the tax cuts and jobs act regulatory settlements , higher supply costs being collected in rates , and increased volumes due to colder winter weather and customer growth . consolidated gross margin in 2019 was $ 939.9 million as compared with $ 919.1 million in 2018 , an increase of $ 20.8 million , or 2.3 % . replace_table_token_8_th ( 1 ) non-gaap financial measure . see `` non-gaap financial measure '' above . replace_table_token_9_th ( 1 ) non-gaap financial measure . see `` non-gaap financial measure '' above . 36 primary components of the change in gross margin include the following ( in millions ) : replace_table_token_10_th ( 1 ) non-gaap financial measure . see `` non-gaap financial measure '' above .
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based on this evaluation under the framework in internal control integrated framework , management concluded that our internal control over financial reporting was effective as of december 31 , 2011. changes in internal control : during the fourth quarter story_separator_special_tag you should read the following discussion and analysis in conjunction with item 8. financial statements and supplementary data included below in this annual report on form 10-k. overview and recent developments we are an international biopharmaceutical company that is focused in the field of regenerative medicine . we have established a portfolio of therapeutic product development programs to address significant unmet medical needs in multiple areas . our current clinical development programs are focused on treating inflammatory & immune disorders , neurological conditions , cardiovascular disease , and other conditions . we are developing our lead platform product , multistem , a patented and proprietary allogeneic stem cell product that has been evaluated in two completed phase i clinical trials and is currently being evaluated in ongoing phase ii clinical trials . we are also applying our pharmaceutical discovery capabilities to identify and develop small molecule compounds with potential applications in indications such as obesity , related metabolic conditions and certain neurological conditions , and for the modulation of stem cells or related applications in the regenerative medicine area . current programs by applying our proprietary multistem cell therapy product , we have established therapeutic product development programs treating inflammatory & immune disorders , neurological conditions , cardiovascular disease , and other conditions . to date , we have advanced five programs to the clinical development stage , including the following : inflammatory bowel disease : multistem is being evaluated in an ongoing phase ii clinical study involving administration of multistem to patients suffering from ulcerative colitis , the most common form of ibd . this study is being conducted with our partner , pfizer . this trial began enrolling patients in february 2011 and is expected to enroll approximately 130 patients . enrollment of this trial is expected to be completed late in 2012. ischemic stroke : we recently initiated a phase ii clinical study to evaluate the administration of multistem to patients that have suffered an ischemic stroke , an area of significant unmet clinical need . in preclinical studies , administration of a single dose of multistem , even several days after a stroke , resulted in significant and durable improvements . we will evaluate the potential clinical benefits of multistem in this ongoing double blind , placebo controlled trial being conducted at leading stroke centers across the united states . the study is expected to include approximately 140 patients , and patient enrollment was initiated late in 2011 and is ongoing . acute myocardial infarction : we have evaluated the administration of multistem in a phase i clinical study to patients that have suffered an ami . in july 2010 , we announced preliminary results for this study , demonstrating a favorable safety profile and encouraging signs of improvement in heart function among patients that exhibited severely compromised heart function prior to treatment and who received treatment after experiencing a heart attack and this study has been completed . one-year follow-up data suggested that the benefit observed was sustained over time . we are currently planning for phase ii , which has been discussed with the fda . in light of the recent termination of our license and collaboration agreement with angiotech late in 2011 , we are reviewing the study design , objectives and expected timelines to streamline the study where possible and to ensure optimal alignment with our ongoing clinical development , business development and financial objectives . hematopoietic stem cell transplant / gvhd : we have completed a phase i clinical study of the administration of multistem to patients suffering from leukemia or certain other blood-borne cancers in which patients undergo radiation therapy and then receive a hematopoietic stem cell transplant . such patients are at risk for serious complications , including gvhd , an imbalance of immune system function caused by transplanted immune cells that attack various tissues and organs in the patient . in 2011 and in february 2012 , we released preliminary data from the study , which demonstrated the safety of multistem in this indication and suggested that multistem may have a beneficial effect in reducing incidence and severity of gvhd , as well as other benefits . this program has been assigned orphan drug designation from the fda . we intend to meet with the fda , in the spring of 2012 to discuss potential options for additional clinical development in this area . 38 we are also collaborating with a leading transplant group at the university of regensburg in germany that has recently obtained authorization to initiate an institutional sponsored clinical trial exploring the administration of multistem in patients following a liver transplant . in addition to our current and anticipated clinical development activities , we are engaged in preclinical development and evaluation of multistem in other disease indications in the cardiovascular , neurological , inflammatory & immune disorder areas . we conduct such work both through our own internal research efforts and through a broad network of collaborations we have established with investigators at leading research institutions across the united states and in europe . we are also working with our collaborator , rti , to develop products for certain orthopedic applications in the bone graft substitutes market using our stem cell technologies . we are also engaged in the development of novel small molecule therapies to treat obesity and other conditions . currently , we are focused on the development of potent , highly selective compounds that act through stimulation of a specific receptor in the brain , the 5ht2c serotonin receptor . we are conducting preclinical evaluation of novel compounds that we have developed that exhibit outstanding receptor selectivity and are working towards the selection of a clinical development candidate for this program . story_separator_special_tag research and development expenses increased to $ 14.8 million for the year ended december 31 , 2010 from $ 11.9 million in 2009. the increase of approximately $ 2.9 million related primarily to an increase in clinical and preclinical development costs of $ 2.5 million , an increase in personnel costs of $ 517,000 , an increase in research supply costs of $ 311,000 and an increase in sponsored research costs of $ 271,000 for the year ended december 31 , 2010 compared to 2009. these increases were partially offset by a decrease in stock-based compensation expense of $ 751,000 , which declined as a result of a significant number of options becoming fully vested mid-2010 . the increase in clinical and preclinical development costs for the year ended december 31 , 2010 related primarily to increased manufacturing and process development costs , and costs associated with our multistem clinical trials . our clinical costs for the year ended december 31 , 2010 and 2009 are reflected net of angiotech 's cost-sharing amount of $ 628,000 and $ 847,000 , respectively . the increase in personnel costs and research supplies related to the addition of personnel in support of our preclinical and clinical programs and regulatory affairs . sponsored research costs increased primarily due to grant-funded programs that require collaboration with certain academic research institutions . other than external expenses for our clinical and preclinical programs , we do not track our research expenses by project ; rather , we track such expenses by the type of cost incurred . 42 general and administrative expenses . general and administrative expenses decreased to $ 5.4 million in 2010 from $ 5.6 million in 2009. the $ 234,000 decrease was due primarily to a decrease in stock-based compensation expense of $ 591,000 , partially offset by an increase in other expenses of $ 364,000 in 2010 compared to 2009. the decrease in stock-based compensation expense related to a significant number of options becoming fully vested mid-2010 . the increase in other expenses for 2010 was primarily a result of increased investor and public relations costs and travel costs . depreciation . depreciation expense increased to $ 284,000 in 2010 from $ 233,000 in 2009. the increase in depreciation expense was due to depreciation on capital purchases made in 2010. other expense , net . included in other expense are impairment losses of $ 46,000 and $ 115,000 in 2010 and 2009 , respectively , related to an investment in a privately-held company . interest income . interest income decreased to $ 203,000 in 2010 from $ 375,000 in 2009. the change in interest income was due to the decline in cash and investment balances during the period . we expect our 2011 interest income to continue at similar levels in 2011 , taking into consideration the expected increase in our clinical development costs in 2011 and the investment of the proceeds from the february 2011 registered direct offering . liquidity and capital resources our sources of liquidity include our cash balances and available-for-sale securities . at december 31 , 2011 , we had $ 8.8 million in cash and cash equivalents and $ 4.0 million in available-for-sale securities . we have primarily financed our operations through business collaborations , grant funding and equity financings . we conduct all of our operations through our subsidiary , abt holding company . consequently , our ability to fund our operations depends on abt holding company 's financial condition and its ability to make dividend payments or other cash distributions to us . there are no restrictions such as government regulations or material contractual arrangements that restrict the ability of abt holding company to make dividend and other payments to us . in march 2012 , we completed a private placement generating net proceeds of approximately $ 8.0 million through the issuance of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of $ 2.07 per fixed combination . in connection with this offering , our former lenders were entitled to a milestone payment in the amount of $ 0.9 million , of which 75 % was settled through the issuance of our common stock at $ 1.94 per share to the former lenders at our election . in november 2011 , we entered into a purchase agreement with aspire capital , which provides that aspire capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock over a two-year term , subject to our election to sell any such shares , and the terms and conditions set forth therein . under the purchase agreement , we have the right to sell shares , subject to certain volume limitations and a minimum floor price , at a modest discount to the prevailing market price . as part of the agreement , aspire capital made an initial investment of $ 1.0 million in us through the purchase of 666,667 shares of our common stock at $ 1.50 per share , and received 266,667 additional shares as compensation for its commitment . in connection with this initial investment , our former lenders were entitled to a milestone payment in the amount of $ 100,000 , of which $ 25,000 was paid in cash and $ 75,000 was paid through the issuance of our common stock to the former lenders at our election at $ 1.50 per share in november 2011. in 2012 , we sold an additional 200,000 shares to aspire capital at an average price of $ 1.85 per share and made milestone payments amounting to $ 37,000 , of which 75 % was settled through the issuance of our common stock to the former lenders at our election .
| results of operations since our inception , our revenues have consisted of contract revenues and milestone payments from our collaborators , and grant proceeds primarily from federal and state grants . we have derived no revenue from therapeutic products to date . research and development expenses consist primarily of external clinical and preclinical study fees , manufacturing costs , salaries and related personnel costs , legal expenses resulting from intellectual property prosecution processes , facility costs , and laboratory supply and reagent costs . we expense research and development costs as they are incurred . we expect to continue to make significant investments in research and development to enhance our technologies , advance clinical trials of our product candidates , expand our regulatory affairs and product development capabilities , conduct preclinical studies of our product and manufacture our product candidates . general and administrative expenses consist primarily of salaries and related personnel costs , professional fees and other corporate expenses . we expect to continue to incur substantial losses through at least the next several years . the following table sets forth our revenues and expenses for the periods indicated . the following tables are stated in thousands . revenues replace_table_token_3_th 40 research and development expenses replace_table_token_4_th general and administrative expenses replace_table_token_5_th year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues . revenues increased to $ 10.3 million for the year ended december 31 , 2011 from $ 8.9 million for 2010. our contract revenues reflect the amortization of pfizer payments , including a $ 6.0 million non-refundable up-front license fee , research and development funding , and payments for manufacturing services over the estimated performance period , as well as the amortization of a $ 3.0 million guaranteed license fee from the rti collaboration over the estimated performance period .
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a significant majority of our assets consist of long-term , fixed-rate residential mortgage loans and , to a much lesser extent , investment-quality securities , which we have funded primarily with deposit accounts and the repayment of existing loans . we generally do not rely on outside borrowings . our results of operations depend primarily on our net interest income . net interest income is the difference between the interest income we earn on our interest-earning assets , consisting primarily of loans , investment securities ( including u.s. government and federal agency securities and mortgage-backed securities ) and other interest-earning assets , primarily interest-earning deposits at other financial institutions , and the interest paid on our interest-bearing liabilities , consisting primarily of savings and transaction accounts and certificates of deposit . our results of operations also are affected by our provisions for loan losses , noninterest income and noninterest expense . noninterest income currently consists primarily of service charges on deposit accounts and miscellaneous other income . noninterest expense currently consists primarily of compensation and employee benefits , occupancy and equipment expenses , data processing , professional and supervisory fees , office expense , provision for real estate owned and related expenses , and other operating expenses . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . other than our loans for the construction of one-to-four family residential mortgage loans , we do not offer “ interest only ” mortgage loans on one-to-four family residential properties ( where the borrower pays interest for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as “ option arm ” loans , where the borrower can pay less than the interest owed on his or her loan , resulting in an increased principal balance during the life of the loan . we do not offer “ subprime loans ” ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( generally defined as loans having less than full documentation ) . our securities are typically high-quality securities issued or guaranteed by the u.s. government or by freddie mac , fannie mae or ginnie mae , all of which are u.s. government-sponsored enterprises . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . additional discussions of these policies are discussed in note 1 “ summary of significant accounting policies ” to the accompanying consolidated financial statements contained in item 8. we consider the following to be our critical accounting policies : allowance for loan losses . our allowance for loan losses is the estimated amount considered necessary to reflect probable losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged against income . in determining the allowance for loan losses , management makes significant estimates and judgments , which to some extent involve assumptions about borrowers ' abilities to continue to make future principal and interest payments . these estimates and judgments involve a high degree of judgment and subjectivity and are based on facts 39 and circumstances that existed at the date in which the allowance is determined . changes in the macro and micro economic environment can have a significant impact on these estimates and judgments in the future that could result in changes to the allowance for loan losses . integral to our allowance methodology is the use of a loan grading system whereby all loans are assigned a grade based on the risk profile of each loan . loan grades are initially assigned at origination and are routinely evaluated to determine if grades need to be changed . through our internal credit review function , ongoing credit monitoring , and continuous review of past due trends , loan grades are adjusted by management either to respond to improvements in or deterioration of credit . loan grades are determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current financial information , historical payment experience , credit documentation , public information , and current economic trends , among other factors . the allowance methodology consists of two parts : an evaluation of loss for specific loans and an evaluation of loss for homogenous pools of loans , commonly referred to as the specific and general valuation allowance . certain loans exhibiting signs of potential credit weakness are evaluated individually for impairment . a loan is considered to be impaired if it is probable that we will not receive substantially all contractual principal and interest payments . the amount of impairment , or specific valuation allowance , is measured by a comparison of the present value of expected future cash flows less selling expenses to the loan 's carrying value , or in the case of collateral dependent loans a comparison to the fair value of the collateral less selling costs . to the extent the carrying value of the loan exceeds the present value of a loan 's expected cash flows less selling expenses , a specific allowance is recorded . if the carrying value is less than the present value of the impaired loan 's expected future cash flows , no specific allowance is recorded however the loan is not included in the determination of the general valuation allowance . story_separator_special_tag loans acquired with no evidence of credit deterioration at the date of purchase are recorded at their outstanding principal balances net of their relevant fair value premiums or discounts , forming the initial carrying value of those loans . these premiums or discounts are amortized into income over the life of the loans using the effective interest method . income recognition on purchased credit impaired loans is based upon the cash flow method . under this method , the initial fair value discount on these loans is separated into two components , the accretable yield and nonaccretable difference . the accretable yield represents the excess of the expected future cash flows of these loans over the amount paid for these loans . the nonaccretable difference represents the excess of contractually required principal and interest payments over the expected cash flows to be received . these cash flow estimations are performed at the date of acquisition and form the basis for the determination of the fair value of these loans . periodically , management reevaluates the expected future cash flows of purchased credit impaired loans and adjusts for increases to or decreases from the previous period 's expectations . increases in future expected cash flows of a purchased credit impaired loan will result in a reversal of any allowance previously allocated with the difference increasing the accretable yield . decreases result in an additional provision for loan loss to account for the impairment of the loan . gains on dispositions are recognized on pci loan prepayments and payoffs that are not anticipated and , therefore , are not accounted for as yield adjustments . because these gains are significantly affected by pci loan payments and payoffs , this income item may vary significantly from period to period . deferred income taxes . we use the asset and liability method of accounting for income taxes . under 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 . deferred tax assets and liabilities are measured using enacted tax rates expected to 41 apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . real estate owned valuation . real estate acquired through loan foreclosure is carried at the lower of carrying amount or fair value less estimated costs to sell . any initial losses at the time of foreclosure are charged against the allowance for loan losses . valuation of these assets are periodically reviewed by management with the carrying value of such assets adjusted through noninterest expense to the then estimated fair value , net of estimated selling costs , if lower , until disposition . fair values of real estate owned are generally based on third party appraisals or other valuations of the property . business strategy we have continued our primarily focus on the execution of our community oriented retail banking strategy . highlights of our current business strategy include the following : continue to focus on residential lending . we have been and will continue to be primarily a one-to-four family residential mortgage lender for borrowers in our market area . as of june 30 , 2016 , $ 248.5 million , or 84.8 % , of our total loan portfolio consisted of one-to-four family residential mortgage loans ( including home equity loans ) . in the future , we may gradually increase our residential construction and home equity loan portfolios . maintain a modest portfolio of nonresidential real estate loans . we have historically maintained a small portfolio of nonresidential real estate loans , primarily loans to churches located in our market area . however , as a result of the acquisition of stephens federal , our nonresidential real estate loans have increased and were $ 20.3 million , or 6.9 % of our total loan portfolio at june 30 , 2016. of the $ 20.3 million of nonresidential real estate loans , $ 9.4 million were loans to churches . we plan to increase our efforts toward more nonresidential real estate lending in the future in an effort to increase our loan portfolio yields and to better manage our interest rate risk . manage interest rate risk while maintaining or enhancing , to the extent practicable , our net interest margin . subject to market conditions , we have sought to enhance net interest income by emphasizing controls on the cost of funds , particularly on the deposit products that we offer , rather than attempting to maximize asset yields , as loans with high yields often involve greater credit risk and may be repaid during periods of decreasing market interest rates . in addition , in view of our strong capital position , from time to time , we place more emphasis on enhancing our net interest income than on limiting our interest rate risk . rely on community orientation and high quality service to maintain and build a loyal local customer base and maintain our status as an independent community-based institution . we were established in 1924 and have been operating continuously in oconee county since that time . by using our recognized brand name and the goodwill developed over years of providing timely , efficient banking services , we have been able to attract a solid base of local retail customers on which to continue to build our banking business . we have historically focused on promoting relationships within our community rather than specific banking products , and we expect to continue to build our customer base by relying on customer referrals and referrals from local builders and realtors . we intend to extend this strategy to the rabun and stephens counties as well .
| general . net income increased by $ 734 thousand , or 16.3 % , to $ 5.2 million for the year ended june 30 , 2016 from $ 4.5 million for the year ended june 30 , 2015. the increase in net income was the result of an increase in net interest income before the provision for loan losses of $ 1.6 million , or 10.8 % , to $ 16.6 million for the year ended june 30 , 2016 from $ 15.0 million for the year ended june 30 , 2015 and an increase in noninterest income of $ 1.2 million , or 89.1 % , to $ 2.6 million from $ 1.4 million . the increase to noninterest income is primarily attributable to gains on the disposition of purchase credit impaired loans which amounted to $ 1.1 million for the year ended june 30 , 2016 compared to $ 256 thousand for the prior year . these increases were offset partially by an increase in noninterest expense of $ 2.5 million , or 28.2 % , to $ 11.5 million for the year ended june 30 , 2016 from $ 9.0 million for the year ended june 30 , 2015. most of this increase relates to the recognition of a full year of personnel and occupancy costs from the stephens federal acquisition . tax expense decreased from $ 2.7 million for the year ended june 30 , 2015 to $ 2.0 million for the year ended june 30 , 2016. interest income .
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further , the company is contractually obligated to issue up to an aggregate of 11,451 shares of common stock upon meeting various future milestones set forth in the agreement . 6. property and equipment property and equipment consist of the following : replace_table_token_21_th depreciation expense was $ 0.2 million , $ 0.1 million , and $ 0.1 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . 7. other accrued liabilities other accrued liabilities consist of the following : replace_table_token_22_th f-16 esperion therapeutics , inc. notes to the financial statements ( continued ) 8. investments the following table summarizes the company 's cash equivalents and investments : replace_table_token_23_th replace_table_token_24_th at december 31 , 2014 , remaining contractual maturities of available-for-sale investments classified as current on the balance sheet were less than 12 months , and remaining contractual maturities of available-for-sale investments classified as long-term were less than two story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . `` risk factors '' and under `` forward-looking statements '' in this annual report on form 10-k. overview corporate overview we are an emerging pharmaceutical company focused on developing and commercializing first-in-class , oral , low-density lipoprotein cholesterol ( ldl-cholesterol ) lowering therapies for the treatment of hypercholesterolemia and other cardiometabolic risk markers . etc-1002 , our lead product candidate , is a first-in-class , orally available , once-daily small molecule designed to lower ldl-cholesterol levels and avoid many of the side effects associated with other ldl-cholesterol lowering therapies currently available . etc-1002 is being developed for patients with hypercholesterolemia . one completed phase 2b clinical study and a second that is nearing completion build upon a successful and comprehensive phase 1 and phase 2 clinical development program for etc-1002 . we plan to hold an end-of-phase 2 meeting with the food and drug administration ( fda ) in the middle of 2015 and we are planning to initiate our phase 3 program for etc-1002 by year-end . we own the exclusive worldwide rights to etc-1002 . we were incorporated in delaware in january 2008 and commenced our operations in april 2008. since our inception , we have focused substantially all of our efforts and financial resources on developing etc-1002 , which is currently finishing phase 2 clinical studies . we have funded our operations to date primarily through proceeds from sales of preferred stock , convertible promissory notes and warrants , public offerings of common stock and the incurrence of indebtedness , and we have incurred losses in each year since our inception . on july 1 , 2013 , we completed the initial public offering , or ipo , of our common stock pursuant to a registration statement on form s-1 whereby we sold 5,000,000 shares of common stock at a price of $ 14.00 per share . on july 11 , 2013 , the underwriters exercised their over-allotment option in full and purchased an additional 750,000 shares of common stock at a price of $ 14.00 per share . net proceeds from the ipo were approximately $ 72.2 million , including proceeds from the exercise of the underwriters ' over-allotment option , net of underwriting discounts and commissions and offering expenses . upon the closing of the ipo , all outstanding shares of our preferred stock were converted into 9,210,999 shares of common stock . on october 21 , 2014 , we completed an underwritten public offering of 4,887,500 shares of common stock , including 637,500 shares sold pursuant to the full exercise of an over-allotment option granted to the underwriters . all of the shares were offered by us at a price to the public of $ 20.00 per share . the aggregate net proceeds received by us from the offering were $ 91.6 million , net of underwriting discounts and commissions and expenses payable by us . we have not commenced principal operations and do not have any products approved for sale . to date , we have not generated any revenue . we have never been profitable and our net losses were $ 36.4 million , $ 26.1 million and $ 11.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . substantially all of our net losses resulted from costs incurred in connection with research and development programs , general and administrative costs associated with our operations . we expect 63 to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , including , among others : conducting additional clinical studies of etc-1002 to complete its development ; seeking regulatory approval for etc-1002 ; commercializing etc-1002 ; and operating as a public company . accordingly , we will need additional funding to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or through other sources , which may include collaborations with third parties . adequate additional funding may not be available to us on acceptable terms , or at all . our failure to obtain additional funding as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy or continue operations . we will need to generate significant revenues to achieve profitability , and we may never do so . story_separator_special_tag 65 general and administrative expenses general and administrative expenses primarily consist of salaries and related costs for personnel , including stock-based compensation and travel expenses , associated with our executive , accounting and finance , operational and other administrative functions . other general and administrative expenses include facility related costs , communication expenses and professional fees for legal , patent prosecution , protection and review , consulting and accounting services . we anticipate that our general and administrative expenses will increase in the future in connection with the continued research and development and commercialization of etc-1002 , increases in our headcount , expansion of our information technology infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company . interest expense interest expense consists primarily of non-cash interest costs associated with our convertible promissory notes , cash interest costs associated with our credit facility and non-cash interest costs associated to the amortization of the related debt discount , deferred issuance costs and final payment fee . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments on an ongoing basis , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , contractual milestones and other various factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in note 2 to our audited financial statements appearing elsewhere in this annual report on form 10-k. we believe the following accounting policies to be most critical to understanding our results and financial operations . accrued clinical development costs as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . we base our accrued expenses related to clinical studies on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical studies on our behalf . we generally accrue expenses related to clinical studies based on contracted amounts applied to the level of patient enrollment and activity according to the protocol . if timelines or contracts are modified based upon changes in the clinical study protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a prospective basis . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . we do not anticipate the future settlement of existing accruals to differ materially from our estimates . 66 stock-based compensation we typically grant stock-based compensation to new employees in connection with their commencement of employment and to existing employees in connection with annual performance reviews . we account for all stock-based compensation payments issued to employees , consultants and directors using an option pricing model for estimating fair value . accordingly , stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line method . in accordance with authoritative guidance , the fair value of non-employee stock-based awards is re-measured as the awards vest , and the resulting value , if any , is recognized as expense during the period the related services are rendered . significant factors , assumptions and methodologies used in determining fair value we estimate the fair value of our stock-based awards to employees and directors using the black-scholes option pricing model . the black-scholes model requires the input of subjective assumptions , including ( a ) the per share fair value of our common stock , ( b ) the expected stock price volatility , ( c ) the calculation of the expected term of the award , ( d ) the risk free interest rate and ( e ) expected dividends . due to our limited operating history and a lack of company specific historical and implied volatility data , we have based our estimate of expected volatility on the historical volatility of a group of similar companies , which are publicly-traded . when selecting these public companies on which we have based our expected stock price volatility , we selected companies with comparable characteristics to us , including enterprise value , risk profiles , position within the industry , and with historical share price information sufficient to meet the expected life of our stock-based awards . the historical volatility data was computed using the daily closing prices for the selected companies ' shares during the equivalent period of the calculated expected term of our stock-based awards . we will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available . we have estimated the expected life of our employee stock options using the `` simplified '' method , whereby , the expected life equals the arithmetic average of the vesting term and the original contractual term of the option .
| results of operations comparison of the years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 : replace_table_token_11_th research and development expenses research and development expenses for the year ended december 31 , 2014 were $ 25.3 million compared to $ 16.0 million for the year ended december 31 , 2013 , an increase of $ 9.3 million . the increase in research and development expenses is primarily related to the further development of etc-1002 in our phase 2 clinical program , which includes the completion of our phase 2b clinical study in patients with hypercholesterolemia , with or without statin intolerance ( etc-1002-008 ) , the initiation of our phase 2b clinical study in patients with hypercholesterolemia already receiving statin therapy ( etc-1002-009 ) and the initiation of our phase 2 clinical study in patients with hypercholesterolemia and hypertension ( etc-1002-014 ) . general and administrative expenses general and administrative expenses for the year ended december 31 , 2014 were $ 10.9 million compared to $ 6.7 million for the year ended december 31 , 2013 , an increase of $ 4.2 million . the increase in general and administrative expenses was primarily attributable to costs to support public company operations , increases in our headcount , which includes increased stock-based compensation expense , and other costs to support our growing organization . interest expense interest expense for the year ended december 31 , 2014 was $ 0.3 million , compared to nearly $ 1.0 million for the year ended december 31 , 2013 , a decrease of $ 0.7 million .
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fair value measurements are classified within one of three levels , which prioritize the inputs used in the methodologies of measuring fair value for assets and liabilities , as follows : level 1 — quoted market prices for identical instruments in an active market ; level 2 — quoted prices for similar assets and liabilities in active markets , quoted prices for identical or similar assets or liabilities in markets that are not active , inputs other than quoted prices that story_separator_special_tag this annual report on form 10-k and the documents incorporated by reference herein contain forward-looking statements regarding future events and results that are subject to the `` safe harbor '' provisions of the private securities litigation reform act of 1995. all statements , other than statements of historical facts , are statements that could be deemed forward-looking statements . see `` private securities litigation reform act of 1995 safe harbor cautionary statement '' for further information on forward-looking statements . pending acquisition by brookfield on december 21 , 2019 , the company entered into an agreement and plan of merger ( the “ merger agreement ” ) pursuant to which the company will be acquired by an affiliate of the brookfield infrastructure group ( “ brookfield ” ) , the infrastructure investment division of brookfield asset management ( the “ merger ” ) . at the effective time of the merger ( the “ effective time ” ) , each of our issued and outstanding common shares will be converted into the right to receive $ 10.50 in cash per common share , without interest , and the 6 3 / 4 % cumulative convertible preferred shares will remain issued and outstanding as 6 3 / 4 % cumulative convertible preferred shares of the company , without par value , following the effective time . the consummation of the merger is subject to customary closing conditions , including ( i ) the adoption of the merger agreement by the affirmative vote of the holders of at least two-thirds of all outstanding common shares and 6 3 / 4 % cumulative convertible preferred shares , voting as a single class ; ( ii ) the expiration or early termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976 , as amended and ( iii ) the receipt of any required consents or approvals from ( a ) the committee on foreign investment in the united states , ( b ) the federal communications commission , ( c ) state public service and state public utility commissions , and ( d ) local regulators in connection with the provision of telecommunications and media services ; and ( iv ) the absence of any legal restraint preventing the consummation of the merger . the merger agreement contains representations and warranties and covenants of the parties customary for a transaction of this nature . the merger is expected to close by the end of 2020 , although there can be no assurance that the merger will occur by that date . as a result of the merger , the company will cease to be a publicly traded company . unsolicited proposal on january 22 , 2020 , the company received an unsolicited , non-binding proposal from an infrastructure fund ( the “ fund ” ) to acquire all of the outstanding common shares for $ 12.00 per share in cash ( the “ proposal ” ) . on january 23 , 2020 , the company commenced discussions with the fund regarding the proposal following the board of directors having made the required determinations under the merger agreement that allow it to do so . the board also reaffirmed its recommendation in support of the merger . executive summary segment results described in the executive summary and consolidated results of operations section are net of intercompany and intersegment eliminations . on july 2 , 2018 , the company acquired hawaiian telcom holdco , inc. ( `` hawaiian telcom '' ) . the unified communications as a service ( `` ucaas '' ) , hardware , and enterprise long distance products and services provided by the hawaiian telcom business are included within the it services and hardware segment . the entertainment and communications segment includes products delivered by hawaiian telcom such as high-speed internet access , digital subscriber lines , ethernet , dedicated internet access , indefeasible right of use ( `` iru '' ) , video , voice lines , consumer long distance and digital trunking . consolidated revenue totaled $ 1,536.7 million for the year ended december 31 , 2019 , an increase of $ 158.5 million compared to the same period in 2018 , primarily due to the acquisition of hawaiian telcom . hawaiian telcom contributed $ 346.7 million and $ 175.0 million of revenue in 2019 and 2018 , respectively . revenue growth from the acquisition was partially offset by the decline in legacy revenue exceeding the growth in revenue from our fiber offerings in cincinnati as well as the decline of higher margin revenue contributed by general electric company ( “ ge ” ) of $ 20.6 million in the cloud practice . fioptics revenue in cincinnati increased $ 12.0 million while legacy revenue in cincinnati decreased $ 25.1 million in 2019 compared to the same period in the prior year . the increases in cost of services and products , selling , general and administrative ( “ sg & a ” ) , and depreciation and amortization expenses are primarily related to the acquisition of hawaiian telcom . 26 form 10-k part ii cincinnati bell inc. operating income in 201 9 was $ 73.1 million , down $ 10.2 million compared to the same period in 2018 . the revenue contribution from hawaiian telcom in addition to the decrease in transaction and integration costs were more than offset by declines in legacy revenue and increases in cost of services and products , depreciation and amortization and sg & a costs . story_separator_special_tag hawaiian telcom also contributed $ 3.8 million to depreciation expense in the year ended december 31 , 2019. the increase in 2018 compared to the same period in the prior year is primarily related to the amortization of intangible assets acquired as part of the suntel services llc ( `` suntel '' ) and onx acquisitions , as well as depreciation expense related to acquired property , plant and equipment . replace_table_token_9_th restructuring and severance charges recorded in 2019 in the entertainment and communications segment are primarily related to a severance program for certain management employees as the company continues its efforts to realize synergies from the acquisition of hawaiian telcom . the it services and hardware segment also recorded restructuring and severance charges in 2019 associated with initiatives to reduce and contain costs as well as headcount reductions as a result of insourcing initiatives by one of our significant customers . 28 form 10-k part ii cincinnati bell inc. restructuring and severance charges recorded in 2018 are primarily related to continued efforts to realize synergies following the acquisitions of hawaiian telcom and onx . in the fourth quarter of 2018 , there was a voluntary severance program ( `` vsp '' ) for certain management employees in the entertain ment and communications segment as well as corporate . in the second quarter of 2018 , the company incurred severance costs associated with initiatives to reduce costs in the it services and hardware segment . in addition , a restructuring charge associated with lease abandonment of $ 0.8 million was recorded in the second quarter of 2018 related to an office space that will no longer be utilized . in 2017 , restructuring and severance related charges were associated with the company-initiated reorganizations within both segments of the business that resulted in headcount reductions . the reorganizations were intended to more appropriately align the company for future growth and reduce field and network costs within our legacy copper network . replace_table_token_10_th transaction and integration costs incurred in 2019 , recorded as a corporate expense , are primarily due to the pending acquisition by brookfield entered into in the fourth quarter of 2019. transaction and integration costs incurred in 2018 are due to the acquisition of hawaiian telcom that closed in the third quarter of 2018. transaction and integration costs incurred in 2017 are due to the acquisition of suntel in the first quarter of 2017 , the acquisition of onx that closed in the fourth quarter of 2017 , and costs incurred leading up to the acquisition of hawaiian telcom . non-operating expenses ( income ) replace_table_token_11_th interest expense increased in 2019 compared to the same period in 2018 primarily due to interest incurred on the amounts outstanding on the receivables facility and the revolving credit facility used to partially fund the cash portion of the acquisition of hawaiian telcom . interest expense increased in 2018 compared to comparable period in the prior year due to financing transactions that took place during the fourth quarter of 2017. the company entered into the $ 600.0 million tranche b term loan due 2024 , issued $ 350.0 million 8 % senior notes , and repaid the remaining $ 315.8 million tranche b term loan due 2020 outstanding under its previous corporate credit agreement with the proceeds from the $ 600.0 million tranche b term loan due 2024. other components of pension and postretirement benefit plans expense was lower in 2018 compared to 2017 primarily due to a $ 4.0 million pension settlement charge for the cincinnati bell pension plan ( `` cbpp '' ) in 2017 as a result of the lump sum payments to cbpp participants exceeding the sum of the service cost and interest cost component of net pension cost for the year . in 2017 , the company recognized a gain of $ 117.7 million on the sale of 2.8 million cyrusone common shares . income tax expense fluctuates based on changes in income from continuing operations before income taxes , adjusted for non-deductible expenses , as well as rate changes . in periods without tax law changes , the company expects its effective tax rate to exceed statutory rates due to non-deductible expenses . non-deductible expenses related to the brookfield transaction were incurred during 2019 in the amount of $ 11.1 million . non-deductible expenses related to the acquisitions of hawaiian telcom and onx were incurred during 2018 and 2017 in the amount of $ 9.0 million and $ 10.4 million , respectively . in addition , changes in the valuation allowance impact income tax expense . in 2018 , a valuation allowance of $ 14.8 million was established against non-deductible interest , which increased by $ 1.8 million in 2019. valuation allowances on state nols decreased in 2019 by $ 2.9 million compared to the prior year . 29 form 10-k part ii cincinnati bell inc. the company uses federal and state net operating loss carryforwards to defray payment of federal and state tax liabilities . the company also had significant alternative minimum tax ( “ amt ” ) refundable tax credit carryforwards available to offset future income tax liabilities . the company made election s on its 2016 and 2017 income tax return s to claim the available portion of these credits in lieu of claiming bonus depreciation . the company received refunds of amt credits in the amounts of $ 14.9 million and $ 14.8 million in 2018 and 2017 , respectively , related to this matter . the company also received a refund of $ 1.7 million in amt credits in 2019. remaining amt credits outstanding total $ 1.7 million and are expected be refunded by 2023. story_separator_special_tag roman ; font-size:10pt ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > entertainment and communications , continued operating costs and expenses cost of services and products increased in 2019 compared to 2018 primarily due to increased expense contributed by hawaiian telcom of $ 70.9 million .
| discussion of operating segment results the company manages its business based upon product and service offerings . for the years ended december 31 , 2019 , 2018 , and 2017 , we operated two business segments : entertainment and communications and it services and hardware . certain corporate administrative expenses have been allocated to our business segments based upon the nature of the expense and the relative size of the segment . intercompany transactions between segments have been eliminated . 30 form 10-k part ii cincinnati bell inc. entertainment and communications the entertainment and communications segment provides products and services that can be categorized as either fioptics in cincinnati or consumer/smb fiber in hawaii ( collectively , `` consumer/smb fiber '' ) , enterprise fiber or legacy . cincinnati bell telephone company llc ( `` cbt '' ) , a subsidiary of the company , is the incumbent local exchange carrier ( `` ilec '' ) for a geography that covers a radius of approximately 25 miles around cincinnati , ohio , and includes parts of northern kentucky and southeastern indiana . cbt has operated in this territory for over 145 years . voice and data services in the enterprise fiber and legacy categories that are delivered beyond the company 's ilec territory , particularly in dayton and mason , ohio , are provided through the operations of cincinnati bell extended territories llc ( `` cbet '' ) , a subsidiary of cbt . on july 2 , 2018 , the company acquired hawaiian telcom . hawaiian telcom is the ilec for the state of hawaii and the largest full service provider of communications services and products in the state . originally incorporated in hawaii in 1883 as mutual telephone company , hawaiian telcom has a strong heritage of over 135 years as hawaii 's communications carrier . its services are offered on all of hawaii 's major islands , except its video service , which currently is only available on the island of oahu . consumer/smb fiber products include high-speed internet access , voice lines and video .
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these forward-looking statements are subject to numerous risks and uncertainties , including those described under risk factors . our actual results could differ materially from those suggested or implied by any forward-looking statements . we operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday closest to january 31 of the following year . references to fiscal year 2013 or fiscal 2013 refer to the fiscal year ended february 1 , 2014 , references to fiscal year 2012 or fiscal 2012 refer to the fiscal year ended february 2 , 2013 and references to fiscal year 2011 or fiscal 2011 refer to the fiscal year ended january 28 , 2012. fiscal years 2013 and 2011 each consisted of a 52-week period , and fiscal year 2012 consisted of a 53-week period . overview tilly 's is a fast-growing destination specialty retailer of west coast and action sports inspired apparel , footwear and accessories . we believe we bring together an unparalleled selection of the most sought-after brands rooted in action sports , music , art and fashion . our west coast heritage dates back to 1982 when hezy shaked and tilly levine opened our first store in orange county , california . as of february 1 , 2014 , we operated 195 stores in 32 states , averaging approximately 7,760 square feet . we also sell our products through our e-commerce website , www.tillys.com . we increased net sales 6 % , to $ 495.8 million in fiscal year 2013 from $ 467.3 million in fiscal year 2012 as we opened 27 net new stores and expanded our presence in both existing and new markets . operating income decreased 5 % , to $ 29.7 million in fiscal year 2013 from $ 31.4 million in fiscal year 2012 , primarily due to a decline in our comparable store sales and a $ 1.8 million store asset impairment charge in the fourth quarter of fiscal 2013. our comparable store sales decreased 1.9 % in fiscal year 2013 after a 2.2 % increase in fiscal year 2012. we believe there is a significant opportunity to grow our national footprint from the 195 store locations as of february 1 , 2014 to more than 500 stores over time . we plan to add a total of at least 18 net new stores in fiscal year 2014 , including approximately 30 % of those stores under our new outlet format in select outlet centers . we expect to fund our continued store expansion through our cash from operations . we believe our success operating in different retail venues and geographies demonstrates the portability of tilly 's and provides us with flexibility for future expansion . we believe e-commerce will be an important component of future sales growth and believe e-commerce could represent significantly more of our total sales than we previously anticipated . over the past several years we have expanded our website connection with third-party brands , developed e-commerce applications for mobile and tablet devices and enhanced the integration of e-commerce and store operations and fulfillment . we expect to place greater emphasis on enhancing and growing this digital platform , including improving a variety of key digital channels to give our customers seamless access and increased ease of shopping . we also intend to continue our catalog and online marketing efforts , offering a wider selection of internet-exclusive merchandise and expanding our online selection . in addition , we believe our new automated e-commerce fulfillment center will become operational in the second quarter of 2014 and will allow us to more efficiently fulfill e-commerce orders and support the growth of the e-commerce business . over the last six years , we have invested approximately $ 44 million in infrastructure and systems to support our recent and long-term growth . we believe our distribution and allocation capabilities are unique within the industry and allow us to quickly sort and process merchandise and deliver it to our stores in a floor-ready format for immediate display . we believe our distribution and new e-commerce fulfillment infrastructure can support a national retail 35 footprint of at least 500 stores and significant growth of our online sales with minimal incremental capital investment . in addition , we anticipate spending approximately $ 3 million to complete our new e-commerce fulfillment center in fiscal 2014. we believe our business strategy will continue to offer significant opportunity , but it also presents risks and challenges . these risks and challenges include , but are not limited to , that we may not be able to effectively identify and respond to changing fashion trends and customer preferences , that we may not be able to find desirable locations for new stores and that we may not be able to effectively manage our future growth . in addition , our financial results can be expected to be directly impacted by trends in the general economy . a decline in consumer spending or a substantial increase in product costs due to commodity cost increases or general inflation could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers and the competitive environment could become more highly promotional . see risk factors for other important factors that could adversely impact us and our results of operations . we strive to ensure that addressing these risks does not divert our attention from continuing to build on the strengths that we believe have driven the growth of our business . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key indicators of the financial condition and operating performance of our business are net sales , comparable store sales , gross profit , selling , general and administrative expenses and operating income . story_separator_special_tag general and administrative expenses include the payroll and support costs of corporate functions such as executive management , legal , accounting , information systems , human resources and other centralized services . store selling expenses generally vary proportionately with net sales and store growth . in contrast , general and administrative expenses are generally not directly proportional to net sales and store growth , but will be expected to increase over time to support the needs of our growing company . sg & a expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods . the components of our sg & a expenses may not be comparable to those of other retailers . we expect that our sg & a expenses will increase in future periods due to our continuing store growth and in part due to additional legal , accounting , insurance and other expenses we incur as a result of being a public company . among other things , we expect that compliance with the sarbanes-oxley act of 2002 and related rules and regulations could result in significant incremental legal , accounting and other overhead costs . 37 operating income operating income equals gross profit less sg & a expenses . operating income excludes interest income , interest expense and income taxes . operating income percentage measures operating income as a percentage of our net sales . income taxes prior to may 2 , 2012 , we were taxed as an s corporation for federal income tax purposes under section 1362 of the internal revenue code , and therefore were not subject to federal and state income taxes ( subject to an exception in a limited number of state and local jurisdictions that do not recognize the s corporation status ) . on may 2 , 2012 , our s corporation status terminated and we became subject to corporate-level federal and state income taxes at prevailing corporate rates . story_separator_special_tag respectively . the following contributed to the decrease in general and administrative expenses as a percentage of net sales : a one-time charge in fiscal year 2012 of $ 7.6 million , or 1.6 % of net sales , to recognize life-to-date stock-based compensation expense for stock options , recognition that was triggered by the consummation of our ipo ; an increase in ongoing stock-based compensation expense of $ 1.1 million , 0.2 % of net sales , due to additional equity awards granted during fiscal year 2013 ; payroll , payroll benefits and related costs for corporate office personnel increased $ 0.6 million , which represents a decrease of 0.2 % as a percentage of net sales , as these costs increased more slowly than sales ; depreciation , legal , audit and tax services and consulting expenses increased $ 1.7 million , or 0.2 % as a percentage of net sales ; and other expenses increased $ 2.2 million , or 0.4 % as a percentage of net sales , mostly due to a $ 1.8 million impairment charge for long-lived assets at four of our stores in fiscal year 2013. operating income operating income decreased $ 1.7 million , or 5 % , to $ 29.7 million in fiscal year 2013 from $ 31.4 million in fiscal year 2012. as a percentage of net sales , operating income was 6.0 % and 6.7 % during fiscal years 2013 and 2012 , respectively . the decrease in operating income as a percentage of net sales was due to the decrease in comparable store sales combined with the increase in expenses discussed above . other income ( expense ) , net other expense , net , was $ 9 thousand and $ 91 thousand in fiscal years 2013 and 2012 , respectively . other income ( expense ) , net comprises interest earned on cash balances and tenant construction allowances received from landlords , realized gains on marketable securities , interest paid on a capital lease of our corporate office and distribution center and costs related to maintaining our unused revolving credit facility . income tax expense income tax expense increased $ 4.2 million , or 57 % , to $ 11.6 million in fiscal year 2013 from $ 7.4 million in fiscal year 2012. our effective income tax rates were 39.0 % and 23.7 % in fiscal years 2013 and 2012 , respectively . in fiscal year 2013 , the company was taxed as a c corporation the entire year and its effective tax rate reflected a one-time tax benefit recorded in the fourth quarter of fiscal 2013 related to certain return to provision adjustments . the company 's expected annual effective long-term tax rate is 40 % . in fiscal year 2012 , income tax expense was comprised of ( 1 ) a one-time deferred tax benefit of $ 3.0 million recognized upon the conversion to a c corporation , ( 2 ) income tax expense of $ 0.1 million related to the period during fiscal year 2012 in which the company was an s corporation ( january 29 , 2012 through may 1 , 2012 ) computed at the s corporation effective tax rate and ( 3 ) income tax expense of $ 10.3 million related to the period in which the company was a c corporation ( may 2 , 2012 through february 2 , 2013 ) at the c corporation effective tax rate . 40 net income net income decreased $ 5.8 million , or 24 % , to $ 18.1 million in fiscal year 2013 from $ 23.9 million in fiscal year 2012 , due to the factors discussed above .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of our net sales : replace_table_token_8_th ( 1 ) the unaudited pro forma income statement for all periods presented gives effect to an adjustment for income tax expense as if we had been a c corporation at an assumed combined federal , state and local effective income tax rate , which approximates our statutory income tax rate , of 40 % . 38 the following table presents store operating data for the periods indicated : replace_table_token_9_th ( 1 ) comparable store sales are net sales from stores that have been open at least 12 full fiscal months as of the end of the current reporting period . a remodeled or relocated store is included in comparable store sales , both during and after construction , if the square footage of the store was not changed by more than 20 % and the store was not closed for more than five days in any fiscal month . comparable store sales include sales through our e-commerce store but exclude gift card breakage income and e-commerce shipping and handling fee revenue . e-commerce sales contributed 1.8 % , 2.1 % and 2.3 % to the comparable store sales change for fiscal years 2013 , 2012 and 2011 , respectively . the comparable store sales change for the period ended february 2 , 2013 excludes the 53 rd week in fiscal year 2012 . ( 2 ) e-commerce sales , e-commerce shipping fee revenue and gift card breakage are excluded from net sales in deriving average net sales per store and average net sales per square foot . ( 3 ) e-commerce revenues include e-commerce sales and e-commerce shipping fee revenue .
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in addition , she currently also serves as a member of the dean 's council for 112 the kelley school of business of story_separator_special_tag s of operations forward looking statements this annual report on form 10-k including this management 's discussion and analysis of financial condition and results of operations ( or management 's discussion and analysis ) contains statements that are forward-looking statements within the meaning of the federal securities laws . forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations , including descriptions of our business strategies . these statements often include words such as believe , expect , project , potential , anticipate , intend , plan , estimate , seek , will , may , would , should , could , forecasts or similar words . these statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate in these circumstances . we believe these judgments are reasonable , but you should understand that these statements are not guarantees of performance or results , and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors , both positive and negative , that may be revised or supplemented in subsequent reports . these statements involve risks , estimates , assumptions and uncertainties that could cause actual results to differ materially from those expressed in these statements as described in this annual report on form 10-k , and any claims , investigations or proceedings arising as a result , as well as our ability to remediate the material weaknesses in our internal control over financial reporting described in item 9a . controls and procedures contained in this annual report on form 10-k , changes in the demand for our o & p products and services , uncertainties relating to the results of operations or recently acquired o & p patient care clinics , our ability to enter into and derive benefits from managed-care contracts , our ability to successfully attract and retain qualified o & p clinicians , federal laws governing the health care industry , uncertainties inherent in investigations and legal proceedings , governmental policies affecting o & p operations and other risks and uncertainties generally affecting the health care industry . readers are cautioned that all forward-looking statements involve known and unknown risks and uncertainties including , without limitation , those described in item 1a . risk factors contained in this annual report on form 10-k , some of which are beyond our control . although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate . therefore , there can be no assurance that the forward-looking statements included in this report will prove to be accurate . actual results could differ materially and adversely from those contemplated by any forward-looking statement . in light of the significant risks and uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . we undertake no obligation to publicly release any revisions to any forward-looking statements in this discussion to reflect events and circumstances occurring after the date hereof or to reflect unanticipated events . forward-looking statements and our liquidity , financial condition and results of operations may be affected by the risks set forth in item 1a . risk factors or by other unknown risks and uncertainties . restatement of prior financial information in our annual report on form 10-k for the year ended december 31 , 2014 ( the 2014 form 10-k ) , which we filed on may 12 , 2017 , we restated our prior financial filings . in that filing , we restated : ( a ) our consolidated balance sheet as of december 31 , 2013 and the related statements of operations and comprehensive ( loss ) income , consolidated statements of changes in shareholders ' equity and consolidated statements of cash flows for the fiscal years ended december 31 , 2013 and december 31 , 2012 ; ( b ) our selected financial data in item 6. for fiscal years 2013 , 2012 , 2011 ( unaudited ) and 2010 ( unaudited ) ; and ( c ) our quarterly financial information ( unaudited ) for the first two quarters in the fiscal year ended december 31 , 2014 and each of the quarters in the fiscal year ended december 31 , 2013. accordingly , investors should not rely upon any consolidated financial statements for these periods and any earnings releases or other communications relating to these periods that occurred prior to our filing the 2014 form 10-k. for information regarding the nature and effects of our restatement of prior financial reports , in addition to information which we have provided you in this annual report on form 10-k , we encourage you to also refer to our 2014 form 10-k. 33 effect of delay in financial filings due to our detection of the material weaknesses and the necessity of our correction of previously issued financial information , we have been undergoing extensive delays in the filing of our periodic reports with the sec . our 2014 form 10-k included consolidated financial statements for the years ended december 31 , 2014 , december 31 , 2013 and december 31 , 2012 , financial information pertaining to quarterly periods in 2014 and 2013 , as well as selected financial data for the years ended december 31 , 2011 and december 31 , 2010 ( both unaudited ) . we also presented the effects of our restatement of the previously filed financial statements . story_separator_special_tag as a leading supplier of o & p products in the united states , we coordinate through our distribution business the procurement and distribution of a broad catalog of o & p parts , componentry and devices to independent o & p providers nationwide . to facilitate speed and convenience , we deliver these products through our five distribution facilities that are located in nevada , georgia , illinois , pennsylvania and texas . the other business in our products & services segment is our therapeutic solutions business , which develops specialized rehabilitation technologies and provides evidence-based clinical programs for post-acute rehabilitation to patients at approximately 4,000 skilled nursing and post-acute providers nationwide . in each of 2015 and 2016 , we incurred a material impairment of our goodwill . these non-cash charges were the most significant contributing factor to our reported loss from operations and net loss in each period . we performed a step one intangible valuation as of october 1 , 2016 , december 31 , 2015 and september 30 , 2015. we discuss the causes and manner of our determination of these impairment charges in note h - goodwill and other intangible assets to our consolidated financial statements in this annual report on form 10-k. see note r - segment and related information to our consolidated financial statements in this annual report on form 10-k for disclosure of financial information by operating segment for 2016 , 2015 and 2014. reimbursement trends in our patient care segment , we are reimbursed primarily through employer-based plans offered by commercial insurance carriers , medicare , medicaid and the va. the following is a summary of our payor mix , expressed as an approximate percentage of net revenues for the periods indicated : 35 replace_table_token_8_th patient care constitutes 80.6 % , 82.0 % and 82.7 % of our net revenue for 2016 , 2015 and 2014 , respectively . our remaining revenue is produced in our products & services segment which derives its revenue from commercial transactions with independent o & p providers , healthcare facilities and other customers . in contrast to revenues from our patient care segment , payment for these products and services are not directly subject to third party reimbursement from health care payors . the amount of our reimbursement varies based on the nature of the o & p device we fabricate for our patients . given the particular physical weight and size characteristics , location of injury or amputation , capability for physical activity and mobility , cosmetic and other needs of each individual patient , each fabricated prostheses and orthoses is customized for each particular patient . the nature of this customization and the manner by which our claims submissions are reviewed by payors makes our reimbursement process administratively difficult . to receive reimbursement for our work , we must ensure that our clinical , administrative and billing personnel receive and verify certain medical and health plan information , record detailed documentation regarding the services we provide and accurately and timely perform a number of claims submission and related administrative tasks . traditionally , we have performed these tasks in a manual fashion and on a decentralized basis . in recent years , due to increases in payor pre-authorization processes , documentation requirements , pre-payment reviews and pre- and post-payment audits , our ability to successfully undertake these tasks using our traditional approach has become increasingly challenging . we believe these changes in industry trends have been brought about in part by increased nationwide efforts to reduce health care costs . a measure of our effectiveness in securing reimbursement for our services can be found in the degree to which payors ultimately disallow payment of our claims . payors can deny claims due to their determination that a physician who referred a patient to us did not sufficiently document that a device was medically necessary or clearly establish the ambulatory ( or activity ) level of a patient . claims can also be denied based on our failure to ensure that a patient was currently eligible under a payor 's health plan , that the plan provides full o & p benefits , that we received prior authorization , that we filed or appealed the payor 's determination timely , on the basis of our coding , failure by certain classes of patients to pay their portion of a claim and for various other reasons . if any portion of , or administrative factor within , our claim is found by the payor to be lacking , then the entirety of the claim amount may be denied reimbursement . due to the increasing demands of these processes , the level and capability of our staffing , as well as our material weaknesses and other considerations , our consolidated disallowed revenue and bad debt expense , and their relationship to consolidated adjusted gross revenue increased over historical levels to a peak level in 2014. in 2016 and 2015 , due to initiatives discussed below , we achieved decreases in our disallowed revenue . disallowed revenue and bad debt expense over the past five years has been as follows ( dollars in millions , unaudited ) : 36 replace_table_token_9_th adjusted gross revenue in the above chart reflects our gross billings after reduction for estimated contractual discounts . as can be seen by the chart , the percentage of our gross billings that have been disallowed increased to 7.5 % in 2014 from 4.8 % in 2012. due to industry trends and our specific administrative factors , our collection experience degraded and disallowed revenue increased during those periods . industry trends included an increased level of payor audits and more stringent requests by payors that referring physician documentation be provided in connection with claims . during that period of time , we utilized a decentralized billing and collections approach , where invoicing and collections were undertaken at individual patient care locations . our typical locations have an average of two office administrators who are required to handle patient administration , purchasing , and clinician support tasks .
| general and administrative expenses . general and administrative expenses were $ 29.1 million for the three months ended june 30 , 2015 compared with $ 22.5 million for the three months ended june 30 , 2014 , an increase of $ 6.6 million , or 29.3 % . personnel compensatory costs increased $ 3.6 million from additional personnel in the accounting and information technology departments related to material weakness remediation and 2014 financial restatement , increase in bonus expense and an annual merit increase . facilities , contract labor and other office related expenses increased $ 3.0 million for the three months ended june 30 , 2015 compared with the three months ended june 30 , 2014. professional accounting and legal fees . professional accounting and legal fees were $ 4.9 million for the three months ended june 30 , 2015 compared to $ 2.6 million for the three months ended june 30 , 2014 , an increase of $ 2.3 million , or 88.5 % . professional fees increased $ 1.5 million for three months ended june 30 , 2015 compared to the same period in the prior year and legal fees increased $ 1.5 million for the same comparative periods due to the commencement of the investigation in 2015. second quarter 2015 professional fees related to the 2015 annual audit decreased $ 0.7 million compared to the second quarter 2014 audit fees . depreciation and amortization . depreciation and amortization for the three months ended june 30 , 2015 was $ 9.9 million , an increase of $ 0.1 million , or 1.0 % , from $ 9.8 million for the three months ended june 30 , 2014. depreciation of machinery and equipment was $ 0.5 million lower from the shutdown of the cares operations offset by $ 0.6 million increased depreciation and amortization from 2014 and the first quarter of 2015 acquisitions . income from operations .
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in 2009 , we acquired all the outstanding equity in iridium holdings llc and changed our name to iridium communications inc. story_separator_special_tag text-align : right '' > tranche b – $ 262,500,000 at a floating rate equal to the london interbank offer rate , or libor , plus 1.95 % . in connection with each draw made under the credit facility , we borrow an additional amount equal to 6.49 % of such draw to cover the premium for the coface insurance . we also pay a commitment fee of 0.80 % per year , in semi-annual installments , on any undrawn portion of the credit facility . the semi-annual commitment fee on the undrawn portion of the credit facility for the year ended december 31 , 2014 was $ 5.8 million and is included in other income ( expense ) in our consolidated statement of operations . funds drawn under the credit facility are used to pay 85 % of each invoice issued by thales under the fsd until the credit facility is fully drawn , the premium for the coface insurance and the payment of a portion of interest during a portion of the construction and launch phase of iridium next . scheduled semi-annual principal repayments will begin six months after the earlier of ( i ) the successful deployment of a specified number of iridium next satellites or ( ii ) september 30 , 2017. during this repayment period , we will pay interest on the same date as the principal repayments . prior to the repayment period , interest payments are due on a semi-annual basis in april and october . interest incurred during the year ended december 31 , 2014 was $ 50.8 million . we capitalize all interest costs incurred related to the credit facility during the construction period of the assets ; accordingly we capitalized $ 50.8 million related to interest incurred in 2014. we pay interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan . the $ 50.8 million in interest incurred during the year ended december 31 , 2014 consisted of $ 15.5 million payable in cash , of which $ 12.6 million was paid during the year and $ 2.9 million was accrued at year end , and $ 35.3 million payable by deemed loans , of which $ 28.6 million was paid during the year and $ 6.7 million was accrued at year end . the credit facility will mature seven years after the start of the principal repayment period . we may not prepay any borrowings prior to december 31 , 2015. if , on that date , a specified number of iridium next satellites have been successfully launched and we have adequate time and resources to complete the iridium next constellation on schedule , we may prepay the borrowings without penalty . in addition , following the completion of the iridium next constellation , we may prepay the borrowings without penalty . we may not subsequently borrow any amounts that we repay . we must repay the loans in full upon a delisting of our common stock , a change in control of our company or our ceasing to own 100 % of any of the other obligors , or the sale of all or substantially all of our assets . we must apply all or a portion of specified capital raise proceeds , insurance proceeds , condemnation proceeds and proceeds from the disposal of any interests in aireon to the prepayment of the loans . the credit facility includes customary representations , events of default , covenants and conditions precedent to our drawing of funds . as of december 31 , 2014 , we had borrowed a total of $ 1,291.4 million under the credit facility . the unused portion of the credit facility as of december 31 , 2014 was $ 508.6 million . under the terms of the credit facility , we were required to maintain a minimum cash reserve for debt service of $ 86.0 million as of december 31 , 2014 , which is classified as restricted cash on our consolidated balance sheet . this minimum cash reserve requirement will increase over the term of the credit facility to $ 189.0 million at the beginning of the repayment period , which is expected to be in 2017. we expect to have utilized the full $ 1.8 billion from the credit facility by early 2016. minimum debt service reserve levels are estimated as follows : replace_table_token_7_th 40 in addition to the minimum debt service reserve levels , financial covenants under the credit facility , as amended and restated in may 2014 , include : · an available cash balance of at least $ 25 million ; · a debt-to-equity ratio , which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders ' equity , of no more than 0.7 to 1 , measured each june 30 and december 31 ; · specified maximum levels of annual capital expenditures ( excluding expenditures on the construction of iridium next satellites ) through the year ending december 31 , 2024 ; · specified minimum levels of consolidated operational earnings before interest , taxes , depreciation and amortization , or operational ebitda , for the 12-month periods ending each december 31 and june 30 through december 31 , 2017 ; · specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites measured each december 31 and june 30 from june 30 , 2016 through december 31 , 2017 ; · a debt service coverage ratio , measured during the repayment period , of not less than 1 to 1.5 ; and · specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve months ending june 30 , 2018 to a ratio of 2.36 to 1 for the twelve months ending december 31 , 2024. our available cash balance , as defined by the story_separator_special_tag series b cumulative perpetual convertible preferred stock offering in may 2014 , we issued 500,000 shares of our series b preferred stock in an underwritten public offering at a price to the public of $ 250 per share . we received proceeds of $ 120.8 million from the sale of the series b preferred stock , which were net of an aggregate $ 3.8 million underwriting discount and $ 0.4 million of offering costs . holders of series b preferred stock are entitled to receive cumulative cash dividends when , as and if declared from , and including , the date of original issue at a rate of 6.75 % per annum of the $ 250 liquidation preference per share ( equivalent to an annual rate of $ 16.875 per share ) . dividends on our series b preferred stock are payable quarterly in arrears , beginning on september 15 , 2014. the series b preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions . the series b preferred stock ranks senior to our common stock and pari passu with respect to our series a preferred stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation , dissolution or winding-up . holders of series b preferred stock generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly periods ( whether or not consecutive ) and in other specified circumstances . holders of series b preferred stock may convert some or all of their outstanding series b preferred stock initially at a conversion rate of 33.456 shares of common stock per $ 250 liquidation preference , which is equivalent to an initial conversion price of approximately $ 7.47 per share of common stock , subject to adjustment in certain events . on or after may 15 , 2019 , we may , at our option , convert some or all of the series b preferred stock into the number of shares of common stock that are issuable at the then-applicable conversion rate , subject to specified conditions . on or prior to may 15 , 2019 , in the event of certain specified fundamental changes , holders of the series b preferred stock will have the right to convert some or all of their shares of series b preferred stock into the greater of ( i ) a number of shares of our common stock as subject to adjustment plus the make-whole premium , if any , and ( ii ) a number of shares of our common stock equal to the lesser of ( a ) the liquidation preference divided by the market value of the our common stock on the effective date of such fundamental change and ( b ) 81.9672 ( subject to adjustment ) . in certain circumstances , we may elect to cash settle any conversions in connection with a fundamental change . we intend to use the proceeds from the common stock and series b preferred stock offerings for general corporate purposes , which may include capital expenditures , such as costs for the development and deployment of the iridium next system , and may also include working capital and general and administrative expenses . material trends and uncertainties our industry and customer base has historically grown as a result of : demand for remote and reliable mobile communications services ; increased demand for communications services by disaster and relief agencies , and emergency first responders ; a broad wholesale distribution network with access to diverse and geographically dispersed niche markets ; a growing number of new products and services and related applications ; improved data transmission speeds for mobile satellite service offerings ; regulatory mandates requiring the use of mobile satellite services ; a general reduction in prices of mobile satellite services and subscriber equipment ; and geographic market expansion through the ability to offer our services in additional countries . 42 nonetheless , we face a number of challenges and uncertainties in operating our business , including : our ability to develop iridium next and related ground infrastructure , and to develop new and innovative products and services for iridium next ; our ability to access the credit facility to meet our future capital requirements for the design , build and launch of the iridium next satellites ; our ability to generate sufficient internal cash flows , including potential cash flows from hosted payloads and iridium prime , to fund a portion of the costs associated with iridium next and support ongoing business ; aireon llc 's ability to successfully develop and market its space-based automatic dependent surveillance-broadcast , or ads-b , global aviation monitoring service to be carried as a hosted payload on the iridium next system ; aireon 's ability to raise sufficient funds to pay hosting fees to us ; our ability to maintain the health , capacity , control and level of service of our existing satellite network through the transition to iridium next ; changes in general economic , business and industry conditions , including the effects of currency exchange rates ; our reliance on a single primary commercial gateway and a primary satellite network operations center ; competition from other mobile satellite service providers and , to a lesser extent , from the expansion of terrestrial-based cellular phone systems and related pricing pressures ; market acceptance of our products ; regulatory requirements in existing and new geographic markets ; rapid and significant technological changes in the telecommunications industry ; reliance on our wholesale distribution network to market and sell our products , services and applications effectively ; reliance on single-source suppliers for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase parts that are periodically subject to shortages resulting from surges in demand , natural disasters or other events ; and reliance on a few significant customers for a substantial portion of our revenue , as a result of which the
| overview of our business we are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites . we are the second largest provider of satellite-based mobile voice and data communications services based on revenue , and the only commercial provider of communications services offering true global coverage . our satellite network provides communications services to regions of the world where telecommunications networks do not exist or are impaired , including extremely remote or rural land areas , airways , open-ocean , the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters . we provide voice and data communications services to businesses , the u.s. and foreign governments , non-governmental organizations and consumers using our constellation of in-orbit satellites and related ground infrastructure . we utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks . this unique architecture minimizes the need for ground facilities to support the constellation , which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence . we sell our products and services to commercial end users through a wholesale distribution network , encompassing more than 70 service providers , more than 190 value-added resellers , or vars , and more than 40 value-added manufacturers , or vams , who either sell directly to the end user or indirectly through other service providers , vars or dealers . these distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications for our products and services targeting specific lines of business .
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factors that might cause or contribute to such differences include , but are not limited to , those discussed in the following management 's discussion and analysis of financial condition and results of consolidated operations as well as in part i item 1a , risk factors. actual results could differ materially . important factors that could cause actual results to differ materially include , but are not limited to ; the level of demand for our products and services ; the intensity of competition ; our ability to effectively expand and improve internal infrastructure ; maintenance of positive cash flows from operations , and adverse financial , customer and employee consequences that might result to us if litigation were to be initiated and resolved in an adverse manner to us . for a more detailed discussion of the risks relating to our business , readers should refer to part i item 1a , risk factors. readers are cautioned not to place undue reliance on the forward-looking statements , including statements regarding our expectations , beliefs , intentions or strategies regarding the future , which speak only as of the date of this report . we assume no obligation to update these forward-looking statements . overview we are an online marketplace that facilitates loans to qualified borrowers and investments from qualified investors . we were incorporated in delaware in october 2006 , and in may 2007 , we began operations . we expanded our operations in august 2007 with the launch of our public website , www.lendingclub.com . pursuant to a prospectus that describes a public offering of member payment dependent notes ( notes ) , self-directed investors have the opportunity to purchase , directly on our website , notes issued by us , with each series of notes corresponding to an individual member loan facilitated through our platform . the notes are unsecured , are dependent for payment on the related member loan and offer interest rates and credit characteristics that the investors find attractive . in addition to this public offering , we offer private placements to accredited investors and qualified purchasers . most private placements are managed by the company 's wholly-owned subsidiary , lc advisors , llc ( lca ) , a registered investment adviser that acts as the general partner for certain private funds ( the funds ) and separately managed accounts ( smas ) . the company established lc trust i ( trust ) , a delaware business trust in february 2011 to acquire and hold member loans for the sole benefit of investors that purchase through trust certificates ( certificates ) issued by the trust and which are related to the underlying member loans . the funds each purchase a certificate from the trust and the trust uses these proceeds to acquire and hold member loans for the sole benefit of the certificate holder . the certificates can only be settled with cash flows from the underlying member loans and certificate holder does not have recourse to the general credit or other assets of the trust , company , borrower members or other investors . we aim to use technology and a more efficient funding process to lower costs so we may provide borrower members with rates that are generally lower , on average , than the rates they obtain from unsecured credit provided through credit cards or traditional banks , and offer interest rates to investors that they find attractive . our customer acquisition process , registration , underwriting , processing and payment systems are highly automated and electronic . we encourage the use of electronic payments as the preferred means to disburse member loan proceeds , receive payments on outstanding member loans , receive funds from investor members , and to disburse payments to applicable investors . we have no physical branches for loan application or payment-taking activities . all member loans are unsecured obligations of individual borrower members with fixed interest rates , three-year or five-year maturities , minimum amounts of $ 1,000 and maximum amounts up to $ 35,000. the member loans are posted on our website pursuant to a program agreement with webbank , an fdic-insured , state-chartered industrial bank organized under the laws of the state of utah , approved loans are funded and issued by webbank and sold to us after closing . as a part of operating our lending platform , we verify the identity of members , obtain borrower members ' credit characteristics from consumer reporting agencies such as transunion , experian or equifax and screen borrower members for eligibility to participate in the platform and facilitate the posting of member loans . also , after acquiring the member loans from webbank , we service the member loans on an ongoing basis . as of december 31 , 2012 , the platform facilitated 95,902 member loans totaling approximately $ 1.2 billion since the platform 's inception . our agreement with webbank enables us to make our platform available to borrower members on a uniform basis nationwide , except that as of december 31 , 2012 , we do not currently offer member loans in idaho , indiana , iowa , maine , mississippi , nebraska and north dakota . we pay webbank a monthly service fee based on the amount of loans issued by webbank in each month , subject to a minimum monthly fee . to date , we have funded our operations primarily with proceeds from our preferred stock issuances and common stock issuances and now with the operations of the company , which are described under liquidity and capital resources in our management 's discussion and analysis of financial condition and results of operations . from inception of the company through december 31 , 2012 , we have raised approximately $ 102.5 million ( net ) through pref e rred equity financings . story_separator_special_tag the estimated fair values of member loans are computed by projecting the future contractual cash flows to be received on the loans , adjusting those cash flows for our expectations of prepayments ( if significant ) , defaults and losses over the life of the loans , and expected net recoveries , if any . we then discount those projected net cash flows to a 52 present value , which is the estimated fair value . our expectation of future defaults and losses on loans is based on analyses of actual defaults and losses that occurred on the various credit grades of member loans over the past several years . the expected net recovery reflects the actual historical recovery experience for the various types of defaulted loans and the contractual arrangements with collection agencies . the discount rates for the projected net cash flows of the member loans are our estimates of the rates of return that investors in unsecured consumer credit obligations would require when investing in the various credit grades of member loans . our obligation to pay principal and interest on any note and certificate is equal to the pro-rata portion of the payments , if any , received on the related member loan at fair value , net of any applicable servicing fee . the gross effective interest rate associated with a note or a certificate is the same as the interest rate earned on the related member loan at fair value . at december 31 , 2012 , the discounted cash flow methodology used to estimate the notes ' and certificates ' fair values uses the same projected net cash flows as their related member loans . the discount rates for the projected net cash flows of the notes and certificates are our estimates of the rates of return , including any applicable risk premiums , if significant , that investors in unsecured consumer credit obligations would require when investing in notes issued by lendingclub or certificates issued by the trust , with cash flows dependent on specific credit grades of member loans . for additional discussion on this topic , including the adjustments to the estimated fair values of loans at fair value and notes at fair value as of december 31 , 2012 , as discussed below , see results of operations and note 5 member loans at fair value and notes and certificates at fair value . member loans at amortized cost the loan origination fees for member loans at amortized cost are deferred at origination and , with the related deferred loan origination costs , are amortized to interest income over the contractual lives of the loans using a method that approximates the effective interest method , which loans currently have original terms of 36 or 60 months . we record interest income on member loans at amortized cost as earned . loans reaching 120 days delinquent are classified as nonaccrual loans , and we stop accruing interest and reverse all accrued but unpaid interest after such date . we may incur losses if the borrower members fail to pay their monthly scheduled loan payments . impaired member loans at amortized cost include loans at amortized cost that are 90 days or more past due and loans where the borrower has filed a petition in bankruptcy or is deceased . as part of our activities to maximize receipt , collection and recovery of loans in which the borrower has , or is expected to , experience difficulty in meeting the loan 's contractually required payments , we may agree to special payment plans with certain borrowers . most of the special payment plans involve reduced minimum loan payments for a short period of time and the deferred payments are to be repaid over the remaining original term of the loan . no principal or interest is forgiven nor is the original term of the loan extended in these situations . the delay in receipt of all contractually-required loan payments in these situations is insignificant . prior to december 2011 , special payment plans with certain borrowers involved extensions of the original term of the loan by six to 24 months , but in no case extending the total term beyond 60 months , and recasting the borrower 's monthly loan payment schedule . in these situations , the restructuring of the loan terms qualifies as a troubled debt restructuring ( tdr ) . we classify tdr 's outstanding as of december 31 , 2012 as impaired loans at amortized cost . an allowance for loan losses applies only to member loans at amortized cost and is a valuation allowance that is established as losses are estimated to have occurred at the balance sheet date through a provision for loan losses charged to earnings . realized loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . the allowance for loan losses is evaluated on a periodic basis by management , and represents an estimate of potential credit losses based on a variety of factors , including the composition and quality of the member loans at amortized cost , loan specific information gathered through our collection efforts , delinquency levels , probable expected losses , current and historical charge-off and loss experience , current industry charge-off and loss experience , and general economic conditions . determining the adequacy of the allowance for loan losses for member loans at amortized cost is subjective , complex and requires judgment by management about the effects of matters that are inherently uncertain , and actual losses may differ from our estimates . our estimate of the allowance for loan losses for member loans at amortized cost is developed by estimating both the rate of default of the loans within each credit score band using the fico credit scoring model , a loan 's collection status , the borrower 's fico score at or near the evaluation date , and the amount of probable loss in the event of a borrower member default .
| results of operations revenues our business model consists primarily of charging fees to both borrower members and investor members for transactions through or related to our platform . during the nine months ended december 31 , 2012 and fiscal year march 31 , 2012 , we facilitated $ 608.2 million and $ 321.1 million of loans , respectively , on our lending platform . upon issuance of a loan , webbank pays a fee to us for providing the service of arranging the member loan . the loan origination fee charged to each borrower member is determined by the term and credit grade of that borrower member 's loan and as of december 31 , 2012 and march 31 , 2012 ranged from 1.11 % to 5.00 % of the aggregate member loan amount . the loan origination fees are included in the annual percentage rate ( apr ) calculation provided to the borrower member and is subtracted from the gross loan proceeds prior to disbursement of the loan funds to the borrower member . investor members that purchase notes pay servicing fees to us on the payments for the related member loans and maintaining account portfolios . we charge other investors through the trust 's monthly management fees that are based on the month-end balances of their accounts . these management fees , which are charged in lieu of servicing fees on the payments for principal , interest and late fees and are recorded in other revenue . loan origination fees our borrower members pay a one-time origination fee to us for arranging a member loan . this fee is determined by the term and loan grade of the member loan .
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the words anticipates , believes , estimates , expects , intends , may , plans , projects , predicts , will , would , should , could , potential , continue , and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain these identifying words . we may not actually achieve the plans , intentions , or expectations disclosed in our forward-looking statements , and you should not place undue reliance on our forward-looking statements . our forward-looking statements involve risks and uncertainties that could cause actual results , events , and or performance to differ materially from the plans , intentions , and expectations disclosed in the forward-looking statements . such risks and uncertainties include , without limitation , the risks set forth in part i , item 1a , risk factors in this annual report on form 10-k. the forward-looking information we have provided in this annual report on form 10-k pursuant to the safe harbor established under the private securities litigation reform act of 1995 should be evaluated in the context of these factors . forward-looking statements speak only as of the date they were made , and we undertake no obligation to update or revise such statements , except as required by the federal securities laws . overview we are a diversified consumer finance company that provides installment loan products primarily to customers with limited access to consumer credit from banks , thrifts , credit card companies , and other lenders . we operate under the name regional finance in 359 branch locations across 11 states in the southeastern , southwestern , mid-atlantic , and midwestern united states , serving 401,500 active accounts , as of december 31 , 2018. most of our loan products are secured , and each is structured on a fixed rate , fixed term basis with fully amortizing equal monthly installment payments , repayable at any time without penalty . our loans are sourced through our multiple channel platform , which includes our branches , centrally-managed direct mail campaigns , digital partners , retailers , and our consumer website . we operate an integrated branch model in which nearly all loans , regardless of origination channel , are serviced through our branch network . this provides us with frequent in-person contact with our customers , which we believe improves our credit performance and customer loyalty . our goal is to consistently grow our finance receivables and to soundly manage our loan portfolio risk , while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs . our products include small , large , and retail installment loans : small loans ( £ $ 2,500 ) as of december 31 , 2018 , we had 276.8 thousand small installment loans outstanding , representing $ 437.7 million in finance receivables . this included 99.4 thousand small loan convenience checks , representing $ 143.5 million in finance receivables . large loans ( > $ 2,500 ) as of december 31 , 2018 , we had 99.8 thousand large installment loans outstanding , representing $ 438.0 million in finance receivables . this included 3.4 thousand large loan convenience checks , representing $ 9.8 million in finance receivables . retail loans as of december 31 , 2018 , we had 21.2 thousand retail purchase loans outstanding , representing $ 30.4 million in finance receivables . optional insurance products we offer optional payment and collateral protection insurance to our direct loan customers . regional management corp. | 2018 annual report on form 10-k | 48 small and large installment loans are our core loan products and will be the drivers of our future growth . we ceased originating automobile purchase loans in november 2017 to focus on growing our core loan portfolio , but we continue to own and service the automobile loans that we previously originated . as of december 31 , 2018 , we had approximately 3.7 thousand automobile loans outstanding , representing $ 26.2 million in finance receivables . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to small and large installment loans are the largest component . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . for additional information regarding our business operations , see part i , item 1 , business. factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : quarterly information and seasonality . our loan volume and contractual delinquency follow seasonal trends . demand for our small and large loans is typically highest during the second , third , and fourth quarters , which we believe is largely due to customers borrowing money for vacation , back-to-school , and holiday spending . with the exception of retail loans , loan demand has generally been the lowest during the first quarter , which we believe is largely due to the timing of income tax refunds . delinquencies generally reach their lowest point in the first quarter of the year and rise throughout the remainder of the fiscal year . consequently , we experience seasonal fluctuations in our operating results and cash needs . growth in loan portfolio . the revenue that we derive from interest and fees is largely driven by the balance of loans that we originate and purchase . average finance receivables grew 14.8 % from $ 572.8 million in 2015 to $ 657.4 million in 2016 , grew 13.2 % to $ 744.2 million in 2017 , and grew 14.7 % to $ 853.8 million in 2018. we source our loans through our branches , direct mail program , retail partners , digital partners , and our consumer website . story_separator_special_tag we do not sell insurance to non-borrowers . direct costs included in insurance income , net are claims paid , claims reserves , ceding fees , and premium taxes paid . we do not allocate to insurance income , net , any other home office or branch administrative costs associated with managing our insurance operations , managing our captive insurance company , marketing and selling insurance products , legal and compliance review , or internal audits . all of these unallocated administrative costs , which management estimates were approximately $ 6.7 million in 2018 , are included in general and administrative expenses in our consolidated statement of income . in recent years , as large loans have become a larger percentage of our loan portfolio , the severity of non-file insurance claims has increased and non-file insurance claims expenses have exceeded non-file insurance fees . the resulting net loss from the non-file insurance product has been reflected in our insurance income , net . we have evaluated various ways to lower our non-file insurance claims , and we reduced our utilization of non-file insurance beginning in the fourth quarter of 2018. this policy change will cause substantially offsetting increases to insurance income , net and net credit losses in future years . therefore , we do not expect this change regional management corp. | 2018 annual report on form 10-k | 50 in policy to impact our profitability in future years . for additional information regarding this policy change , including its impact on our allowance for credit losses in 2018 , see note 4 , finance receivables , credit quality information , and allowance for credit losses , of the notes to consolidated financial statements in part ii , item 8 , financial statements and supplementary data. as reinsurer , we maintain cash reserves for life insurance claims in an amount determined by the unaffiliated insurance company . as of december 31 , 2018 , the restricted cash balance for these cash reserves was $ 7.1 million . the unaffiliated insurance company maintains the reserves for non-life claims . other income . our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment . in addition , fees for extending the due date of a loan , returned check charges , and commissions earned from the sale of an auto club product are included in other income . provision for credit losses . provisions for credit losses are charged to income in amounts that we estimate as sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses on the related finance receivable portfolio . credit loss experience , delinquency of finance receivables , loan portfolio growth , the value of underlying collateral , and management 's judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses . our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects forecasted future credit losses over the estimated loss emergence period ( the interval of time between the event that caused a borrower to default and our recording of the credit loss ) for each finance receivable type . changes in our delinquency and net credit loss rates may result in changes to our provision for credit losses . substantial adjustments to the allowance may be necessary if there are significant changes in economic conditions or loan portfolio performance . general and administrative expenses . our general and administrative expenses are comprised of four categories : personnel , occupancy , marketing , and other . we measure our general and administrative expenses as a percentage of average finance receivables , which we refer to as our receivable efficiency ratio . our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries and wages , overtime , contract labor , relocation costs , bonuses , benefits , and related payroll taxes associated with all of our operations and home office employees . our occupancy expenses consist primarily of the cost of renting our facilities , all of which are leased , as well as the utility , depreciation of leasehold improvements and furniture and fixtures , telecommunication , data processing , and other non-personnel costs associated with operating our business . our marketing expenses consist primarily of costs associated with our direct mail campaigns ( including postage and costs associated with selecting recipients ) , digital marketing , and maintaining our consumer website , as well as some local marketing by branches . these costs are expensed as incurred . other expenses consist primarily of legal , compliance , audit , and consulting costs , non-employee director compensation , amortization of software licenses and implementation costs , electronic payment processing costs , bank service charges , office supplies , and credit bureau charges . we expect legal and compliance costs to remain elevated due to the regulatory environment in the consumer finance industry . for a discussion regarding how risks and uncertainties associated with the current regulatory environment may impact our future expenses , net income , and overall financial condition , see part i , item 1a , risk factors. interest expense . our interest expense consists primarily of paid and accrued interest for long-term debt , unused line fees , and amortization of debt issuance costs on long-term debt . interest expense also includes costs attributable to the interest rate caps that we use to manage our interest rate risk . changes in the fair value of the interest rate caps are reflected in interest expense . regional management corp. | 2018 annual report on form 10-k | 51 income taxes . income taxes consist of state and federal income taxes . deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases .
| results of operations the following table summarizes our results of operations , both in dollars and as a percentage of average finance receivables : replace_table_token_11_th information explaining the changes in our results of operations from year-to-year is provided in the following pages . comparison of december 31 , 2018 , versus december 31 , 2017 the following discussion and table describe the changes in finance receivables by product type : small loans ( £ $ 2,500 ) small loans outstanding increased by $ 61.9 million , or 16.5 % , to $ 437.7 million at december 31 , 2018 , from $ 375.8 million at december 31 , 2017. the increase was primarily due to increased marketing . large loans ( > $ 2,500 ) large loans outstanding increased by $ 90.8 million , or 26.1 % , to $ 438.0 million at december 31 , 2018 , from $ 347.2 million at december 31 , 2017. the increase was primarily due to increased marketing and the transition of small loan customers to large loans . regional management corp. | 2018 annual report on form 10-k | 52 automobile loans automobile loans outstanding decreased by $ 35.3 million , or 57.4 % , to $ 26.2 million at december 31 , 2018 , from $ 61.4 million at december 31 , 2017. we ceased originating automobile loans in november 2017 to focus on growing our core loan portfolio . retail loans retail loans outstanding decreased $ 2.6 million , or 7.9 % , to $ 30.4 million at december 31 , 2018 , from $ 33.1 million at december 31 , 2017. replace_table_token_12_th comparison of the year ended december 31 , 2018 , versus the year ended december 31 , 2017 net income .
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series iii class b stock is redeemable after three years from the date of issuance at the option of the company at a price of $ 15.00 per share , plus all unpaid dividends . each share of series iii class b stock may , at the option of the stockholder , be converted to one share of common stock after three years from the date of issuance or in the event the company files an initial registration statement under the securities act of 1933. pursuant to these terms , 1,000 shares of series iii class b stock were converted into common stock in 2015. no shares were converted in 2014. in the event of voluntary or involuntary dissolution , liquidation , or winding up of the company , holders of series iii class b stock then outstanding are entitled to $ 12.50 per share , plus all unpaid dividends , after distribution obligations to series i class b stock and series ii class b stock have been satisfied and prior to any distributions to holders of series iv class b stock , series v class b stock , or common stock . series iv class b stock there were 342,500 and 542,500 shares of $ 1 par value series iv class b stock outstanding at december 31 , 2015 and 2014. holders of series iv class b stock are entitled to receive a cumulative annual dividend of $ 1.00 per share , payable quarterly , if declared by the board of directors . at december 31 , 2015 , approximately $ 5,456,000 of dividends which have not been declared were in arrears . f- 20 series iv class b stock is redeemable after three years from the date of issuance at the option of the company at a price of $ 11.00 per share plus all unpaid dividends . each share of series iv class b stock may , at the option of the stockholder any time subsequent to three years from date of issuance , be converted into one share of common stock , or in the event the company files an initial registration statement under the securities act of 1933. pursuant to these terms , no shares of series iv class b stock were converted into common stock in 2015 or 2014. however , the company did enter into an agreement which had the effect of cancelling 200,000 shares in 2015. see note 20. in the story_separator_special_tag forward-looking statement warning certain statements included by reference in this filing containing the words could , may , believes , anticipates , intends , expects , and similar such words constitute forward-looking statements within the meaning of the private securities litigation reform act . any forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results , performance , or achievements to be materially different from any future results , performance , or achievements expressed or implied by such forward-looking statements . such factors include , among others , our ability to maintain liquidity , our maintenance of patent protection , the impact of current and future court decisions regarding current litigation , our ability to maintain favorable third party manufacturing and supplier arrangements and relationships , our ability to quickly increase capacity in response to an increase in demand , our ability to access the market , our ability to maintain or lower production costs , our ability to continue to finance research and development as well as operations and expansion of production , the impact of larger market players , specifically bd , in providing devices to the safety market , and other factors referenced in item 1a . risk factors . given these uncertainties , undue reliance should not be placed on forward-looking statements . overview we have been manufacturing and marketing our products since 1997. safety syringes comprised 98.2 % of our sales in 2015. we also manufacture and market the blood collection tube holder , iv safety catheter , and vanishpoint ® blood collection set . we currently provide other safety medical products in addition to safety products utilizing retractable technology . one such product is the patient safe ® syringe , which is uniquely designed to reduce the risk of bloodstream infections resulting from catheter hub contamination . on june 17 , 2014 , we received notice of substantial equivalence from the food and drug administration for the easypoint needle . the easypoint is a retractable needle that can be used with luer lock syringes , luer 15 slip syringes , and prefill syringes to give injections . the easypoint needle can also be used to aspirate fluids and blood collection . we have completed installation and validation of the equipment . we are currently building stock for product release . historically , unit sales have increased in the latter part of the year due , in part , to the demand for syringes during the flu season . our products have been and continue to be distributed nationally and internationally through numerous distributors . although we have made limited progress in some areas , such as the alternate care market , our volumes are not as high as they should be given the nature and quality of our products and the federal and state legislation requiring the use of safe needle devices . the alternate care market is composed of facilities that provide long-term nursing and out-patient surgery , emergency care , physician services , health clinics , and retail pharmacies . story_separator_special_tag l. 114-113 ) , signed into law on december 18 , 2015 , includes a two year moratorium on the medical device excise tax imposed by internal revenue code section 4191. thus , the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer , producer , or importer of the device during the period beginning on january 1 , 2016 and ending on december 31 , 2017. we exchanged 728,000 shares of common stock for 200,000 shares of our series iv class b convertible preferred stock as of november 30 , 2015 pursuant to an agreement with a shareholder . such shareholder agreed to waive all unpaid dividends in arrears associated with the tendered preferred stock , equaling $ 3,094,795. future dividend requirements of $ 200,000 per year are avoided as a result of this transaction . product purchases from our primary chinese manufacturer have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost . in 2015 , our chinese manufacturer produced approximately 77.7 % of our vanishpoint ® finished products . in the event that we become unable to purchase products from our primary chinese manufacturer , we would need to find an alternate manufacturer for the 0.5ml insulin syringe , the 0.5ml autodisable syringe , and the 2ml , 5ml , and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing automated retraction technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales . with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . story_separator_special_tag sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . our ability to obtain additional funds through loans is 18 uncertain . our financial statements do not reflect a 2015 judgment in our favor for $ 352 million plus post-judgment interest . historical sources of liquidity we have historically funded operations primarily from the proceeds from revenues , private placements , litigation settlements , and loans . internal sources of liquidity margins and market access to routinely achieve positive or break even quarters , we need increased access to hospital markets which has been difficult to obtain . we will continue to attempt to gain access to the market through our sales efforts , innovative technology , the introduction of new products , and , when necessary , litigation . we continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs . fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all ( as opposed to 78.2 % ) of our products in the u.s. this could temporarily increase unit costs as we ramp up domestic production . the mix of domestic and international sales affects the average sales price of our products . generally , the higher the ratio of domestic sales to international sales , the higher the average sales price will be . typically , large international sales of vanishpoint ® syringes are shipped directly from china to the customer . purchases of product manufactured in china usually decrease the average cost of manufacture for all units . the number of units produced by us versus manufactured in china can have a significant effect on the carrying costs of inventory as well as cost of sales . we will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in china to achieve economic benefits as well as to maintain our domestic manufacturing capability . fluctuations in the cost of oil ( since our products are petroleum based ) and transportation and the volume of units purchased from our chinese manufacturers may have an impact on the unit costs of our product . increases in such costs may not be recoverable through price increases of our products . reductions in oil prices may not quickly affect petroleum product prices . seasonality historically , unit sales have increased during the flu season . cash requirements due to funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . we have taken steps to decrease our non-litigation legal costs and we continue to evaluate these costs . additionally , since the beginning of 2014 , we have reduced our workforce . in the future , if such cost cutting measures prove insufficient , we may reduce the number of units being produced , further reduce the workforce , further reduce the salaries of officers and other employees , and or defer royalty payments . external sources of liquidity we have obtained several loans from our inception , which have , together with the proceeds from the sales of equities and litigation efforts , enabled us to pursue development and production of our products . our ability to obtain additional funds through loans is uncertain . due to the current market price of our common stock , it is unlikely we would choose to raise funds by the sale of equity . 19 on september 30 , 2013 ,
| results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2015 , 2014 , or 2013. dollar amounts have been rounded for ease of reading . 17 comparison of year ended december 31 , 2015 and year ended december 31 , 2014 domestic sales accounted for 77.9 % and 80.1 % of the revenues in 2015 and 2014 , respectively . domestic revenues decreased 16.7 % principally due to reduced flu demand . domestic unit sales decreased 17.6 % . domestic unit sales were 67.0 % of total unit sales for 2015. international revenues decreased from $ 6.9 million in 2014 to $ 6.5 million in 2015 , primarily due to more restrictive qualification requirements by the company . overall unit sales decreased 11.9 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of sales decreased $ 3.3 million principally due to lower volumes . royalty expense decreased $ 251 thousand due to decreased gross sales . gross profit margins increased from 34.8 % in 2014 to 35.8 % in 2015. operating expenses decreased 2.9 % from the prior year due to decreased medical device excise taxes attributable to refunds , lower compensation costs , and lower travel and entertainment costs . a non-recurring recognition of $ 7,724,826 received from bd in the second quarter of 2015 pursuant to a patent infringement case had a significant impact on 2015 income . recognizing this payment also significantly decreased 2015 current liabilities on the balance sheets .
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terms of warrants the series a warrants will be exercisable any time on or after the six month anniversary of the closing of the may 2011 private placement at an initial exercise price of $ 1.57 per share , subject to adjustment as provided in the series a warrants . the number of shares of common stock issuable upon exercise of the series a warrants will be increased by an amount equal to 75 % of the number of shares of common stock issued upon each exercise of the series b warrants . the series a warrants will expire on the fifth anniversary of the date on which the series a warrants first become exercisable . the series b warrants are exercisable by the holders at any time on or after the first date on which certain conditions relating to stockholder approval , which was received in june 2011 , and the ability of the holders to resell the securities issued pursuant to the amended purchase agreement are satisfied or waived . the initial exercise price per share of the series b warrants is equal to the lower of ( i ) $ 1.333 , and ( ii ) 85 % of the arithmetic average of the lowest eight weighted average prices of the common stock during the 20 consecutive trading day period ( a ) in the case of a voluntary exercise by the holders , ending on the trading day immediately preceding the date of delivery of a notice of exercise , and ( b ) in the case of a required exercise , immediately following the story_separator_special_tag the following discussion and analysis should be read in conjunction with item 8. financial statements and supplementary data included below in this annual report on form 10-k. operating results are not necessarily indicative of results that may occur in future periods . this discussion and analysis contains forward-looking statements that involve a number of risks , uncertainties and assumptions . actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including , but not limited to , those set forth under cautionary statement about forward-looking statements and risk factors in item 1a . included above in this annual report on form 10-k. all forward-looking statements included in this annual report are based on the information available to us as of the time we file this annual report , and except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview and recent developments our business purpose is the development of drugs for the treatment of cancer . we are currently focused on the clinical development of our two lead isoflavone-based drug candidates , me-143 and me-344 , which we acquired in the isoflavone transaction on may 9 , 2011 , and prior to the consummation of such transaction had licensed from a subsidiary of novogen . 28 we believe that our existing cash balances , which were approximately $ 3.9 million as of june 30 , 2011 , together with the proceeds of approximately $ 1,270,000 from july and august 2011 warrant exercises , and the proceeds from the sale of $ 2 million of common stock to novogen pursuant to the securities subscription agreement dated september 27 , 2011 , and the expected proceeds of $ 2 million from future purchases of our common stock that novogen has committed to make , will be sufficient to fund our operations until late calendar year 2012. changes in our research and development plans or other changes affecting our operating expenses may affect actual future use of existing cash resources . in any event , however , we will need additional financing to fund our operations in the future , including the continued development of our two lead drug candidates . to date , our operations have been funded primarily through the sale of equity securities . we have not generated any revenues from operations since inception other than interest and dividends from cash and investments . we have incurred losses since inception and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future . as of june 30 , 2011 , we had accumulated losses of $ 77.6 million since our inception in december 2000. expenses to date have consisted primarily of costs associated with conducting the clinical trials of phenoxodiol , and costs incurred under various product license and services agreements with novogen . the services agreements were terminated in december 2010. in connection with the consummation of the isoflavone transaction , the license agreements , and other key agreements with novogen , were terminated . as of september 26 , 2011 , novogen owned approximately 51.5 % of the outstanding shares of our common stock . pursuant to the securities subscription agreement dated september 27 , 2011 , novogen has agreed to purchase an additional 1,333,333 shares of our common stock , which will increase novogen 's ownership percentage to approximately 57.1 % . the isoflavone transaction in may 2011 , we purchased a portfolio of isoflavone-related assets from novogen and novogen research pty limited , a wholly-owned subsidiary of novogen , in exchange for 1,000 shares of our series a convertible preferred stock and the assumption of specified potential liabilities related to these assets . flavonoids are a family of naturally occurring plant compounds . isoflavones are a sub-group of the flavonoid family . prior to the consummation of the isoflavone transaction , we had license agreements with novogen for the use of some of the isoflavone-related assets in the development and commercialization of drugs for the treatment of cancer . these agreements , which were terminated upon consummation of the isoflavone transaction as described below , covered only applications of such assets for use in the treatment of cancer , excluding dermatological applications , and not all possible therapeutic indications . story_separator_special_tag in addition , we agreed to issue certain additional shares of common stock ( the adjustment shares ) to the extent the price of our common stock is below $ 1.333 per share , but greater than or equal to $ 0.75 per share , on certain dates ( adjustment dates ) during the period ending june 26 , 2012 , including as a result of a subsequent offering by us of our securities at a price below the purchase price of the initial shares . the number of adjustment shares issuable will initially be limited to 649,242 , subject to proportionate increases to the extent the series b warrants have been exercised prior to the applicable adjustment date , up to a maximum of 2,332,583 shares . if the trading price of our common stock is below $ 0.75 per share on any adjustment date , we will , in addition to issuing the applicable number of adjustment shares , refund to the investors an amount per share of common stock received by the investors in the transaction equal to the difference between $ 0.75 and the price of the common stock on such adjustment date . upon the closing of the transaction , we issued warrants to the placement agent exercisable for the purchase of up to 210,053 shares of common stock which warrants are exercisable on the same terms , including as to the increase in the number of shares of common stock issuable upon exercise , as the series a warrants . additionally , we paid the placement agent a cash fee equal to 7 % of the gross proceeds of the offering . we filed a registration statement with the sec , which was declared effective in august 2011 , covering the 835,217 shares of common stock issued in connection with the private placement . at the closing date of the private placement , the estimated fair value of the series a and series b warrants , and the embedded derivatives related to the adjustment shares , exceeded the net proceeds from the private placement of approximately $ 665,000. as a result , all of the proceeds were allocated to these derivative liabilities and no proceeds remained for allocation to additional paid-in capital . in july and august 2011 , we issued 1,294,000 shares of common stock to the investors in the may 2011 private placement pursuant to their exercise of series b warrants . we received proceeds of approximately $ 1,270,000 in conjunction with the warrant exercises . see note 5 to the consolidated financial statements in this annual report on form 10-k for more information regarding the may 2011 private placement . corporate developments nasdaq during 2010 , we received deficiency notices from nasdaq regarding non-compliance with the minimum stockholders equity and the minimum market value of publicly held shares in accordance with nasdaq listing standards for the nasdaq global market . on march 7 , 2011 , a nasdaq hearing panel granted us until may 16 , 2011 to evidence compliance with the stockholders equity and minimum market value of publicly held shares requirement . on march 23 , 2011 , we received a positive response from the nasdaq listing qualifications staff indicating that our request for a transfer and continued listing on the nasdaq capital market had been granted . our common stock began trading on the nasdaq capital market effective with the open of business on march 16 , 2011. under nasdaq rules , we are required to maintain minimum stockholders ' equity of $ 2.5 million . if our stockholders ' equity falls below $ 2.5 million , we would have 45 calendar days from the date of notification by nasdaq to submit a plan to regain compliance . if the plan is accepted , nasdaq can grant an extension of up to 180 calendar days from the date of the original notification for us to evidence compliance with this requirement . as a result of continuing losses from operations and the recognition of other expense for the fair value of derivative liabilities related to the securities issued in the may 2011 private placement , our stockholders ' equity fell below $ 2.5 million as of june 30 , 2011 , and therefore , may lead to de-listing of our common stock from the nasdaq stock market , unless we are able to increase our stockholders ' equity through an equity offering or otherwise . on september 27 , 2011 , novogen agreed , pursuant to the terms of a securities subscription agreement between us and novogen , to purchase an additional $ 2 million of our common stock , which upon consummation is expected to increase our stockholders ' equity to above $ 2.5 million . board of directors and management on june 2 , 2011 , we announced the appointment of robert mass , m.d. , as chief medical officer . dr. mass held a number of leadership positions at genentech from 1998 to 2009 , most recently as head of medical affairs , biooncology . he had previously served as a consultant for several oncology companies , including , since october 2010 , marshall edwards . 31 on april 13 , 2011 , william d. rueckert was elected to our board of directors at our annual meeting of stockholders . philip johnston , who served as a director since april 2001 , did not stand for re-election . on august 10 , 2010 , we announced the appointment of christine a. white , m.d . to our board of directors . dr. white replaced professor paul j. nestel , who served as a director since april 2001. critical accounting policies and management estimates management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states .
| results of operations we are providing the following summary of our research and development expenses and general and administrative expenses to supplement the more detailed discussions below . the dollar values in the following tables are in thousands . replace_table_token_3_th comparisons of years ended june 30 , 2011 , 2010 and 2009 research and development : research and development expenses consist primarily of clinical trial costs ( including payments to contract research organizations or cros ) , pre-clinical study costs , cost to manufacture our drug candidates for pre-clinical and clinical studies , related party service charges paid to novogen and salaries and other personnel costs . research and development expenses decreased $ 1,916,000 to $ 2,115,000 for the year ended june 30 , 2011 compared to $ 4,031,000 for the year ended june 30 , 2010. this decrease was primarily due to lower spending for contract services related to the ovature phase iii trial , which terminated enrollment of patients in fiscal year 2009 and completed the final analysis of clinical results in fiscal year 2010. also , the lower costs in fiscal year 2011 resulted from the termination of the services agreement with novogen effective december 31 , 2010. research and development expenses incurred during the year ended june 30 , 2011 primarily relate to pre-clinical work associated with the development of me-143 and me-344 . costs incurred during the year ended june 30 , 2011 also include salaries and benefit costs associated with employees hired during the year , including $ 23,000 in share-based compensation expenses . in previous years , the company utilized personnel employed by novogen , and did not employ research and development personnel .
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the company did not have an impairment for any of the years presented . 68 pra health sciences , inc. and subsidiaries notes to consolidated financial statements ( continued ) when evaluating for impairment , the company may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit or indefinite-lived intangible asset is impaired . if the company story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our “ selected financial data ” and the consolidated financial statements and the related notes included elsewhere in “ financial statements and supplementary data. ” some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward‑looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this annual report on form 10‑k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward‑looking statements contained in the following discussion and analysis . our discussion and analysis below is focused on our financial results and liquidity and capital resources for the years ended december 31 , 2019 and 2018 , including year-over-year comparisons of our financial performance and condition for these years . discussion and analysis of the year ended december 31 , 2017 specifically , as well as the year-over-year comparison of our financial performance and condition for the years ended december 31 , 2018 and 2017 , are located 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 year ended december 31 , 2018 , filed with the sec on february 28 , 2019. overview we are one of the world 's leading global cros , by revenue , providing outsourced clinical development services to the biotechnology and pharmaceutical industries . we believe we are one of a select group of cros with the expertise and capability to conduct clinical trials across major therapeutic areas on a global basis . our therapeutic expertise includes areas that are among the largest in pharmaceutical development , and we focus in particular on oncology , immunology , central nervous system inflammation , respiratory , cardiometabolic and infectious diseases . we believe that we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies , improve study predictability and provide better transparency for our clients throughout their clinical development processes . our data solutions segment allows us to better serve our clients across their entire product lifecycle by ( i ) improving clinical trial design , recruitment , and execution ; ( ii ) creating real-world data solutions based on the use of medicines by actual patients in normal situations ; and ( iii ) increasing the efficiency of healthcare companies ' commercial organizations through enhanced analytics and outsourcing services . how we assess the performance of our business we are managed through two reportable segments , ( i ) clinical research and ( ii ) data solutions . our chief operating decision maker uses segment profit as the primary measure of each segment 's operating results in order to allocate resources and in assessing the company 's performance . in addition to our gaap financial measures , we review various financial and operational metrics . for our clinical research segment we review new business awards , cancellations , and backlog . our gross new business awards for the years ended december 31 , 2019 and 2018 were $ 3,024.0 million and $ 3,023.6 million , respectively . new business awards arise when a client selects us to execute its trial and is documented by written or electronic correspondence or for our strategic solutions offering when the amount of revenue expected to be recognized is measurable . the number of new business awards can vary significantly from year to year , and awards can have terms ranging from several months to several years . for our strategic solutions offering , the value of a new business award is the anticipated service revenue to be recognized in the corresponding quarter of the next fiscal year . for the remainder of our business , the value of a new award is the anticipated service revenue over the life of the contract , which does not include reimbursement activity or investigator fees . in the normal course of business , we experience contract cancellations , which are reflected as cancellations when the client provides us with written or electronic correspondence that the work should cease . during the years ended december 31 , 2019 and 2018 , we had $ 360.4 million and $ 378.8 million , respectively , of cancellations for which we received correspondence from the client . the number of cancellations can vary significantly from year to year . the value of the cancellation is the remaining amount of unrecognized service revenue , less the estimated effort to transition the work back to the client . our backlog consists of anticipated service revenue from new business awards that either have not started or are in process but have not been completed . backlog varies from period to period depending upon new business awards and contract modifications , cancellations , and the amount of service revenue recognized under existing contracts . our backlog at december 31 , 2019 and 2018 was $ 4.7 billion and $ 4.2 billion , respectively . 37 industry trends isr estimated in its 2019 market report that the size of the worldwide cro market was approximately $ 39 billion in 2018 and will grow at a 7.5 % cagr to $ 56 billion in 2023. this growth will be driven by an increase in the amount of research and development expenditures and higher levels of clinical development outsourcing by biopharmaceutical companies . story_separator_special_tag loss on modification or extinguishment of debt loss on modification or extinguishment of debt consists of costs incurred in connection with debt refinancing or incremental borrowings under our credit facilities and the write-off of previously unamortized debt financing costs that were expensed as a result of voluntary debt repayments . depreciation and amortization depreciation represents the depreciation charged on our fixed assets . the charge is recorded on a straight‑line method , based on estimated useful lives of three to seven years for computer hardware and software and five to seven years for furniture and equipment . leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements . amortization expense consists of amortization recorded on acquisition‑related intangible assets . customer relationships , backlog , databases and finite‑lived trade names are amortized on an accelerated basis , which coincides with the period of economic benefit we expect to receive . all other finite‑lived intangibles are amortized on a straight‑line basis . in accordance with gaap , we do not amortize goodwill and indefinite‑lived intangible assets . income taxes because we conduct operations on a global basis , our effective tax rate has and will continue to depend upon the geographic distribution of our pre‑tax earnings among several different taxing jurisdictions . our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions . our effective tax rate is also impacted by tax credits and the establishment or release of deferred tax asset valuation allowances and tax reserves , as well as significant non‑deductible items such as portions of transaction‑related costs . foreign subsidiaries are taxed separately in their respective jurisdictions . we have foreign net operating loss carryforwards in some jurisdictions . the carryforward periods for these losses vary from four years to an indefinite carryforward period depending on the jurisdiction . our ability to offset future taxable income with the net operating loss carryforwards may be limited in certain instances , including changes in ownership . business combinations we have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas . in september 2017 , we acquired symphony health , which has enhanced our ability to serve customers throughout the clinical research process with technologies that provide data and analytics . additionally , in may 39 2017 , we acquired parallel 6 , inc. , or parallel 6 , which has allowed us to offer our customers technologies that provide improved efficiencies by reducing study durations and costs through integrated operational management . these transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date . see note 5 to our audited consolidated financial statements found elsewhere in this annual report on form 10-k for additional information with respect to these and other smaller acquisitions . joint ventures in june 2017 , we closed on a joint venture transaction with takeda pharmaceutical company ltd. , or takeda , that enabled us to provide clinical trial delivery and pharmacovigilance services as a strategic partner of takeda japan . the joint venture was effectuated through the creation of a new legal entity , takeda pra development center kk , or the tdc joint venture . the tdc joint venture is based in japan and is owned by us ( 50 % ) and takeda ( 50 % ) . on may 31 , 2019 , per the terms of the agreement , the tdc joint venture dissolved and the company acquired takeda 's interest for $ 4.1 million . see note 4 and note 5 to our audited consolidated financial statements found elsewhere in this annual report on form 10-k for additional information with respect to joint ventures . exchange rate fluctuations the majority of our foreign operations transact in the euro , or eur , or british pound , or gbp . as a result , our revenue and expenses are subject to exchange rate fluctuations with respect to these currencies . we have translated these currencies into u.s. dollars using the following average exchange rates : replace_table_token_2_th 40 story_separator_special_tag style= '' line-height:120 % ; text-indent:48px ; font-size:10pt ; '' > provision for income taxes decreased by $ 4.4 million from $ 67.2 million during the year ended december 31 , 2018 to $ 62.8 million during the year ended december 31 , 2019 . our effective tax rate was 20.5 % for the year ended december 31 , 2019 compared to 30.3 % during the year ended december 31 , 2018 . the decrease in our effective tax rate was primarily attributable to us updating our analysis of base erosion and anti-abuse tax , which reflects revisions to contractual arrangements . 42 segment results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 clinical research replace_table_token_4_th revenue increased by $ 190.6 million , or 7.3 % , from $ 2,622.4 million during the year ended december 31 , 2018 to $ 2,813.0 million during the year ended december 31 , 2019 . revenue for the year ended december 31 , 2019 benefited from an increase in billable hours and an increase in the effective rate of hours billed on our studies . the growth in revenue and the increase in billable hours were due largely to the increase in our backlog as we entered the year , the type of services we are providing on our active studies , which was driven by the life cycles of projects that were active during the period , the growth in new business awards as a result of higher demand for our services across the industries we serve , and more effective sales efforts and the growth in the overall cro market .
| results of operations consolidated results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 replace_table_token_3_th revenue increased by $ 194.3 million , or 6.8 % , from $ 2,871.9 million during the year ended december 31 , 2018 to $ 3,066.3 million during the year ended december 31 , 2019 . revenue for the year ended december 31 , 2019 benefited from an increase in billable hours , an increase in the effective rate of hours billed on our studies , offset by an unfavorable impact of $ 30.9 million from foreign currency exchange rate fluctuations . the growth in revenue and the increase in billable hours were due largely to the increase in our backlog as we entered the year , the type of services we are providing on our active studies , which was driven by the life cycles of projects that were active during the period , the growth in new business awards as a result of higher demand for our services across the industries we serve , more effective sales efforts and the growth in the overall cro market . the increase in our effective rate of hours billed on our studies is attributable to the contract pricing terms on our current mix of active studies and the mix of clients and services that we provide to those clients . direct costs increased by $ 39.3 million , or 2.6 % , from $ 1,500.2 million during the year ended december 31 , 2018 to $ 1,539.5 million during the year ended december 31 , 2019 . salaries and related benefits in our clinical research segment increased $ 69.2 million as we continue to hire billable staff to ensure appropriate staffing levels for our current studies and future growth and a favorable impact of $ 36.3 million from foreign currency exchange rate fluctuations .
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, gains or losses ) is initially reported as a component of other comprehensive income , net of related taxes , and subsequently reclassified into net earnings in the period the hedged transaction affects earnings . on september 30 , 2010 , the company entered into a cross-currency swap agreement to manage its cash flows related to foreign currency exposure for a portion of an intercompany note receivable of a u.s. dollar functional currency subsidiary that was denominated in euro . both the cross-currency swap and the related story_separator_special_tag the following discussion and analysis of our financial condition and result of operations should be read in conjunction with “ forward-looking statements ” and our consolidated financial statements and notes thereto appearing elsewhere in this annual report . story_separator_special_tag in 2016 biologics biologics provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety of spinal and orthopedic conditions . biologics markets its tissues to hospitals and healthcare providers , primarily in the u.s. , through a network of employed and independent sales representatives . 2017 compared to 2016 net sales increased $ 4.8 million or 8.3 % increase in volume for our trinity products primarily driven by the addition of new distributors over the past year benefit from improving performance from our national distribution partner and the reacquisition of a national hospital contract 2016 compared to 2015 net sales decreased $ 1.9 million or 3.2 % a growing number of competitors in the stem cell allograft market and an associated 2.4 % reduction in average selling price for our products exclusion from a large national hospital group purchasing organization in the second quarter of 2016 partially offset by an increase in the total number of independent distributors in 2016 36 gross profit and non-gaap net margin replace_table_token_6_th 2017 compared to 2016 non-gaap net margin , an internal metric that we define as gross profit less sales and marketing expense , increased $ 1.8 million gross profit increased $ 18.9 million o largely driven by the increase in net sales for our each of sbus , as gross margin remained relatively flat o partially offset by an increase of $ 0.2 million in expense relating to our extremity fixation and u.s. restructurings sales and marketing expense increased $ 17.1 million o primarily relating to higher commission expenses in 2017 , relating to geographic mix in extremity fixation and higher commission rates from new distributors for biologics and spine fixation , and an increase in other compensation costs as a result of the increase in net sales 2016 compared to 2015 non-gaap net margin increased $ 8.8 million gross profit increased $ 12.0 million o increase in sales for biostim and extremity fixation , partially offset by a decrease in sales for biologics and spine fixation o improved operating efficiencies through the absorption of fixed costs o increase in inventory reserves of $ 1.7 million for certain slower moving product lines and obsolete inventory , a portion of which is a result of our planned restructuring in brazil sales and marketing expense increased $ 3.2 million o increase in compensation and benefits costs , including commissions , as a result of the increase in net sales o partially offset by a reduction of certain indirect tax liabilities of $ 3.1 million in 2016 o also partially offset by a decrease in bad debt expense of $ 2.3 million related to puerto rico the following table presents non-gaap net margin by reporting segment . the reasons for the changes in non-gaap net margin by sbu are generally consistent with the information provided above for gross profit and sales and marketing expense . replace_table_token_7_th 37 general and administrative expense replace_table_token_8_th 2017 compared to 2016 general and administrative expense decreased less than $ 0.1 million decrease of $ 3.6 million from a reduction in project bluecore expenses , as the project was completed in 2016 decrease in share-based compensation expense of $ 3.5 million , largely driven by a net decrease in expense attributable to performance-based and market-based awards core expense reductions through savings in other professional fees of $ 2.0 million partially offset by an increase in spending of $ 5.7 million for evaluation of strategic investments further offset by an unfavorable change related to legal settlements of $ 3.5 million , largely as a result of a favorable commercial litigation settlement received in 2016 of $ 3.0 million 2016 compared to 2015 general and administrative expense decreased $ 12.8 million decreases in professional fees of $ 7.9 million , largely associated with the completion in 2016 of our internal control remediation efforts and project bluecore , a company-wide infrastructure initiative to improve the reliability and efficiency of our systems , processes , and reporting reduced legal costs of $ 6.9 million , largely due to legal settlements incurred in the prior year and a commercial legal settlement in 2016 whereby we received $ 3.0 million the moratorium on the medical device tax in 2016 , which decreased expense by $ 1.3 million reduction in other controllable expenses overall decrease was partially offset by increased share-based compensation expense of $ 8.1 million , including $ 5.7 million associated with the determination in 2016 that achieving the performance criteria related to certain of our performance-based vesting restricted stock awards is probable research and development expense replace_table_token_9_th 2017 compared to 2016 research and development expense increased $ 0.9 million increase in costs associated with clinical trials of $ 0.7 million , primarily due to invested resources to identify potential new indications for our pemf technology , such as for osteoarthritis of the knee or as an adjunct to rotator cuff repair increase in costs largely attributable to the initiation of the company 's u.s. restructuring plan in 2017 , which primarily affected our corporate shared services , and resulted in an increase in expense of $ 0.5 million 38 2016 compared to 2015 research and development expense increased $ 2.4 million increased costs associated with clinical trials of $ 1.5 million , primarily due to invested resources to story_separator_special_tag replace_table_token_15_th operating activities cash flows from operating activities increased $ 8.6 million increase in net income of $ 3.2 million net increase of $ 10.6 million for non-cash gains and losses , primarily related to deferred income taxes , share-based compensation expense , and the other-than-temporary impairments incurred relating to the eneura debt security net decrease of $ 5.1 million relating to changes in working capital , primarily attributable to increases in our inventory balance as a result of new product introductions and increases in accounts receivable as a result of the increase in net sales , and partially offset by a decrease in our other current liabilities our two primary working capital accounts are trade accounts receivable and inventory . day 's sales in receivables were 53 days at december 31 , 2017 compared to 52 days at december 31 , 2016. inventory turns were 1.1 times as of december 31 , 2017 compared to 1.4 times at december 31 , 2016 , as a result of increased inventory due to new product introductions , primarily in our spine fixation and extremity fixation sbus . u.s. government resolutions in december 2016 , we submitted offers of settlement to the sec relating to ( 1 ) our prior accounting review and restatements of financial statements and ( 2 ) allegations of improper payments in brazil , and placed $ 14.4 million into escrow for subsequent distribution to the sec relating to these matters . in january 2017 , the sec approved our offers of settlement and the amounts were released to the sec . for additional information , see note 11 to the notes to the consolidated financial statements . investing activities cash flows from investing activities increased $ 5.5 million decrease in capital expenditures of $ 1.4 million , largely as a result of completing project bluecore in 2016 increase due to the purchase of certain inventory and intellectual property assets of $ 2.6 million in 2016 and an increase in our investment in bone biologics , inc. of $ 1.0 million during 2016 41 financing activities cash flows from financing activities increased $ 49.7 million increase of $ 63.4 million related to the share repurchase plan , which was completed in 2016 partially offset by a decrease in net proceeds of $ 13.3 million from the issuance of common shares further offset by debt issuance costs of $ 0.4 million paid in 2017 in relation to the amendment of our credit agreement credit facilities on august 31 , 2015 , we entered into a credit agreement , which provided a five year $ 125 million secured revolving credit facility . on december 8 , 2017 , we amended the credit agreement with jpmorgan , the administrative agent , and certain lenders party thereto . the primary provision of the amendment , among other things , was to add our subsidiary , orthofix international b.v. , as a borrower , guarantor , and a loan party . in addition , two of our subsidiaries , orthofix limited and orthofix ii b.v. were also added as guarantors and loan parties . borrowings under the credit agreement may be used for , among other things , working capital and other general corporate purposes ( including share repurchases , permitted acquisitions and permitted payments of dividends and other distributions ) . as of december 31 , 2017 , we have not made any borrowings under the credit facility . for additional information regarding the credit facility , see note 8 to the notes to the consolidated financial statements contained herein . we had no borrowings and an unused available line of credit of 5.8 million ( $ 7.0 million and $ 6.1 million ) at december 31 , 2017 and 2016 , respectively , on our italian line of credit . this unsecured line of credit provides us the option to borrow amounts in italy at rates which are determined at the time of borrowing . unremitted foreign earnings our current intention is to indefinitely reinvest substantially all of our other unremitted foreign earnings ( residing outside curaçao ) . during the first quarter of 2017 , we changed our intention related to unremitted foreign earnings in our seychelles subsidiary . the tax impact was minimal . as an entity incorporated in curaçao , “ foreign earnings ” refer to both u.s. and non-u.s. earnings . furthermore , only income sourced in the u.s. is subject to u.s. income tax . unremitted foreign earnings decreased from $ 372.5 million at december 31 , 2016 to $ 335.7 million at december 31 , 2017. determining the additional income tax that may be payable if such earnings are repatriated is not practicable . contractual obligations the following table sets forth our contractual obligations as of december 31 , 2017 : replace_table_token_16_th ( 1 ) we have inventory purchase commitments with third-party manufacturers . due to the uncertainty of our future purchasing requirements , obligations under these agreements are included in the preceding table at the amount committed through december 31 , 2017 , all of which are due in 2018 . ( 2 ) we may be required to make payments related to our uncertain tax positions . however , we are unable to reliably estimate the timing of cash settlement , if any , with the respective taxing authorities . accordingly , unrecognized tax benefits , including interest and penalties , of $ 27.8 million as of december 31 , 2017 have been excluded from the contractual obligations table above . for further information , see note 17 to the notes to the consolidated financial statements contained herein . 42 off-balance sheet arrangements as of december 31 , 2017 , we did not have any 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 , cash flows , liquidity , capital expenditures or capital resources that are material to investors .
| executive summary we are a global medical device company focused on musculoskeletal healing products and value-added services . headquartered in lewisville , texas , we have four strategic business units ( “ sbus ” ) that are also our reporting segments : biostim , extremity fixation spine fixation , and biologics . our products are distributed by our sales representatives and distributors in over 60 countries . notable highlights and accomplishments in 2017 include the following : net sales were $ 433.8 million , an increase of 5.9 % on a reported basis and 5.5 % on a constant currency basis ; as net sales increased for each of our sbus . net income from continuing operations was $ 7.3 million , an increase of 108.5 % from the prior year . non-gaap net margin , an internal metric that we define as gross profit less sales and marketing expense , was $ 142.4 million , an increase of 1.3 % from the prior year . results of operations the following table presents certain items in our consolidated statements of operations as a percent of net sales : replace_table_token_4_th net sales by strategic business unit the following table presents net sales , which includes product sales and marketing service fees , by sbu : replace_table_token_5_th 34 biostim biostim manufactures , distributes , and provides support services of market leading devices that enhance bone fusion . biostim uses distributors and sales representatives to sell its devices to hospitals , healthcare providers , and patients .
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