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changes in assumptions , as well as changes in actual experience , could cause the estimates to change . see note 8 โ debt and note 24 โ other assets for additional information . deferred financing costs deferred financing costs related to revolving debt are capitalized and amortized to interest expense over the term of the revolving debt using a method that approximates the effective interest method . see note 24 โ other assets for additional information on deferred financing costs related to revolving debt . see note 8 โ debt for additional information on deferred financing costs related to term debt . capitalized software costs software costs are capitalized and amortized over a period not exceeding five years using the straight-line method . 80 rayonier inc. and subsidiaries rayonier , l.p. and subsidiaries notes to consolidated financial statements ( continued ) ( dollar amounts in thousands unless otherwise stated ) timber and timberlands timber is stated at the lower of cost or net realizable value . costs relating to acquiring , planting and growing timber including real estate taxes , site preparation and direct support costs relating to facilities , vehicles and supplies , are capitalized . a portion of timberland lease payments are capitalized based on the proportion of acres with merchantable timber volume remaining to be harvested under the lease term and the residual portion of the lease payments are expensed as incurred . payroll costs are capitalized for time spent on timber growing activities , while interest or any other intangible costs are not capitalized . an annual depletion rate is established for each particular region by dividing merchantable inventory cost by standing merchantable inventory volume , which is estimated annually . we charge accumulated costs attributed to merchantable timber to depletion expense ( cost of sales ) at the time the timber is harvested or when the underlying timberland is sold . upon the acquisition of timberland , we make a determination on whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new , separate pool . this determination is based on the geographic location of the new timber , the customers/markets that will be served and the species mix . if the acquisition is similar , the cost of the acquired timber is combined into an existing depletion pool and a new depletion rate is calculated for the pool . this determination and depletion rate adjustment normally occurs in the quarter following the acquisition . higher and better use timberlands and real estate development investments hbu timberland is recorded at the lower of cost or net realizable value . these properties are managed as timberlands until sold or developed , with sales and depletion expense related to the harvesting of timber accounted for within the respective timber segment . at the time of sale , the cost basis of any unharvested timber is recorded as depletion expense , a component of cost of sales , within the real estate segment . hbu timberland and real estate development investments expected to be sold within twelve months are recorded story_separator_special_tag . ( c ) net debt is calculated as total debt less cash and cash equivalents . ( d ) enterprise value based on market capitalization ( including rayonier , l.p. โ op โ units ) plus net debt based on rayonier 's share price of $ 29.38 , $ 32.76 , and $ 27.69 as of december 31 , 2020 , 2019 and 2018 , respectively . story_separator_special_tag affiliates ( $ 3.5 million ) , distributions to noncontrolling interests in the operating partnership ( $ 3.6 million ) , noncontrolling interests in consolidated affiliates redemption of shares ( $ 5.1 million ) and increases in debt issuance costs ( $ 2.4 million ) . restricted cash see note 23 โ restricted cash for further information regarding funds in escrow and deposited with a third-party intermediary and cash held in escrow for real estate development obligations . credit ratings both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings , which are periodically reviewed by the rating agencies . as of december 31 , 2020 , our credit ratings from s & p and moody 's were โ bbb- โ and โ baa3 , โ respectively , with both agencies listing our outlook as โ stable. โ strategy we continuously evaluate our capital structure . our strategy is to maintain a weighted-average cost of capital competitive with other timberland reits and timos , while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue capital allocation opportunities as they become available . overall , we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management . expected 2021 expenditures capital expenditures in 2021 are forecasted to be between $ 70 million and $ 75 million , excluding capital expenditures related to noncontrolling interests in the timber funds and any strategic timberland acquisitions we may make . capital expenditures are expected to be primarily comprised of seedling planting , fertilization and other silvicultural activities , property taxes , lease payments , allocated overhead and other capitalized costs . aside from capital expenditures , we may also acquire timberland as we actively evaluate acquisition opportunities . real estate development investments in 2021 are expected to be between $ 13 million and $ 17 million , net of anticipated reimbursements from community development bonds . story_separator_special_tag expected real estate development investments are primarily related to wildlight , our mixed-use community development project located north of jacksonville , florida ; richmond hill , our mixed-use development project located south of savannah , georgia ; development properties in the town of port gamble , washington ; and development projects in gig harbor , kingston and bremerton , washington . our 2021 dividend payments on rayonier inc. common shares and distributions to rayonier , l.p. unitholders are expected to be approximately $ 148.7 million and $ 4.8 million , respectively , assuming no change in the quarterly dividend rate of $ 0.27 per share or material changes in the number of common shares or partnership units outstanding . future share repurchases , if any , will depend on the company 's liquidity and cash flow , as well as general market conditions and other considerations including capital allocation priorities . we made $ 2.9 million of required pension contributions in 2020. we have no pension contribution requirements in 2021 but may make discretionary contributions in the future . 52 cash income tax payments in 2021 are expected to be between $ 13 million and $ 15 million , primarily due to the new zealand subsidiary . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( โ adjusted ebitda โ ) , and cash available for distribution ( โ cad โ ) . these measures are not defined by gaap and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values and of our core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . these measures should not be considered in isolation from , and are not intended to represent an alternative to , our results reported in accordance with gaap . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of land and improved development , non-operating income and expense , operating loss attributable to noncontrolling interest in timber funds , costs related to the merger with pope resources , timber write-offs resulting from casualty events , and large dispositions . below is a reconciliation of net income to adjusted ebitda for the three years ended december 31 ( in millions of dollars ) : replace_table_token_32_th ( a ) timber write-offs resulting from casualty events include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which can not be salvaged . ( b ) costs related to the merger with pope resources include legal , accounting , due diligence , consulting and other costs related to the merger with pope resources . ( c ) large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have a demonstrable premium relative to timberland value . 53 the following tables provide a reconciliation of operating income ( loss ) by segment to adjusted ebitda by segment for the three years ended december 31 ( in millions of dollars ) : replace_table_token_33_th ( a ) timber funds includes $ 7.3 million related to timber write-offs resulting from casualty events . ( b ) timber write-offs resulting from casualty events includes the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which can not be salvaged . ( c ) costs related to the merger with pope resources include legal , accounting , due diligence , consulting and other costs related to the merger with pope resources . ( d ) large dispositions are defined as transactions involving the sale of timberland that exceed $ 20 million in size and do not have a demonstrable premium relative to timberland value . cash available for distribution ( cad ) is defined as cash provided by operating activities adjusted for capital spending ( excluding timberland acquisitions and real estate development investments ) , cad attributable to noncontrolling interest in timber funds and working capital and other balance sheet changes . cad is a non-gaap measure of cash generated during a period that is available for common stock dividends , distributions to noncontrolling interest in the operating partnership , distributions to the new zealand minority shareholder , repurchase of the company 's common shares , debt reduction , timberland acquisitions and real estate development investments . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments , which results in the measure entitled โ adjusted cad. โ cad and adjusted cad generated in any period is not necessarily indicative of the cad that may be generated in future periods . 54 below is a reconciliation of cash provided by operating activities to adjusted cad for the three years ended december 31 ( in millions ) : replace_table_token_34_th replace_table_token_35_th ( a ) capital expenditures exclude timberland acquisitions and real estate development investments . ( b ) costs related to the merger with pope resources include legal , accounting , due diligence , consulting and other costs related to the merger with pope resources . ( c ) excludes debt repayments on the new zealand subsidiary noncontrolling interest shareholder loan . the following table provides supplemental cash flow data for the three years ended
| summary of guarantor financial information in march 2012 , rayonier inc. issued $ 325 million of 3.75 % senior notes due 2022 ( the โ 2022 notes โ ) . on may 7 , 2020 , rayonier inc. contributed its 100 % ownership interest in rayonier operating company llc ( the โ contribution โ ) to rayonier , l.p. as a result of the contribution , rayonier , l.p. expressly assumed all the obligations of rayonier inc. with respect to the outstanding 2022 notes and rayonier inc. agreed to irrevocably , fully and unconditionally guarantee jointly and severally , the obligations of rayonier , l.p. under the indenture , including the 2022 notes . rayonier , l.p. is the current issuer of the 2022 notes . 50 the subsidiary guarantor , rayonier trs holdings inc . , and parent guarantor , rayonier inc. , have guaranteed the notes fully and unconditionally on a joint and several basis . as general partner of rayonier , l.p. , rayonier inc. consolidates rayonier , l.p. and has no material assets or liabilities other than its interest in rayonier , l.p. these notes are unsecured and unsubordinated and will rank equally with all other unsecured and unsubordinated indebtedness from time to time outstanding . rayonier , l.p. is a limited partnership , in which rayonier inc. is the general partner . the operating subsidiaries of rayonier , l.p. conduct all of our operations . rayonier , l.p. 's most significant assets are its interest in operating subsidiaries , which have been eliminated in the table below to eliminate intercompany transactions between the issuer and guarantors and to exclude investments in non-guarantors . as a result , our ability to make required payments on the notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us . there are no material restrictions on dividends from the operating subsidiaries .
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activision currently offers games that operate on the sony computer entertainment , inc. ( `` sony '' ) playstation 3 ( `` ps3 '' ) , nintendo co. ltd. ( `` nintendo '' ) wii ( `` wii '' ) , and microsoft corporation ( `` microsoft '' ) xbox 360 ( `` xbox 360 '' ) console systems ; the nintendo dual screen handheld game systems ; the pc ; apple ios devices and other handheld and mobile devices . blizzard entertainment , inc. blizzard entertainment , inc. ( `` blizzard '' ) is the leader in the subscription-based massively multi-player online role-playing game ( `` mmorpg '' ) category in terms of both subscriber base and revenues generated through its world of warcraft franchise , which it develops , supports , and hosts . blizzard also develops , markets and sells role-playing action and strategy pc-based computer games , including games in the multiple-award winning diablo ยฎ and starcraft ยฎ franchises . blizzard also maintains a proprietary online-game related service , battle.net ยฎ . blizzard distributes its products and generates revenues worldwide through various means , including : subscriptions ( which consist of fees from individuals playing world of warcraft ยฎ , prepaid cards and other value-added service revenues such as realm transfers , faction changes , and other character customizations within the world of warcraft gameplay ) ; retail sales of physical `` boxed '' products ; online download sales of pc products ; and licensing of software to third-party or related party companies that distribute world of warcraft and starcraft . activision blizzard distribution activision blizzard distribution ( `` distribution '' ) consists of operations in europe that provide warehousing , logistical , and sales distribution services to third-party publishers of interactive entertainment software , our own publishing operations , and manufacturers of interactive entertainment hardware . business results and highlights in 2011 , activision blizzard 's consolidated net revenues were $ 4.8 billion and consolidated net income was $ 1.1 billion , resulting in diluted earnings per common share of $ 0.92. the company grew net revenues , operating income , and earnings per share as compared to 2010. we also generated $ 952 million in cash from operating activities in 2011. net revenues from digital online channels ( as defined later in this filing ) increased 14 % year-over-year to $ 1.6 billion , accounting for 34 % of the company 's total consolidated net revenues . 40 also , according to the npd group with respect to north america , charttrack and gfk with respect to europe , and microsoft , sony and activision blizzard internal estimates , during 2011 : activision publishing was the # 1 console and handheld publisher in the u.s. and europe for the fourth quarter of 2011 and the # 1 console and handheld publisher in the u.s. for the calendar year . for the calendar year , in aggregate across all platforms in north america and europe , activision publishing 's call of duty ยฎ : modern warfare 3 ยฎ was the # 1 best-selling title in dollars , and call of duty : black ops ยฎ was the # 5 best-selling title in dollars . in north america and europe , including accessory packs and figures , skylanders spyro 's adventure tm was the # 8 best-selling game in dollars for the fourth quarter of 2011 and the # 1 selling kids ' title in dollars for the calendar year . additionally , in north america , including accessory packs and figures , skylanders spyro 's adventure was the # 10 best-selling title in dollars for the calendar year . for the calendar year , blizzard entertainment had two top-10 pc games in north america and europe with starcraft ii : wings of libertyยฎ and world of warcraft : cataclysmยฎ . story_separator_special_tag desired return on our investments in product development . concentration of top titles the concentration of retail revenues among key core titles has continued as a trend in the overall interactive software industry . according to the npd group , the top 10 titles accounted for 26 % of the sales in the u.s. video game industry in 2011 as compared to 23 % in 2010. similarly , a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games are responsible for a disproportionately high percentage of our 43 profits . for example , the three key franchises of call of duty , world of warcraft , and skylanders accounted for approximately 73 % of our net revenues , and a significantly higher percentage of our operating income , in 2011. we expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of the industry and our revenues and profits . seasonality the interactive entertainment industry is highly seasonal . we have historically experienced our highest sales volume in the year-end holiday buying season , which occurs in the fourth quarter . we defer the recognition of a significant amount of net revenue related to our software titles containing online functionality that constitutes a more-than-inconsequential separate service deliverable over an extended period of time ( i.e. , typically six months to less than a year ) . as a result , the quarter in which we generate the highest sales volume may be different than the quarter in which we recognize the highest amount of net revenue . our results can also vary based on , but not limited to , a number of factors such as , title release date , consumer demand , market conditions and shipment schedule . story_separator_special_tag segment net revenues activision activision 's net revenues increased for 2011 as compared to 2010 , primarily due to : strong performance from call of duty : modern warfare 3 , which was released in the fourth quarter of 2011 ; strong digital performance from the increased sales of downloadable content packs associated with call of duty : black ops that were released in 2011 as compared to the downloadable content packs associated with call of duty : modern warfare 2 ยฎ that were released in 2010 ; the release of skylanders spyro 's adventure in the fourth quarter of 2011 ; the release of lego star wars iii , which we published on behalf of lucas arts in europe and certain countries in asia pacific ; and benefits from foreign exchange as compared to the prior year . the increases were partially offset by lower revenues as a result of : the more focused release schedule in 2011 than in 2010. in 2011 , activision released nine key titles as compared to the release of twelve key titles in 2010 ; and lower catalogue sales of games in the music and casual games genre . for 2010 , net revenues from the activision segment decreased as compared to 2009 primarily due to : the release of fewer key titles in 2010 than in 2009 and weaker sales of games in the music and casual genres . in 2010 , activision released twelve key titles compared to the release of sixteen key titles in 2009 ; and blur and singularity , two new intellectual properties that were released in the second quarter of 2010 , had only limited market success . while establishing successful new intellectual properties has always been difficult , the economic environment made it particularly challenging in 2010. the decreases were partially offset by the : strong performance from call of duty : black ops , which was released in the fourth quarter of 2010 ; continued strong performance of call of duty : modern warfare 2 , which was released in november 2009 ; and the launch of call of duty : modern warfare 2 downloadable content packs in 2010 . 47 blizzard blizzard 's net revenues decreased for 2011 as compared to 2010 , primarily due to : no new titles released in 2011 as compared to 2010 when world of warcraft : cataclysm was released in the fourth quarter of 2010 and starcraft ii : wings of liberty was released in the third quarter of 2010 ; and a decline in world of warcraft 's subscriber base during 2011. with the launch of world of warcraft : cataclysm , in the fourth quarter of 2010 , the subscriber base reached a new peak at more than 12 million subscribers at december 31 , 2010. since that time , the subscriber base has trended downward , and was approximately 10.2 million subscribers at december 31 , 2011. these decreases were partially offset by benefits from foreign exchange as compared to prior year . blizzard 's net revenues increased for 2010 as compared to 2009 primarily as a result of : the release of world of warcraft : cataclysm in the fourth quarter of 2010 ; the release of starcraft ii : wings of liberty in the third quarter of 2010 ; growth in sales of value-added services related to world of warcraft ; the china region business being back `` on line '' for the full year of 2010 ; and the successful launch of world of warcraft : wrath of the lich king in china in august 2010. distribution distribution 's net revenues increased in 2011 as compared to 2010 , primarily due to additional customer sales opportunities in the u.k. and benefits from foreign exchange as compared to prior year . distribution 's net revenues decreased in 2010 as compared to 2009 , primarily due to the weakness in the interactive software industry in the u.k. , resulting in lower sales from u.k. independent retailers and warehousing services . segment income from operations activision activision 's operating income increased in 2011 as compared to 2010 , primarily due to : a more focused release of products that delivered higher operating margins ; increased digital sales of call of duty 's digital content , resulting in high operating margins ; and reduction of operating expenses resulting from the restructuring activities implemented in 2011. these positive impacts on operating income were partially offset by : an increase in sales and marketing expenses to support the launch of skylanders spyro 's adventure , call of duty : modern warfare 3 and call of duty elite ; and additional litigation activities and settlement of lawsuits . activision 's operating income decreased in 2010 as compared to 2009 , primarily due to : the release of fewer key titles in 2010 than in 2009 and weaker sales of games in the music and casual genres ; limited market success of two new intellectual properties , blur and singularity ; and higher inventory obsolescence of peripherals and write offs as a result of cancellations of certain titles ( e.g. , a guitar hero title that had been planned for release in 2011 and true crime : hong kong ) . 48 these negative impacts on operating income were partially offset by : stronger performance from our call of duty franchise in both retail and digital channels ; a positive shift in the sales mix to higher-margin digital products ; lower sales and marketing expenses as a result of fewer releases ; and savings realized from headcount reductions within certain administrative functions in the first quarter of 2010. blizzard blizzard 's operating income decreased for 2011 as compared to 2010 primarily due to lower revenues as described above .
| additional highlights on february 2 , 2012 , our board of directors authorized a new stock repurchase program under which we may repurchase up to $ 1 billion of our common stock , on terms and conditions to be determined by the company , during the period between april 1 , 2012 and the earlier of march 31 , 2013 or a determination by the board of directors to discontinue the repurchase program . on february 9 , 2012 , the board of directors declared a cash dividend of $ 0.18 per common share to be paid on may 16 , 2012 to shareholders of record at the close of business on march 21 , 2012. on february 3 , 2011 , our board of directors authorized a new stock repurchase program ( the `` 2011 stock repurchase program '' ) under which we may repurchase up to $ 1.5 billion of our common stock until the earlier of march 31 , 2012 or a determination by the board of directors to discontinue the repurchase program . as of december 31 , 2011 , we have repurchased 59 million shares of common stock under this program at an aggregate purchase price of approximately $ 670 million . additionally , in january 2012 , we settled the purchase of 1 million shares of our common stock that we had committed to repurchase in december 2011 pursuant to the 2011 stock repurchase program for $ 12 million . in january 2011 , we settled a $ 22 million purchase of 1.8 million shares of our common stock that we had agreed to repurchase in december 2010 pursuant to a stock repurchase program under which , until december 31 , 2010 , we were authorized to repurchase up to $ 1 billion of our common stock .
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eighteen certificates of deposits totaling $ 4.2 million matured during 2017. the company 's purchases of property and equipment of $ 230,000 in 2017 were mainly for improvements to production and process capabilities and two vehicles . also , during 2017 , the company incurred $ 39,000 in patent application costs that the company has recorded as an asset and will amortize upon successful completion of the application process . in addition , the company sold three vehicles for $ 33,000. during 2016 , cash used in investing activities was $ 5.3 million . the company purchased 19 certificates of deposits totaling $ 4.4 million . five certificates of deposits totaling $ 1.1 million matured during 2016. the company 's cash purchases of property and equipment were $ 2.1 million in 2016. total building expansion expenditures for 2016 were $ 1,393,000. expenditures on the new erp system in 2016 were $ 281,000. the remaining capital expenditures were mainly for upgrades to improve ams production and process capabilities . also during 2016 , the company incurred $ 27,000 in patent application costs that the company records as an asset and amortizes upon successful completion of the application process . in addition , the company sold equipment for $ 21,000. related to the company 's loan , the company made principal payments of $ 140,000 in 2017. during 2017 , the company received $ 2,000 from financing activities from the issuance of 250 shares of common stock due to the exercise of stock options , while the company repurchased 35,450 shares of its own stock for $ 300,000. during 2016 , the company received $ 3.2 million from financing activities . the company secured a loan of $ 3.4 million in which the proceeds were used to finance the expansion of its ams facility . related to securing the loan , the company paid $ 139,000 in debt issuance costs and made principal payments of $ 79,000. during 2016 , the company received $ 4,000 from the issuance of 500 shares of common stock pursuant to the exercise of stock options . on april 1 , 2016 , the company entered into a financing agreement to borrow $ 3.4 million . the proceeds from the loan were used to finance the construction of a 27,300-square foot building , as well as related equipment for use in the company 's manufacture of sound deadening technology used in the aerospace industry and products consisting of 15 etched composites , ceramics , glass and silicon wafers , to be located in duluth , minnesota . the loan requires monthly payments of approximately $ 18,000 , including interest . the loan bears interest at a rate of 2.14 % per year , subject to change based upon changes to the maximum federal corporate tax rate , payable monthly , and matures on april 1 , 2041. the loan is subject to mandatory purchase provisions , under which any owners of the bonds ( the โ owners โ ) may tender the bonds to the issuer on april 1 , 2021 , which would result in the company repaying the outstanding loan principal and any outstanding accrued and unpaid interest to the issuer at that time . if in the event the bonds are not repurchased on april 1 , 2021 , the bonds shall be subject to the interest rate and redemption provisions set forth in the associated covenant agreement . including debt costs of approximately $ 139,000 , the loan 's effective annual interest rate was 2.77 % at december 31 , 2017. as a result of the tax reform act described above , the company estimates the future effective interest rate will be approximately 3.23 % beginning in march 2018 , resulting in an approximate $ 15,000 increase in interest payments annually . the company is subject to certain customary covenants set forth in the associated covenant agreement , including a requirement that the company maintain a debt service coverage ratio as of the end of each calendar quarter of not less than 1.25 to 1.00 on a rolling four-quarter basis . the company was in compliance with the required debt service coverage ratio as of december 31 , 2017 and 2016. a bank line of credit exists providing for borrowings of up to $ 2,050,000 and expires on june 30 , 2019. the line of credit is collateralized by the company 's assets and bears interest at 1.8 percentage points over the 30โday libor rate . the company did not utilize this line of credit during 2017 or 2016 , and there were no borrowings outstanding as of december 31 , 2017 and 2016. there are no financial covenants related to the line of credit . the company believes that current financial resources , its line of credit , cash generated from operations and secured through debt financing , and short term investments , along with the company 's capacity for additional debt and or equity financing will be sufficient to fund current and anticipated business operations . the company also believes that it is unlikely that a decrease in demand for the company 's products would impair the company 's ability to fund operations given its excess cash and available line of credit . capital expenditures in 2017 , the company incurred $ 230,000 of capital expenditures which were mainly for improvements to production and process capabilities and two vehicles . in 2016 , the company incurred $ 1.7 million of capital expenditures . a majority of the expenditures were related to the ams building expansion . the remaining capital expenditures were for upgrades to improve ams production and process capabilities , as well as for a new erp system . story_separator_special_tag the company expects capital expenditures in 2018 of approximately $ 658,000. the planned expenditures primarily will be to upgrade the heating , cooling and ventilation system at the company 's main facility and manufacturing equipment to improve processes and capabilities . these commitments are expected to be funded with cash generated from operating activities . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 2017 foreign sales of $ 5.4 million were approximately 30.5 % of total sales , compared to the 2016 foreign sales of $ 4.9 million , which were 28.0 % of total sales . the company realized an increase in foreign sales due to the sale of two dtx printers into europe and improved consumable sales to asia . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , though a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations . furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 2017 or 2016. future outlook ikonics has spent an average of approximately 4.0 % of annual sales in research and development and has made capital expenditures related to new products and programs . the company plans to maintain its efforts in these 16 areas to expedite internal product development as well as to form technological alliances with outside entities to commercialize new product opportunities . the company continues to make progress on its ams business initiative . although ams experienced a short-term drop in sales during 2017 due to temporary inventory overstocking by a major customer , these sales have returned to expected levels , and the company anticipates continued growth over the long term . the company has two long-term sales agreements in place for its technology with major aerospace companies and is negotiating a third . in anticipation of this growing business , the company increased its ams capacity with a 27,300 square foot expansion at its morgan park site in 2016. the company is also continuing to pursue dtx-related business initiatives and expects increased consumable sales as a result of the sale of two dtx printers in 2017. in addition to making efforts towards growing the inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working on production improvements to enhance its customer offerings . the company has been awarded european , japanese , and united states patents on its dtx technologies . the company has also modified its dtx technology to facilitate entry into the market for prototyping . both the domestic and ikonics imaging units remain profitable in mature markets . although these business units require aggressive strategies to grow market share , both are developing new products and business relationships that we believe will contribute to growth . in october 2017 , the company introduced subthat ! , a patent-pending product for the dye-sublimation market . response to subthat ! has been very encouraging , with the company realizing subthat ! sales of $ 258,000 in the fourth quarter of 2017. in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . however , the strong u.s. dollar has made this challenging . other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers . asu 2014โ09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers : deferral of the effective date , which defers the adoption of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . the standard permits two methods of adoption : retrospectively to each prior reporting period presented ( full retrospective method ) , or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application ( the modified retrospective method ) . the standard also requires expanded disclosures relating to the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . additionally , qualitative and quantitative disclosures are required about customer contracts , significant judgments and changes in judgments , and assets recognized from the costs to obtain or fulfill a contract . the company will adopt the provisions of asu 2014-09 on january 1 , 2018 using the modified retrospective method . while most of the company 's revenue is contracted with customers through one-time purchase orders and short-term contracts , the company does have long-term contracts with certain customers . the company is nearly complete with its evaluation of the effect of adoption on its financial statements , and will expand its financial statement disclosures in future periods in order to comply with the new standard . for the revenue streams
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 sales . sales decreased 1.9 % in 2017 to $ 17.2 million , compared to $ 17.6 million in 2016. a more competitive market for artwork film sales along with overall soft market conditions resulted in a decrease in domestic sales from $ 7.4 million in 2016 to $ 6.9 million in 2017. compared to 2016 , ikonics imaging sales decreased by $ 231,000 to $ 4.0 million in 2017 as sales were negatively affected by some customers moving to competing technologies . the ikonics imaging sales variance was also impacted by a large initial order from a new customer received in 2016. partially offsetting these sales decreases in 2017 , ikonics imaging realized sales of $ 258,000 for its newly introduced subthat ! film . ams sales decreased by $ 296,000 , or 28.4 % , in 2017 versus 2016 due to the temporary decrease in orders from ams 's largest customer during the second quarter of 2017. beginning in the third quarter of 2017 , the customer resumed its normal order pattern , which is expected to continue in 2018. partially offsetting these sales decreases was a $ 413,000 , or 101.9 % increase in dtx due to the sale of two dtx printers and improved consumable sales . export sales also realized a $ 214,000 , or 4.8 % , sales increase in 2017 compared to 2016 due to improved sales to asia . gross profit . gross profit was $ 5.7 million , or 33.2 % of sales , in 2017 compared to $ 6.2 million , or 35.5 % of sales , in 2016. the gross profit as a percentage of sales decreased due to lower sale volumes and a less favorable sales mix .
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our differentiated business model has enabled us to break down traditional barriers such as high product and network deployment costs and offer solutions with disruptive price-performance characteristics . this differentiated business model , combined with our innovative proprietary technologies , has resulted in an attractive alternative 32 to traditional high touch , high cost providers , allowing us to advance the market adoption of our platforms for ubiquitous connectivity . we offer a broad and expanding portfolio of networking products and solutions for service providers and enterprises . our service provider product platforms provide carrier-class network infrastructure for fixed wireless broadband , wireless backhaul systems and routing . our enterprise product platforms provide wireless lan infrastructure , video surveillance products , switching and routing solutions and machine-to-machine communication components . we believe that our products are highly differentiated due to our proprietary software protocol innovation , firmware expertise , and hardware design capabilities . this differentiation allows our portfolio to meet the demanding performance requirements of video , voice and data applications at prices that are a fraction of those offered by our competitors . as a core part of our strategy , we have developed a differentiated business model for marketing and selling high volumes of carrier and enterprise-class communications platforms . our business model is driven by a large , growing and highly engaged community of service providers , distributors , value added resellers , systems integrators and corporate it professionals , which we refer to as the ubiquiti community . the ubiquiti community is a critical element of our business strategy as it enables us to drive : rapid customer and community driven product development . we have an active , loyal community built from our customers that we believe is a sustainable competitive advantage . our solutions benefit from the active engagement between the ubiquiti community and our development engineers throughout the product development cycle , which eliminates long and expensive multistep internal processes and results in rapid introduction and adoption of our products . this approach significantly reduces our development costs and time to market . scalable sales and marketing model . we do not currently have , nor do we plan to hire , a direct sales force , but instead utilize the ubiquiti community to drive market awareness and demand for our products and solutions . this community-propagated viral marketing enables us to reach underserved and underpenetrated markets far more efficiently and cost-effectively than is possible through traditional sales models . leveraging the information transparency of the internet allows customers to research , evaluate and validate our solutions with the ubiquiti community and via third party web sites . this allows us to operate a scalable sales and marketing model and effectively create awareness of our brand and products . word of mouth referrals from the ubiquiti community generate high quality leads for our distributors at relatively little cost . self-sustaining product support . the engaged members of the ubiquiti community have enabled us to foster a large , cost efficient , highly-scalable and , we believe , self-sustaining mechanism for rapid product support and dissemination of information . by reducing the cost of development , sales , marketing and support we are able to eliminate traditional business model inefficiencies and offer innovative solutions with disruptive price performance characteristics to our customers . key components of our results of operations and financial condition revenues our revenues are derived principally from the sale of networking hardware and management tools . in addition , while we do not sell maintenance and support separately , because we have historically included it free of charge in many of our arrangements , we attribute a portion of our systems revenues to this implied post-contract customer support ( โ pcs โ ) . we classify our revenues into two primary product categories , service provider technology and enterprise technology . service provider technology includes our airmax , edgemax and airfiber platforms , as well as embedded radio products and other 802.11 standard products including base stations , radios , backhaul equipment and customer premise equipment ( โ cpe โ ) . additionally , service provider technology includes antennas and other products in the 0.9 to 6.0ghz spectrum and miscellaneous products such as mounting brackets , cables and power over ethernet adapters . service provider technology also includes solar products ( sales of which have not been material to date ) and revenues that are attributable to pcs . enterprise technology includes our unifi and mfi platforms , including unifi enterprise wi-fi products , unifi video products , and unifi switching and routing solutions . enterprise technology also includes revenues that are attributable to pcs . 33 we sell our products and solutions globally to service providers and enterprises primarily through our extensive network of distributors , and , to a lesser extent , direct customers . sales to distributors accounted for 99 % of our revenues in the year ended june 30 , 2016 . other channel partners , such as resellers , largely accounted for the balance of our revenues . cost of revenues our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and chipsets that we consign to certain of our contract manufacturers . in addition , cost of revenues includes tooling , labor and other costs associated with engineering , testing and quality assurance , warranty costs , stock-based compensation , logistics related fees and excess and obsolete inventory . in addition to utilizing contract manufacturers , we outsource most of our logistics warehousing and order fulfillment functions , which are located primarily in china , and to a lesser extent , taiwan and united states . we also evaluate and utilize other vendors for various portions of our supply chain from time to time . our operations organization consists of employees and consultants engaged in the management of our contract manufacturers , new product introduction activities , logistical support and engineering . story_separator_special_tag for our sales , evidence of the arrangement consists of an order from a customer . we consider delivery to have occurred once our products have been shipped and title and risk of loss have been transferred . for our sales , these criteria are met at the time the products are transferred to the customer 's shipping agent . our arrangements with customers do not include provisions for cancellation , returns , inventory swaps or refunds that materially impact recognized revenues . we record amounts billed to distributors for shipping and handling costs as revenues . we classify shipping and handling costs incurred by us as cost of revenues . deposit payments received from distributors in advance of recognition of revenues are included in current liabilities on our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met . our multi-element arrangements generally include two deliverables . the first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale . the second deliverable is the implied right to pcs included with the purchase of certain products . pcs is the right to receive , on a when and if available basis , future unspecified software upgrades and features relating to the product 's essential software as well as bug fixes , email and telephone support . we use a hierarchy to determine the allocation of revenues to the deliverables . the hierarchy is as follows : ( i ) vendor-specific objective evidence of fair value ( โ vsoe โ ) , ( ii ) third-party evidence of selling price ( โ tpe โ ) , and ( iii ) best estimate of the selling price ( โ besp โ ) . ( i ) vsoe generally exists only when a company sells the deliverable separately and is the price actually charged by the company for that deliverable . generally we do not sell the deliverables separately and , as such , do not have vsoe . ( ii ) tpe can be substantiated by determining the price that other parties sell similar or substantially similar offerings . we do not believe that there is accessible tpe evidence for similar deliverables . ( iii ) besp reflects our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis . we believe that besp is the most appropriate methodology for determining the allocation of revenues among the multiple elements . we have allocated revenues between these two deliverables using the relative selling price method which is based on the besp for all deliverables . revenues allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for recognition of revenues have been met . revenues allocated to the pcs are deferred 35 and recognized on a straight-line basis over the estimated period for which services will be delivered to support each of these devices which , currently , is two years . all costs of revenues , including estimated warranty costs , are recognized at the time of sale . costs for research and development and sales and marketing are expensed as incurred . if the estimated life of the hardware product should change , the future rate of amortization of the revenues allocated to pcs would also change . our process for determining besp for deliverables involves multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable . for pcs , we believe our network operators and service providers would be reluctant to pay for such services separately . this view is primarily based on the fact that unspecified upgrade rights do not obligate us to provide upgrades at a particular time or at all , and do not specify to network operators and service providers which upgrades or features will be delivered . we believe that the relatively low prices of our products and our network operators , and service providers ' price sensitivity would add to their reluctance to pay for pcs . therefore , we have concluded that if we were to sell pcs on a stand-alone basis , the selling price would be relatively low . key factors considered by us in developing the besp for pcs include reviewing the activities of specific employees engaged in support and software development to determine the amount of time that is allocated to the development of the undelivered elements , determining the cost of this development effort , and then adding an appropriate level of gross profit to these costs . inventory and inventory valuation our inventories are primarily finished goods and , to a lesser extent , raw materials . our inventories are stated at the lower of actual cost ( computed on a first-in , first-out basis ) , or market value . market value is based upon an estimated average selling price reduced by the estimated costs of disposal . the determination of market value involves numerous judgments including estimating average selling prices based upon recent sales , industry trends , existing customer orders , and seasonal factors . should actual market conditions differ from our estimates , our future results of operations could be materially affected . we reduce the value of our inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the estimated market value . write-downs are not reversed until the related inventory has been subsequently sold or scrapped . the valuation of inventory also requires us to estimate excess and obsolete inventory . the determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to our forecast of customer demand . customer demand is dependent on many factors and requires us to use significant judgment in our forecasting process .
| results of operations comparison of years ended june 30 , 2016 and 2015 replace_table_token_6_th 37 revenues revenues increased $ 70.4 million , or 12 % , from $ 595.9 million in fiscal 2015 to $ 666.4 million in fiscal 2016 . the increase in revenues during fiscal 2016 was driven by increased adoption of our enterprise technologies products which represented 37 % of our total revenue in fiscal 2016 . service provider products revenue were flat year over year and represented 63 % of our total revenue in fiscal 2016 . no distributor or customer represented more than 10 % of our revenues in fiscal 2016 or fiscal 2015 . revenues by product type replace_table_token_7_th service provider technology revenues remained flat in fiscal 2016 , as the increase in sales in north america , europe , the middle east , and africa ( `` emea '' ) and asia pacific were largely offset by the decrease in sales in south america . enterprise technology revenues increased $ 70.1 million , or 39 % , during fiscal 2016 , primarily due to product expansion and further adoption of our unifi technology platform . revenues by geography we have determined the geographical distribution of our product revenues based on our customers ' ship-to destinations . a majority of our sales are to distributors who in turn sell to resellers or directly to end customers , which may be in different countries than the initial ship-to destination . the following are our revenues by geography for fiscal 2016 and fiscal 2015 ( in thousands , except percentages ) : replace_table_token_8_th ( 1 ) revenue for the united states was $ 225.6 million and $ 187.3 million in fiscal 2016 and fiscal 2015 , respectively . north america revenues in north america increased $ 41.8 million , or 21 % , from $ 197.7 million in fiscal 2015 to $ 239.5 million in fiscal 2016 .
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the company elected to utilize the alternative modified transition method , under which the cumulative-effect adjustment to the opening balance is recognized on the date of adoption while comparative prior periods continue to be reported under the guidance in effect prior to january 1 , 2019. accordingly , the company did not restate or make related disclosures under the new story_separator_special_tag you should read the following discussion of our financial condition and results of operations together with the audited consolidated financial statements and notes to the financial statements included elsewhere in this form 10-k. this discussion contains 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 a number of factors , including those discussed under โ risk factors โ in part i , item 1a above . business and executive overview we are a global company that delivers innovative , advanced networking technologies and internet connected products to consumers , businesses , and service providers . our products are designed to simplify and improve people 's lives . our goal is to enable people to collaborate and connect to a world of information and entertainment . we are dedicated to delivering innovative and advanced connected solutions ranging from mobile and cloud-based services for enhanced control and security , to smart networking products , video over ethernet for pro av applications , easy-to-use wifi solutions and performance gaming routers to enhance console , online and cloud game play . our products are built on a variety of technologies such as wireless ( wifi and 4g/5g mobile ) , ethernet and powerline , with a focus on reliability and ease-of-use . additionally , we continually invest in research and development to create new technologies and to capitalize on technological inflection points and trends , such as wifi 6 , 5g and pro-av . our product lines consist of devices that create and extend wired and wireless networks as well as devices that provide a special function and attach to the network , such as smart digital canvasses . these products are available in multiple configurations to address the changing needs of our customers in each geographic region in which our products are sold . on february 6 , 2018 , we announced that the board of directors had unanimously approved the pursuit of a separation of our smart camera business , arlo , from netgear ( the โ separation โ ) to be effected by way of an initial public offering ( `` ipo '' ) and spin-off ( `` the spin-off '' ) . on december 31 , 2018 , we completed the spin-off of arlo technologies , inc. ( โ arlo โ ) , a majority owned subsidiary and reporting segment of netgear at the time . arlo 's historical financial results for periods prior to the spin-off are reflected in our consolidated financial statements as discontinued operations for the periods presented . for further details , refer to note 3 , discontinued operations , in notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k. we operate and report in two segments : connected home , and small and medium business ( `` smb '' ) . we believe that this structure reflects our current operational and financial management , and provides the best structure for us to focus on growth opportunities while maintaining financial discipline . the leadership team of each segment is focused on product development efforts , both from a product marketing and engineering standpoint , to service the unique needs of their customers . the connected home segment is focused on consumers and consists of high-performance , dependable and easy-to-use wifi internet networking solutions such as wifi mesh systems , routers , 4g/5g mobile products , smart devices such as meural digital canvasses , and services offering consumers a range of parental controls and cyber security for their home networks . the smb segment is focused on small and medium-sized businesses and consists of business networking , wireless lan , storage , and security solutions that bring enterprise-class functionality to small and medium-sized businesses at an affordable price . we conduct business across three geographic regions : americas ; europe , middle-east and africa ( โ emea โ ) and asia pacific ( โ apac โ ) . business overview the markets in which our segments operate are intensely competitive and subject to rapid technological change . we believe that the principal competitive factors in the consumer and small and medium business markets for networking products include product breadth , price points , size and scope of the sales channel , brand name , timeliness of new product introductions , product availability , performance , features , functionality and reliability , ease-of-installation , maintenance and use , security , and customer service and support . to remain competitive , we believe we must continue to aggressively invest resources in developing new products and subscription services , enhancing our current products , expanding our channels and maintaining customer satisfaction worldwide . our investments reflect our enhanced focus on cybersecurity relating to our products and systems , as the threat of cyber-attacks and exploitation of potential security vulnerabilities in our industry is on the rise and is increasingly a significant consumer concern . 44 we sell our products through multiple sales channels worldwide , including traditional retailers , online retailers , wholesale distributors , direct market resellers ( โ dmrs โ ) , value-added resellers ( โ vars โ ) , broadband service providers and our webstore at www.netgear.com . story_separator_special_tag revenue recognition on january 1 , 2018 , we adopted asu 2014-09 , โ revenue from contracts with customers โ ( topic 606 ) ( โ asc 606 โ ) and applied this guidance to those contracts which were not completed at the date of adoption using the modified retrospective method . the comparative information was not restated and continued to be reported under the accounting standards in effect for those periods ( asc 605 ) . the adoption did not have a significant impact to the nature and timing of our revenues , results of operations , cash flows and statement of financial position . revenue from all sales types is recognized at transaction price , the amount we expect to be entitled to in exchange for transferring goods or providing services . transaction price is calculated as selling price net of variable consideration which may include estimates for future returns , sales incentives and price protection related to current period product revenue . our standard obligation to our direct customers generally provides for a full refund in the event that such product is not merchantable or is found to be damaged or defective . in determining estimates for future returns , we estimate variable consideration at the expected value amount which is based on management 's analysis of historical data , channel inventory levels , current economic trends and changes in customer demand for our products . sales incentives and price protection are determined based on a combination of the actual amounts committed and through estimating future expenditure based upon historical customary business practice . we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur . we enter into contracts to sell our products and services , and while some of our sales agreements contain standard terms and conditions , there are agreements that contain non-standard terms and conditions and include promises to transfer multiple goods or services . as a result , significant interpretation and judgment is sometimes required to determine the appropriate accounting for these transactions including : ( 1 ) whether performance obligations are considered distinct and required to be accounted for separately or combined , including allocation of transaction price ; ( 2 ) developing an estimate of the stand-alone selling price , or ssp , of each distinct performance obligation ; ( 3 ) combining contracts that may impact the allocation of the transaction price between product and services ; and ( 4 ) estimating and accounting for variable consideration , including rights of return , rebates , price protection , expected penalties or other price concessions as a reduction of the transaction price . judgment is required to determine the ssp for each distinct performance obligation . we consider multiple factors , including , but not limited to , historical discounting trends for products and services , pricing practices in different geographies and through different sales channels , gross margin objectives , internal costs , competitor pricing strategies , and industry technology lifecycles . we record revenues at the transaction price , net of allowances for customer right of returns , program and sales incentive offerings , price protection , promotions and other credits , which are accounted for as variable consideration . variable consideration includes future channel warranty returns typically incurred due to buyer 's remorse , stock rotations , price protection and sales channel incentive programs . future warranty returns are recorded as a reduction of revenue in the amount of the expected credit or refund to be provided . at the time we record the reduction to revenue related to warranty returns , we include within cost of revenue a write-down to reduce the carrying value of such products to net realizable value . we use estimates based on historical experience , channel inventory levels , current economic trends and changes in customer demand for our products to determine the expected value of future warranty returns . in addition to warranty-related returns , certain distributors and retailers generally have the right to return product for stock rotation purposes . we accrue for sales incentives as a marketing expense if an identifiable benefit can be identified and fair value estimated ; otherwise , these incentives are recorded as a reduction of revenues . sales incentives and price protection are determined using a combination of the actual amounts committed and through estimates of future expenditure factoring historical customary business practices . our estimated variable considerations can vary from actual results and we may have to record additional revenue reductions , which could materially impact our financial position and results of operations . 46 allowances for warranty obligations at the time we record the reduction to revenue related to warranty returns , we include within cost of revenue a write-down to reduce the carrying value of such products to net realizable value . the write-down reflects our standard warranty obligation to end-users provided for replacement of a defective product for one or more years . factors that affect the warranty obligation include product failure rates , material usage , and service delivery costs incurred in correcting product failures . the estimated cost associated with fulfilling the warranty obligation to end-users is recorded in cost of revenue . because our products are manufactured by third-party manufacturers , in certain cases we have recourse to the third-party manufacturer for replacement or credit for the defective products . we give consideration to amounts recoverable from our third-party manufacturers in determining our warranty liability . our estimated allowances for product warranties can vary from actual results and we may have to record additional charges to cost of revenue , which could materially impact our financial position and results of operations . inventory valuation we value our inventory at the lower of cost and net realizable value , cost being determined using the first-in , first-out method .
| results of operations the following table sets forth , for the periods presented , the consolidated statements of continuing operations data , which is derived from the accompanying consolidated financial statements : replace_table_token_5_th net revenue by geographic region our net revenue consists of gross product shipments and service revenue , less allowances for estimated sales returns , price protection , end-user customer rebates and other channel sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition , and net changes in deferred revenue . we conduct business across three geographic regions : americas , emea and apac . for reporting purposes , revenue is generally attributed to each geographic region based upon the location of the customer . replace_table_token_6_th 49 2019 vs 2018 net revenue in americas decreased for the year ended december 31 , 2019 compared to the prior year . the decline was precipitated by a contraction of the north american wifi market on a year over year basis and lower sales to service providers . the lower net revenue was primarily attributable to lower net revenue of our home wireless and mobile products , partially offset by higher net revenue of our broadband modem and gateway products . the contraction in the north american wifi market in fiscal 2019 impacted demand for home wireless products to non-service provider customers . the mobile product decrease was mainly attributable to service provider customers . net revenue from service providers declined by $ 28.8 million across all products in fiscal 2019 , primarily driven by the culmination of a supply agreement with one of our north american partners . additionally , net revenue was negatively impacted by increased channel promotional activities and sales returns deemed to be a reduction of revenue compared to the prior year .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. executive summary we operate two complementary audio entertainment businesses - our sirius xm business and our pandora business . sirius xm our sirius xm business features music , sports , entertainment , comedy , talk , news , traffic and weather channels , as well as infotainment services , in the united states on a subscription fee basis . the sirius xm service is distributed through our two proprietary satellite radio systems and through the internet via applications for mobile devices , home devices and other consumer electronic equipment . satellite radios are primarily distributed through automakers , retailers and our website . our sirius xm service is also available through our user interface , which we call โ 360l , โ that combines our satellite and streaming services into a single , cohesive in-vehicle entertainment experience . the primary source of revenue from our sirius xm business is generated from subscription fees , with most of our customers subscribing to monthly , quarterly , semi-annual or annual plans . we also derive revenue from advertising on select non-music channels , direct sales of our satellite radios and accessories , and other ancillary services . as of december 31 , 2019 , our sirius xm business had approximately 34.9 million subscribers . in addition to our audio entertainment businesses , we provide connected vehicle services to several automakers and directly to consumers through aftermarket devices . these services are designed to enhance the safety , security and driving experience of consumers . we also offer a suite of data services that includes graphical weather , fuel prices , sports schedules and scores and movie listings , a traffic information service that includes information as to road closings , traffic flow and incident data to consumers with compatible in-vehicle navigation systems , and real-time weather services in vehicles , boats and planes . sirius xm also holds a 70 % equity interest and 33 % voting interest in sirius xm canada holdings inc. ( โ sirius xm canada โ ) . sirius xm canada 's subscribers are not included in our subscriber count or subscriber-based operating metrics . pandora our pandora business operates a music , comedy and podcast streaming discovery platform , offering a personalized experience for each listener wherever and whenever they want to listen , whether through mobile devices , car speakers or connected devices . pandora enables listeners to create personalized stations and playlists , discover new content , hear artist- and expert-curated playlists , podcasts and select sirius xm content as well as search and play songs and albums on-demand . pandora is available as an ad-supported radio service , a radio subscription service , called pandora plus , and an on-demand subscription service , called pandora premium . as of december 31 , 2019 , pandora had approximately 6.2 million subscribers . the majority of revenue from our pandora business is generated from advertising on our pandora ad-supported radio service . in addition , through adswizz , pandora provides a comprehensive digital audio advertising technology platform , which connects audio publishers and advertisers . as of december 31 , 2019 , our pandora business had approximately 63.5 million monthly active users . liberty media as of december 31 , 2019 , liberty media beneficially owned , directly and indirectly , approximately 72 % of the outstanding shares of our common stock . as a result , we are a โ controlled company โ for the purposes of the nasdaq corporate governance requirements . 32 results of operations actual results set forth below are our results of operations for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 . the inclusion of pandora 's results in the year ended december 31 , 2019 ( since the date of the pandora acquisition on february 1 , 2019 ) may render direct comparisons with results for prior periods less meaningful . the results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for all other items . replace_table_token_3_th 33 nm - not meaningful sirius xm revenue refer to page 38 for our discussion on sirius xm revenue . pandora revenue pandora revenue includes actual results for the period from the acquisition date to december 31 , 2019. refer to page 40 for our discussion on pandora revenue . sirius xm cost of services refer to page 40 for our discussion on sirius xm cost of services . pandora cost of services pandora cost of services includes actual results for the period from the acquisition date to december 31 , 2019. refer to page 42 for our discussion on pandora cost of services . operating costs subscriber acquisition costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers , distributors and automakers ; subsidies paid for chipsets and certain other components used in manufacturing radios ; device royalties for certain radios and chipsets ; product warranty obligations ; and freight . the majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber . subscriber acquisition costs do not include advertising costs , marketing , loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , subscriber acquisition costs were $ 427 and $ 470 , respectively , a decrease of 9 % , or $ 43 , and decreased as a percentage of total revenue . story_separator_special_tag 2019 vs. 2018 : for the year ended december 31 , 2019 and 2018 , acquisition and other related costs were $ 84 and $ 3 , respectively . 2018 vs. 2017 : for the year ended december 31 , 2018 acquisition and related costs was $ 3 . there were no acquisition and other related costs in 2017 . 35 other income ( expense ) interest expense includes interest on outstanding debt . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , interest expense was $ 390 and $ 350 , respectively , an increase of 11 % , or $ 40 . the increase was primarily driven by higher average debt due to the issuances of sirius xm 's 5.500 % senior notes due 2029 and 4.625 % senior notes due 2024 as well as the inclusion of pandora debt , partially offset by the redemption of sirius xm 's 6.00 % senior notes due 2024 , lower interest rates and an increase in capitalized interest associated with construction of new satellites . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , interest expense was $ 350 and $ 346 , respectively , an increase of 1 % , or $ 4 . the increase was primarily due to higher average debt outstanding , partially offset by an increase in capitalized interest associated with the construction of new satellites . loss on extinguishment of debt includes losses incurred as a result of the retirement of certain debt . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , loss on extinguishment of debt was $ 57 and $ 0 , respectively . during the year ended december 31 , 2019 , we recorded losses due to the redemption of $ 1,500 in principal amount of sirius xm 's 6.00 % senior notes due 2024 and the repurchase of $ 151 principal amount of pandora 's 1.75 % convertible senior notes due 2020. there was no loss on extinguishment of debt in 2018 . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , loss on extinguishment of debt was $ 0 and $ 44 , respectively . during the year ended december 31 , 2017 , we recorded losses due to the redemption of sirius xm 's 4.25 % senior notes due 2020 , 5.75 % senior notes due 2021 , and 5.25 % senior secured notes due 2022. other ( expense ) income primarily includes realized and unrealized gains and losses , interest and dividend income , our share of the income or loss from equity investments , and transaction costs related to non-operating investments . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , other ( expense ) income was $ ( 3 ) and $ 44 , respectively . other expense for the year ended december 31 , 2019 was driven by losses on other investments of $ 21 ; partially offset by interest earned on our loan to sirius xm canada of $ 10 , trading gains associated with the investments held for our deferred compensation plan of $ 4 and interest income of $ 3. other income for the year ended december 31 , 2018 was driven by unrealized gains of $ 43 from a fair value adjustment of our investment in pandora , and interest earned on our loan to sirius xm canada of $ 10 , partially offset by losses on other investments of $ 10 . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , other income was $ 44 and $ 13 , respectively . other income for the year ended december 31 , 2018 was driven by unrealized gains of $ 43 from a fair value adjustment of our investment in pandora , and interest earned on our loan to sirius xm canada of $ 10 , partially offset by losses on other investments of $ 10. other income for the year ended december 31 , 2017 , included interest earned on our loan to sirius xm canada , and our share of sirius xm canada 's net income , partially offset by transaction costs associated with our investment in pandora . income taxes income tax expense includes the change in our deferred tax assets , current federal and state tax expenses , and foreign withholding taxes . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , income tax expense was $ 283 and $ 245 , respectively , and our effective tax rate was 23.6 % and 17.2 % , respectively . our effective tax rate of 23.6 % for the year ended december 31 , 2019 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits , partially offset by the impact of nondeductible officers ' compensation . our effective tax rate of 17.2 % for the year ended december 31 , 2018 was primarily impacted by the recognition of excess tax benefits related to share based compensation and a benefit related to state and federal research and development credits . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , income tax expense was $ 245 and $ 616 , respectively , and our effective tax rate was 17.2 % and 48.7 % , respectively . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cut and jobs act 36 ( the โ tax act โ ) . the tax act made broad and complex changes to the u.s. tax code , including , accelerated depreciation that will allow for full expensing of qualified property . the tax act also reduced the u.s. federal corporate income tax rate from 35 % to 21 % .
| unaudited pro forma results set forth below are our pro forma results of operations for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 . these pro forma results are based on estimates and assumptions , which we believe are reasonable . they are not the results that would have been realized had the pandora acquisition actually occurred on january 1 , 2017 and are not indicative of our consolidated results of operations in future periods . the pro forma results primarily include adjustments related to amortization of acquired intangible assets , depreciation of property and equipment , acquisition costs , fair value gain or loss on the pandora investment and associated tax impacts . please refer to the footnotes to results of operations ( pages 45 through 50 ) following our discussion of results of operations . 37 replace_table_token_4_th nm - not meaningful sirius xm revenue sirius xm subscriber revenue includes fees charged for self-pay and paid promotional subscriptions , u.s. music royalty fees and other ancillary fees . 38 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , subscriber revenue was $ 5,644 and $ 5,264 , respectively , an increase of 7 % , or $ 380 . the increase was primarily driven by higher u.s. music royalty fees due to a higher music royalty rate , higher self-pay subscription revenue as a result of a 3 % increase in the daily weighted average number of subscribers and higher revenue from our connected vehicle services . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , subscriber revenue was $ 5,264 and $ 4,990 , respectively , an increase of 5 % , or $ 274 .
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in most instances , we charge clients on a time-and-materials basis and recognize revenues in the period when we provide our services . we charge consultants ' time at hourly rates , which vary from consultant to consultant depending on a consultant 's position , experience , expertise , and other factors . we derive a portion of our revenues from fixed-price contracts . revenues from fixed-price engagements are recognized using a proportional performance method based on the ratio of costs incurred , substantially all of which are labor-related , to the total estimated project costs . we derived approximately 13 % , 15 % , and 22 % of our revenues from fixed-price engagements in fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . we generate substantially all of our professional services fees from the work of our own employee consultants and a portion from the work of our non-employee experts . factors that affect our professional services revenues include the number and scope of client engagements , the number of consultants we employ , the consultants ' billing rates , and the number of hours our consultants work . revenues also include reimbursements , which include travel and other out-of-pocket expenses , outside consultants , and other reimbursable expenses . our costs of services include the salaries , bonuses , share-based compensation expense , and benefits of our employee consultants . our bonus program awards discretionary bonuses based on our revenues and profitability and individual performance . costs of services also include out-of-pocket and other expenses , and the salaries of support staff whose time is billed directly to clients , such as librarians , editors , and programmers . selling , general , and administrative expenses include salaries , bonuses , share-based compensation expense , and benefits of our administrative and support staff , fees to non-employee experts for generating new business , office rent , marketing , and other costs . utilization and seasonality we derive the majority of our revenues from the number of hours worked by our employee consultants . our utilization of those employee consultants is one key indicator that we use to measure our operating performance . we calculate utilization by dividing the total hours worked by our employee consultants on engagements during the measurement period by the total number of hours that our employee consultants were available to work during that period . utilization was 73 % , 68 % , and 74 % for fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . select underperforming practice areas , including our chemicals practice and middle east operations , affected our overall performance in fiscal 2012. in connection with the restructuring plan we committed to in the third quarter of fiscal 2012 , we eliminated our chemicals practice , closed our middle east operations and repositioned other select underperforming practice areas , amongst other actions . the decrease in utilization in fiscal 2012 compared to fiscal 2011 reflects this underperformance and these restructuring actions . we experience certain seasonal effects that impact our revenue . concurrent vacations or holidays taken by a large number of consultants can adversely impact our revenue . for example , the third quarter typically experiences fewer billable hours , as that is the summer vacation season for most of our offices . also , historically we have experienced fewer billable hours in our fiscal quarter that includes the holiday season , which was the fourth quarter in each of fiscal 2013 , fiscal 2012 and fiscal 2011. international operations revenues outside of the u.s. accounted for approximately 22 % , 23 % , and 26 % of our total revenues in fiscal 2013 , fiscal 2012 , and fiscal 2011 , respectively . revenue by country is detailed in note 13 to our notes to consolidated financial statements . 29 noncontrolling interest our ownership interest in neuco is 55.89 % and constitutes control under gaap ; therefore , neuco 's financial results have been consolidated with ours and the portion of neuco 's results allocable to its other owners is shown as `` noncontrolling interest . '' neuco 's revenues included in our consolidated statements of operations for fiscal 2013 , fiscal 2012 , and fiscal 2011 totaled approximately $ 5.1 million , $ 5.5 million , and $ 6.2 million , respectively . neuco 's net loss included in our consolidated statements of operations for fiscal 2013 was approximately $ 0.3 million . neuco 's net income included in our consolidated statements of operations for fiscal 2012 and fiscal 2011 was approximately $ 0.3 million and $ 0.2 million , respectively . neuco 's net loss , net of amounts allocable to its other owners , included in our consolidated statements of operations for fiscal 2013 was approximately $ 0.2 million . neuco 's net income , net of amounts allocable to its other owners , included in our consolidated statements of operations for fiscal 2012 and fiscal 2011 was approximately $ 0.2 million and $ 0.1 million , respectively . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses , as well as related disclosure of contingent assets and liabilities . estimates in these consolidated financial statements include , but are not limited to , accounts and unbilled receivable allowances , revenue recognition on fixed price contracts , depreciation of property and equipment , share-based compensation , valuation of acquired intangible assets , impairment of long-lived assets and goodwill , accrued and deferred income taxes , valuation allowances on deferred tax assets , accrued compensation , accrued exit costs , and other accrued expenses . story_separator_special_tag a failure to estimate accurately the accounts receivable allowances and ensure that payments are received on a timely basis could have a material adverse effect on our business , financial condition , and results of operations . as of december 28 , 2013 and december 29 , 2012 , $ 7.2 million , and $ 9.5 million were provided for accounts receivable allowances , respectively . share-based compensation expense . share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award . we use the black-scholes option-pricing model to estimate the fair value of stock options . 31 option valuation models require the input of assumptions , including the expected life of the share-based awards , the expected stock price volatility , the risk-free interest rate , and the expected dividend yield . the expected volatility and expected life are based on our historical experience . the risk-free interest rate is based on u.s. treasury interest rates whose term is consistent with the expected life of the share-based award . expected dividend yield was not considered in the option pricing formula because we do not pay dividends and have no current plans to do so in the future . we will update these assumptions if changes are warranted . the forfeiture rate is based upon historical experience . we adjust the estimated forfeiture rate based upon our actual experience . in addition , we have performance-based awards that are valued at the fair value of shares as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted . the fair value determination requires significant assumptions , including estimating future revenues and profits . valuation of goodwill and other intangible assets . we account for our acquisitions under the purchase method of accounting . goodwill represents the purchase price of acquired businesses in excess of the fair market value of net assets acquired . intangible assets typically consist of non-competition agreements , customer relationships , customer lists , developed technology , and trademarks , which are generally amortized on a straight-line basis over their estimated remaining useful lives ( four to ten years ) . in accordance with asc topic 350 , `` intangiblesยgoodwill and other '' ( `` asc topic 350 '' ) , goodwill and intangible assets with indefinite lives are not subject to amortization , but are monitored annually on october 15th for impairment , or more frequently , as necessary , if events or circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount . for our goodwill impairment analysis , we operate under one reporting unit . under asc topic 350 , in performing the first step of the goodwill impairment testing and measurement process , we compare our entity-wide estimated fair value to net book value to identify potential impairment . we estimate the entity-wide fair value utilizing our market capitalization , plus an appropriate control premium . market capitalization is determined by multiplying the shares outstanding on the test date by the market price of our common stock on that date . we have utilized a control premium which considers appropriate industry , market and other pertinent factors , including indications of such premiums from data on recent acquisition transactions . if our estimated fair value is less than our net book value , the second step is performed to determine if goodwill is impaired . if we determine through the impairment evaluation process that goodwill has been impaired , we would record the impairment charge in our consolidated statement of operations . we had no impairment losses related to goodwill during fiscal 2013 as there were no events or circumstances that would more likely than not reduce our fair value below our carrying amount and our estimated fair value was greater than our carrying value on october 15 , 2013. late in the second quarter of fiscal 2012 , our stock price experienced a decline . in the third quarter of fiscal 2012 , our stock price improved but remained below the price levels experienced in fiscal 2011 and the first five months of fiscal 2012. we did not record any impairment losses related to goodwill or intangible assets during the fiscal year to date period ended september 29 , 2012 as the stock price decline was not deemed to be more than temporary , there were no other events or circumstances that would more likely than not reduce our fair value below our carrying amount , and our management felt that an increase in the stock price was a reasonable expectation . however , the depressed stock price levels persisted into the fourth quarter of 2012 and through the date of our annual impairment test performed in the fourth quarter fiscal 2012. when we performed our annual impairment test , our book value exceeded our market capitalization plus an estimated control premium . therefore , we were required to perform the second step of the goodwill impairment test . in this step , our fair value , as determined in the first step of the test , is allocated among all of our assets and , including any unrecognized intangible assets , in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if we were being acquired in a business acquisition . if the implied fair value of goodwill is less than the recorded goodwill , an impairment charge is recorded for 32 the difference . during the process of conducting the second step of the annual goodwill impairment test in the fourth quarter of fiscal 2012 , we identified significant unrecognized intangible assets .
| results of operations the following table provides operating information as a percentage of revenues for the periods indicated : replace_table_token_6_th fiscal 2013 compared to fiscal 2012 revenues . revenues increased by $ 8.0 million , or 3.0 % , to $ 278.4 million for fiscal 2013 from $ 270.4 million for fiscal 2012 primarily due to increased revenue in our litigation , regulatory , and financial consulting business in the second half of fiscal 2013 , reflecting organic growth and increasing contributions from the new senior-level hires we welcomed to cra during the latter part of fiscal 2012 and the first quarter of fiscal 2013. the increase in revenue was partially offset by a decrease of revenue in our management consulting business in fiscal 2013 as compared to fiscal 2012. although our management consulting business started fiscal 2013 slowly , it experienced improvements in project backlog toward the end of the second quarter of fiscal 2013 that continued into the second half of fiscal 2013. our utilization increased to 73 % for fiscal 2013 from 68 % for the fiscal 2012. in addition , revenues were impacted by an increase in client reimbursable expenses , which are pass-through expenses that carry little to no margin , partially offset by a decrease in revenues of $ 0.4 million for neuco in fiscal 2013 as compared to fiscal 2012. overall , revenues outside of the u.s. represented approximately 22 % of total revenues for fiscal 2013 , compared with approximately 23 % of total revenues for fiscal 2012. revenues derived from fixed- price engagements decreased to 13 % of total revenues for fiscal 2013 compared with 15 % for fiscal 2012. this decrease was due primarily to the previously mentioned decrease in our management consulting business , as the management consulting business typically has a higher concentration of fixed-price service contracts . costs of services .
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other contracts may contain a variable rent component based on revenue story_separator_special_tag overview format of presentation management 's discussion and analysis of our financial condition and results of operations ( โ md & a โ ) should be read in conjunction with the consolidated financial statements and related footnotes contained in item 8 of this annual report on form 10-k. our discussion is presented on both a consolidated and segment basis . our reportable operating segments are americas outdoor advertising ( โ americas โ ) and international outdoor advertising ( โ international โ ) . our americas and international segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types . we manage our operating segments primarily focusing on their operating income , while corporate expenses , other operating income ( expense ) , net , interest expense , interest income on due from iheartcommunications , equity in earnings ( loss ) of nonconsolidated affiliates , other income , net and income tax benefit ( expense ) are managed on a total company basis and are , therefore , included only in our discussion of consolidated results . certain prior period amounts have been reclassified to conform to the 2016 presentation . description of our business our revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide , consisting primarily of billboards , street furniture and transit displays . part of our long-term strategy is to pursue the technology of digital displays , including flat screens , lcds and leds , as additions to traditional methods of displaying our clients ' advertisements . we are currently installing these technologies in certain markets , both domestically and internationally . management typically monitors our business by reviewing the average rates , average revenue per display , occupancy , and inventory levels of each of our display types by market . we own the majority of our advertising displays , which typically are located on sites that we either lease or own or for which we have acquired permanent easements . our advertising contracts with clients typically outline the number of displays reserved , the duration of the advertising campaign and the unit price per display . the significant expenses associated with our operations include direct production , maintenance and installation expenses as well as site lease expenses for land under our displays including revenue-sharing or minimum guaranteed amounts payable under our billboard , street furniture and transit display contracts . our direct production , maintenance and installation expenses include costs for printing , transporting and changing the advertising copy on our displays , the related labor costs , the vinyl and paper costs , electricity costs and the costs for cleaning and maintaining our displays . vinyl and paper costs vary according to the complexity of the advertising copy and the quantity of displays . our site lease expenses include lease payments for use of the land under our displays , as well as any revenue-sharing arrangements or minimum guaranteed amounts payable that we may have with the landlords . the terms of our site leases and revenue-sharing or minimum guaranteed contracts generally range from one to 20 years . americas our advertising rates are based on a number of different factors including location , competition , type and size of display , illumination , market and gross ratings points . gross ratings points are the total number of impressions delivered by a display or group of displays , expressed as a percentage of a market population . the number of impressions delivered by a display is measured by the number of people passing the site during a defined period of time . for all of our billboards in the united states , we use independent , third-party auditing companies to verify the number of impressions delivered by a display . client contract terms typically range from four weeks to one year for the majority of our display inventory in the united states . generally , we own the street furniture structures and are responsible for their construction and maintenance . contracts for the right to place our street furniture and transit displays and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law or are negotiated with private transit operators . generally , these contracts have terms ranging from 10 to 20 years . international similar to our americas business , advertising rates generally are based on the gross ratings points of a display or group of displays . the number of impressions delivered by a display , in some countries , is weighted to account for such factors as 30 illumination , proximity to other displays and the speed and viewing angle of approaching traffic . in addition , because our international advertising operations are conducted in foreign markets , including europe and asia , management reviews the operating results from our foreign operations on a constant dollar basis . a constant dollar basis allows for comparison of operations independent of foreign exchange movements . our international display inventory is typically sold to clients through network packages , with client contract terms typically ranging from one to two weeks with terms of up to one year available as well . internationally , contracts with municipal and transit authorities for the right to place our street furniture and transit displays typically provide for terms ranging from three to 15 years . the major difference between our international and americas street furniture businesses is in the nature of the municipal contracts . in our international business , these contracts typically require us to provide the municipality with a broader range of metropolitan amenities in exchange for which we are authorized to sell advertising space on certain sections of the structures we erect in the public domain . story_separator_special_tag results of operations consolidated results of operations the comparison of our historical results of operations for the year ended december 31 , 2016 to the year ended december 31 , 2015 is as follows : replace_table_token_8_th consolidated revenue consolidated revenue decreased $ 103.8 million during 2016 compared to 2015 . excluding a $ 47.6 million impact from movements in foreign exchange rates , consolidated revenue decreased $ 56.2 million during 2016 compared to 2015 . the decrease in consolidated revenue is primarily due to the sale of certain u.s. markets and international businesses which generated $ 248.9 million in revenue in 2015 and $ 123.5 million in 2016. this decrease was partially offset by revenues from new digital assets and new contracts . 32 consolidated direct operating expenses consolidated direct operating expenses decreased $ 59.3 million during 2016 compared to 2015 . excluding the $ 29.0 million impact from movements in foreign exchange rates , consolidated direct operating expenses decreased $ 30.3 million during 2016 compared to 2015 . lower direct operating expenses was primarily due to the sale of certain u.s. markets and international businesses . consolidated selling , general and administrative ( โ sg & a โ ) expenses consolidated sg & a expenses decreased $ 16.3 million during 2016 compared to 2015 . excluding the $ 9.9 million impact from movements in foreign exchange rates , consolidated sg & a expenses decreased $ 6.4 million during 2016 compared to 2015 . sg & a expenses were lower primarily due to the sale of nine non-strategic u.s. markets in the first quarter of 2016 , and were partially offset by higher variable compensation expenses . corporate expenses corporate expenses increased $ 1.0 million during 2016 compared to 2015 . excluding the $ 4.1 million impact from movements in foreign exchange rates , corporate expenses increased $ 5.1 million during 2016 compared to 2015 primarily resulting from higher litigation costs and higher expenses related to non-cash compensation plans . revenue and efficiency initiatives included in the amounts for direct operating expenses , sg & a and corporate expenses discussed above are expenses of $ 13.0 million and $ 20.3 million incurred in 2016 and 2015 , respectively , in connection with our strategic revenue and efficiency initiatives . the costs were incurred to improve revenue growth , enhance yield , reduce costs , and organize each business to maximize performance and profitability . these costs consist primarily of severance related to workforce initiatives , consolidation of locations and positions , consulting expenses and other costs incurred in connection with streamlining our businesses . these costs are expected to provide benefits in future periods as the initiative results are realized . of these costs for 2016 , $ 2.7 million are reported within direct operating expenses , $ 7.8 million are reported within sg & a and $ 2.5 million are reported within corporate expense . in 2015 , such costs totaled $ 9.2 million , $ 4.3 million , and $ 6.8 million , respectively . depreciation and amortization depreciation and amortization decreased $ 31.8 million during 2016 compared to 2015 primarily due to assets becoming fully depreciated or fully amortized , the sale of certain u.s. markets and international businesses , as well as the impact of movements in foreign exchange rates . impairment charges we perform our annual impairment test on our goodwill , billboard permits , and other intangible assets as of july 1 of each year . in addition , we test for impairment of property , plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired . as a result of these impairment tests , during 2016 , we recorded an impairment charge of $ 7.3 million during 2016 related to goodwill in one international business . during 2015 , we recognized a $ 21.6 million impairment charge related to billboard permits in one americas market . please see note 2 to the consolidated financial statements included in item 8 of part ii of this annual report on form 10-k for a further description of the impairment charges . other operating income ( expense ) , net other operating income , net of $ 354.7 million in 2016 primarily related to the net gain of $ 278.3 million on sale of nine non-strategic markets in the first quarter of 2016 and the net gain of $ 127.6 million on sale on our business in australia in the fourth quarter of 2016 , partially offset by the $ 56.6 million loss , which includes $ 32.2 million in cumulative translation adjustments , on the sale of our business in turkey in the second quarter of 2016. in the first quarter of 2016 , americas sold nine non-strategic markets including cleveland and columbus , ohio , des moines , iowa , ft. smith , arkansas , memphis , tennessee , portland , oregon , reno , nevada , seattle , washington and wichita , kansas for net proceeds of $ 592.3 million in cash and certain advertising assets in florida . other operating expense , net of $ 4.8 million in 2015 primarily related to acquisition/disposition transaction costs . interest expense interest expense increased $ 19.2 million in 2016 compared to 2015 , primarily due to the issuance by clear channel international b.v. of its 8.75 % senior notes due 2020 during the fourth quarter of 2015 . 33 interest income on due from iheartcommunications interest income decreased $ 11.1 million during 2016 compared to 2015 due to the decrease in the average outstanding balance on the due from iheartcommunications note . equity in loss of nonconsolidated affiliates equity in loss of nonconsolidated affiliates of $ 1.7 million and $ 0.3 million for 2016 and 2015 , respectively , included the loss from our equity investments in our americas and international segments . other income ( expense ) , net other expense was $ 70.2 million for 2016 . other income was $ 12.4 million for 2015 .
| international outdoor advertising results of operations our international operating results were as follows : replace_table_token_10_th international revenue decreased $ 33.2 million during 2016 compared to 2015 . excluding the $ 39.9 million impact from movements in foreign exchange rates , international revenue increased $ 6.7 million during 2016 compared to 2015 . the increase in revenue is due to growth across most of our markets including china , italy , spain , sweden , france and belgium , primarily from new digital assets and new contracts . this growth was partially offset by a $ 22.7 million decrease in revenue resulting from the sale of our businesses in turkey and australia in the second and fourth quarters of 2016 , respectively , as well as lower revenue in the united kingdom as a result of the london bus shelter contract not being renewed . international direct operating expenses decreased $ 32.2 million during 2016 compared to 2015 . excluding the $ 25.4 million impact from movements in foreign exchange rates , international direct operating expenses decreased $ 6.8 million during 2016 compared to 2015 . the decrease was driven by a $ 14.6 million decrease in direct operating expenses resulting from the sale of our businesses in turkey and australia and lower rent expense due to lower revenue in the united kingdom as a result of the london bus shelter contract not being renewed . these decreases were partially offset by higher site lease and production expenses in countries experiencing revenue growth . international sg & a expenses decreased $ 8.5 million during 2016 compared to 2015 . excluding the $ 7.8 million impact from movements in foreign exchange rates , international sg & a expenses decreased $ 0.7 million during 2016 compared to 2015 .
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our actual results could differ materially from those forward-looking statements below . factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed in the section entitled โ risk factors โ included elsewhere in this annual report on form 10-k. this annual report on form 10-k contains โ forward-looking statements โ within the meaning of section 21e of the securities exchange act of 1934 , as amended , or the โ exchange act โ . these statements are often identified by the use of words such as โ believe , โ โ may , โ โ potentially , โ โ will , โ โ estimate , โ โ continue , โ โ anticipate , โ โ intend , โ โ could , โ โ should , โ โ would , โ โ project , โ โ plan , โ โ predict , โ โ expect , โ โ seek โ and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified herein , and those discussed in the section titled โ risk factors โ , set forth in part i , item 1a of this annual report on form 10-k. except as required by law , we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . references to โ 2016 , โ โ 2015 โ and โ 2014 โ refer to the year ended december 31 , 2016 , the year ended december 31 , 2015 and the year ended december 31 , 2014 , respectively . overview we provide a leading cross-channel advertising cloud platform that enables digital marketers to improve performance of their online advertising campaigns across devices , realize efficiencies and time savings , and make better business decisions . our integrated platform is a software-as-a-service , or โ saas , โ analytics , workflow , and optimization solution for marketing professionals , allowing them to effectively manage their digital advertising spend across search , social and display channels . our software solution is designed to help our customers : measure the effectiveness of their advertising campaigns through our proprietary reporting and analytics capabilities ; manage and execute campaigns through our intuitive user interface and underlying technology that streamlines and automates key functions , such as ad creation and bidding , across multiple publishers and channels ; and optimize campaigns across multiple publishers and channels based on market and business data to achieve desired revenue outcomes using our predictive bid management technology . in december 2016 , our customers collectively managed billions of dollars in advertising spend on our platform globally across a wide range of industries . we market and sell our solutions to advertisers directly and through leading advertising agencies . for 2016 , 2015 and 2014 , our revenues were $ 99.9 million , $ 108.5 million and $ 99.4 million , respectively , representing period-over-period changes of ( 8 ) % , 9 % and 29 % , respectively . we incurred net losses of $ 16.5 million , $ 33.3 million and $ 33.2 million in 2016 , 2015 and 2014 , respectively . the majority of our revenue is earned from subscription contracts under which we provide advertisers with access to our search , social and display advertising management platform , either directly or through the advertiser 's relationship with an agency that has a contract with us . in accordance with the subscription contracts , we charge fees generally based upon the amount of advertising spend that our customers manage through our platform . our search subscription contracts are generally one year or longer in length , while initial social and display contracts may vary in duration . under our subscription contracts with most of our direct advertisers and some of our agency customers , customers are contractually committed to a minimum monthly platform fee , which is payable on a monthly basis over the duration of the contract and is generally greater than one-half of our estimated monthly revenues from these customers , at the time the contract is signed . however , most of our subscription contracts with our advertising agency customers do not include a committed minimum monthly platform fee . our contractual arrangement is with the advertising agency and the advertiser is not a party to the terms of the contract . accordingly , most advertisers through our agency customers do not have a commitment to use our services and the advertisers may be added or removed from our platform at the discretion of the respective agency . we invoice the advertising agency for the amounts due under the contract . historically , approximately half of our revenues have been earned from advertising agency customers . our subscription fee under most contracts is variable based upon the value of advertising spend that our customers manage through our platform . our deferred revenues consist of the unearned portion of billed subscription fees . under our subscription contracts , we generally begin invoicing our customers the first day of the month following the execution of the contract . we generally invoice the greater of the minimum monthly platform fee or the percentage of advertising spend on our platform . the implementation process for new advertisers is typically four to six weeks ; however , we generally have not charged a separate implementation fee under our standard subscription contracts . 30 our implementation and customer sup port personnel , as well as costs associated with our operating infrastructure , are included in our cost of revenues . our cost of revenues and operating expenses are reflective of the headcount needed to grow our business and to increase data center capacit y to support customer revenue growth on our platform . story_separator_special_tag our research and development efforts are focused on enhancing our software architecture , adding new features and functionality to our platform and improving the efficiency with which we deliver these services to our customers . in the future , research and development expenses may increase in absolute dollars , partially offset by the capitalization of internally developed software . we believe that these investments are necessary to maintain and improve our competitive position . general and administrative expenses general and administrative expenses consist primarily of personnel costs , including salaries , benefits , stock-based compensation and bonuses for our administrative , legal , human resources , finance and accounting employees and executives . also included are non-personnel costs , such as travel-related expenses , audit fees , tax services and legal fees , as well as professional fees , insurance and other corporate expenses , along with amortization of intangible assets and allocated overhead . we may incur incremental costs associated with supporting the growth of our business , both in terms of size and geographic expansion , and to meet the increased compliance requirements associated with our continued operation as a public company . such costs may include increases in our accounting and legal personnel , additional consulting , legal and audit fees , insurance costs , board of directors ' compensation and the costs of achieving and maintaining compliance with the sarbanes-oxley act of 2002. as a result , our general and administrative expenses may increase in absolute dollars in future periods . other income ( expenses ) , net and interest expenses , net other income ( expenses ) , net , primarily consists of foreign currency transaction gains and losses . interest expense , net , consists primarily of interest income earned on our cash equivalents offset by the interest expense for our capital lease payments and borrowings under our equipment advances and revolving line of credit . ( provision for ) benefit from income taxes the ( provision for ) benefit from income taxes consists of federal , state and foreign income taxes . due to recent losses , we maintain a valuation allowance against our deferred tax assets as of december 31 , 2016. we consider all available evidence , both positive and negative , in assessing the extent to which a valuation allowance should be applied against our deferred tax assets . 32 results of operations the following table is a summary of our consolidated statements of operations for the specified periods and results of operations as a percentage of revenues for those periods . the period-to-period comparisons of results are not necessarily indicative of results for future periods . percentage of revenues figures are rounded and therefore may not subtotal exactly . replace_table_token_9_th ( 1 ) stock-based compensation expense included in the consolidated statements of operations data above was as follows : replace_table_token_10_th ( 2 ) amortization of intangible assets included in the consolidated statements of operations data above was as follows : replace_table_token_11_th ( 3 ) restructuring related expenses included in the consolidated statements of operations data above was as follows : replace_table_token_12_th 33 the following table sets forth our consolidated revenues by geographic area , as well as the related percentages of total revenues , for the specified periods . replace_table_token_13_th adjusted ebitda adjusted ebitda is a financial measure not calculated in accordance with generally accepted accounting principles in the united states ( โ gaap โ ) . we define adjusted ebitda as net loss , adjusted for stock-based compensation expense , depreciation , the amortization of internally developed software , the amortization of intangible assets , the capitalization of internally developed software , interest expense , net , the benefit from or provision for income taxes , other income or expenses , net , and costs associated with acquisitions and restructurings . adjusted ebitda should not be considered as an alternative to net loss , operating loss or any other measure of financial performance calculated and presented in accordance with gaap . we prepare adjusted ebitda to eliminate the impact of items that we do not consider indicative of our core operating performance . investors are encouraged to evaluate these adjustments and the reasons we consider them appropriate . we believe adjusted ebitda is useful to investors in evaluating our operating performance for the following reasons : adjusted ebitda is widely used by investors and securities analysts to measure a company 's operating performance without regard to items , such as stock-based compensation expense , depreciation and amortization , capitalized software development costs , interest expense , net , benefit from or provision for income taxes , other income or expenses , net , costs associated with acquisitions and restructurings , that can vary substantially from company to company depending upon their financing , capital structures and the method by which assets were acquired ; our management uses adjusted ebitda in conjunction with gaap financial measures for bonus compensation and planning purposes , including the preparation of our annual operating budget , as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance ; and adjusted ebitda provides consistency and comparability with our past financial performance , facilitates period-to-period comparisons of operations and also facilitates comparisons with other peer companies , many of which use similar non-gaap financial measures to supplement their gaap results . we understand that , although adjusted ebitda is frequently used by investors and securities analysts in their evaluations of companies , adjusted ebitda has limitations as an analytical tool , and investors should not consider it in isolation or as a substitute for analysis of our results of operations as reported under gaap .
| summary of cash flows the following table sets forth a summary of our cash flows for the periods indicated : replace_table_token_31_th operating activities cash provided by or used in operating activities is primarily influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and the increase in the number of advertisers using our platform . cash provided by or used in operating activities has typically been affected by net losses and further increased by changes in our operating assets and liabilities , particularly in the areas of accounts receivable , prepaid expenses and other current assets , deferred revenue , accounts payable and accrued expenses and other current liabilities , adjusted for non-cash expense items such as depreciation , amortization , stock-based compensation expense and deferred income tax benefits . cash provided by operating activities in 2016 of $ 5.7 million was primarily the result of a net loss of $ 16.5 million , adjusted for non-cash expenses of $ 24.0 million , which primarily included depreciation , amortization , unrealized foreign currency gains or losses , stock-based compensation expense and deferred income tax expenses or benefits . this was further offset by $ 0.1 million in contingent consideration paid for the socialmoov acquisition from 2015 , and a $ 1.7 million net change in working capital items , most notably ( 1 ) an increase in accounts receivable of $ 0.8 million due to the timing of related collections and changes in the estimated allowances for bad debts and credits ; ( 2 ) a decrease in prepaid expenses and other current assets , and other ( noncurrent ) assets , of $ 0.2 million related to the timing of related disbursements ; ( 3 ) a decrease in deferred revenues of $ 0.6 million related to the timing of the collection of minimum fees at the start of our subscription agreements ; and ( 4 ) a net decrease in
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these complementary used equipment brand solutions , together with marketplace e , our online marketplace that supports reserved pricing , provide different value propositions to equipment owners and allow us to meet the needs and preferences of a wide spectrum of equipment sellers and buyers . in the past three years , we have also added a private brokerage service ( ritchie bros. private treaty ) and an online listing service ( mascus ) . during 2017 , we continued to integrate our ironplanet acquisition , which resulted in changes in our basis of organization , including our leadership structure , sales processes , and management reporting . most significantly , we began to assess the performance of our business and allocate resources based on whether our services are transactional ( generating value from the disposition of assets ) or non-transactional in nature , and redesigned key metrics accordingly . these changes resulted in the identification of the following new operating segments : ยท auctions and marketplaces ( โ a & m โ ) โ this is our only reportable segment , which consists of our live on site auctions , online auctions and marketplaces , and brokerage service ; ยท ritchie bros. financial services ( โ rbfs โ ) โ this is our financial brokerage service , which is reported within the โ other โ category of our segmented information ; and ยท mascus โ this is our online listing service , which is reported within the โ other โ category of our segmented information . the โ other โ category also includes results from various value-added services and make-ready activities , including our equipment refurbishment services , asset appraisal services ( โ aas โ ) , and logistical services through ritchie bros. logistics ( โ rb logistics โ ) . key performance metric changes our new segmented information disclosure distinguishes between revenues and expenses generated from transactional asset disposition services , which are services that generate gross transaction value 3 ( โ gtv โ ) , and those that do not generate gtv . gtv replaces the previous term of gross auction proceeds ( โ gap โ ) used by ritchie bros. and gross merchandise volume used by ironplanet , providing a common nomenclature across all channels . with the change in segment reporting , we updated our gtv and revenue rate key metrics . gtv represents the total proceeds from all items sold in conjunction with our a & m segment . we have retrospectively restated gtv to exclude gtv from our aas business . gtv attributable to aas was $ 18.6 million during the period from ironplanet acquisition until december 31 , 2017. in addition , effective august 1 , 2017 , gtv no longer includes equipmentone buyer premiums . excluding aas gtv and equipmentone buyer premiums has a less than 1 % impact on gtv reported to date . 3 gtv represents total proceeds from all items sold at our live on site auctions and online marketplaces . gtv is not a measure of financial performance , liquidity , or revenue , and is not presented in our consolidated financial statements . ritchie bros. 39 we also introduced a segment revenue rate , which is calculated as a & m segment revenue divided by gtv . when referring to the original revenue rate metric , which is calculated as total , consolidated revenues divided by gtv , we will use the term โ consolidated revenue rate ' . overview the following discussion and analysis summarizes significant factors affecting our consolidated operating results and financial condition for the years ended december 31 , 2017 , 2016 , and 2015. this discussion and analysis should be read in conjunction with the โ cautionary note regarding forward-looking statements โ , โ part ii , item 6 : selected financial data โ , and the consolidated financial statements and the notes thereto included in โ part ii , item 8. financial statements and supplementary data โ presented in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements due to various factors , including those set forth under โ part i , item 1a : risk factors โ in this annual report on form 10-k. the date of this discussion is as of february 26 , 2018. we prepare our consolidated financial statements in accordance with united states generally accepted accounting principles ( โ us gaap โ ) . except for gtv , which is a measure of operational performance and not a measure of financial performance , liquidity , or revenue , the amounts discussed below are based on our consolidated financial statements . unless indicated otherwise , all tabular dollar amounts , including related footnotes , presented below are expressed in thousands of united states ( โ u.s. โ ) dollars . we make reference to various non-gaap financial measures throughout this discussion and analysis . these measures do not have a standardized meaning , and are therefore unlikely to be comparable to similar measures presented by other companies . story_separator_special_tag cellspacing= '' 0 '' style= '' border-collapse : collapse ; width : 100 % ; font-size : 10pt '' > ritchie bros. 42 revenues increased $ 44.1 million , or 8 % , in 2017 compared to 2016. this increase was primarily due to the acquisition , which closed on may 31 , 2017 , and increases in revenues from rbfs , mascus , and value-added services . unaudited pro forma revenues decreased 2 % from $ 676.2 million in 2016 to $ 659.9 million in 2017. foreign exchange rates had a positive impact on revenues in 2017 as a significant portion of revenues are in canada and the netherlands . revenues increased $ 50.5 million , or 10 % , in 2016 compared to 2015. this increase was primarily due to the performance of our underwritten business , volume increases in gtv , and increases in revenues from mascus , rbfs , and our value-added services . story_separator_special_tag costs of services incurred in earning other fee revenues include direct labour ( including commissions on sales ) , software maintenance fees , and materials . costs of services exclude d & a expenses . costs of services increased $ 13.0 million , or 20 % , in 2017 compared to 2016. this increase is primarily due to costs associated with the growth in our inspection and appraisal activities because of the acquisition . ritchie bros. 44 costs of services increased $ 10.0 million , or 18 % , in 2016 compared to 2015. this increase was primarily due to the increase in number of lots at our live on site auctions , the increase in the number of agricultural auctions and live on site auctions located in frontier regions , a full year 's contribution of costs from xcira , and a strategic increase in advertising and promotional expenditure targeted at our larger live on site auctions , including our five-day , premier global auction in orlando , united states . we believe the targeted increase in advertising and promotional expenditure contributed to the increase in gtv in 2016 compared to 2015. selling , general and administrative ( โ sg & a โ ) expenses headcount the majority of our sg & a expenses are comprised of employee compensation costs . our headcount , which includes ironplanet and excludes xcira and mascus employees , increased net 516 , or 31 % , to 2,165 at december 31 , 2017 from 1,649 at december 31 , 2016. this increase was primarily due to the acquisition , as well as a net 30 increase from rbfs to support the growth of that business . xcira and mascus added another 100 full-time employees to our december 31 , 2017 headcount , which is a net decrease of one compared to the combined headcount of 101 at december 31 , 2016. our headcount , excluding xcira and mascus employees , increased net 127 , or 8 % , to 1,649 at december 31 , 2016 from 1,522 at december 31 , 2015. this increase included an increase of net 23 equipment inspectors , yard staff , and other personnel at our edmonton , canada , auction site to support growth in that region . while some of that increase in that region came from the addition of new employees , a portion was also the result of the conversion of part time employees to full time employees . the increase in total headcount also included a net 18 increase from rbfs to support the growth of that business . xcira and mascus added another 101 full-time employees to our december 31 , 2016 headcount , compared to 50 added solely by xcira at december 31 , 2015 . 2017 performance sg & a expenses increased $ 39.7 million , or 14 % , during 2017 compared to 2016. this increase is primarily due to post-acquisition increased headcount , travel costs , and search engine fees associated with our online marketplace channel , as well as merit increases and higher commitment and other bank fees attributable to our new credit facility . foreign exchange rates had a negative impact on sg & a expenses in 2017 as a significant portion of administration expenses are in canada and the netherlands . this increase in sg & a expenses from 2016 to 2017 was partially offset by a decrease in share unit expense from mark-to-market fair value changes in our liability-classified share units . this decrease was primarily due to the modification of our chief executive officer sign-on grant performance share units ( โ ceo sog psus โ ) from liability-classified to equity-classified on may 1 , 2017 , as well as the performance of our common share price . 2016 performance sg & a expenses increased $ 29.1 million , or 11 % , in 2016 compared to 2015. this increase is primarily due to an increase in employee compensation primarily due to our headcount growth and an increase in share unit expense from mark-to-market fair value changes in our liability-classified share units . this increase was partially offset by a decrease in termination benefits , primarily due to the difference between those resulting from the separation agreement with our former president , us & latam , in 2016 compared to those resulting from the separation agreement with our former chief sales officer in 2015. the increase in sg & a expenses year-over-year was also due to an increase in costs required to support the growing fee revenues generated by our value-added services , contributions of expenses from our 2016 acquisitions ( mascus , petrowsky , and kramer ) , a full year 's contribution of expenses from xcira , and increased rental fees resulting from the replacement of our aged and retired company vehicles with new vehicles under operating leases . foreign exchange rates had a positive impact on sg & a expenses in 2016. ritchie bros. 45 impairment loss in 2017 , we recognized an impairment loss of $ 8.9 million on certain technology assets . comparatively , we recognized an impairment loss of $ 28.2 million on our equipmentone goodwill and customer relationships in 2016. acquisition-related costs acquisition-related costs consist of operating expenses directly incurred as part of a business combination , due diligence and integration planning โ including those related to the acquisition โ and continuing employment costs that are recognized separately from our business combinations . business combination , due diligence , and integration operating expenses include advisory , legal , accounting , valuation , and other professional or consulting fees , and travel and securities filing fees . acquisition-related costs in 2017 totalled $ 38.3 million and consisted primarily of $ 34.7 million associated with the acquisition .
| consolidated highlights financial highlights key highlights for fiscal 2017 were : ยท gtv of $ 4.5 billion ; a 3 % increase over 2016 ยท revenues of $ 610.5 million ; an increase of 8 % versus $ 566.4 million in 2016 ยท consolidated revenue rate of 13.66 % ; a 59 basis points ( โ bps โ ) increase over 2016 ยท a & m segment revenues up 6 % with segment revenue rate up 36 bps to 12.63 % versus 12.27 % in 2016 ยท revenues from other services of $ 46.2 million ; an increase of 34 % compared to 2016 ยท cash provided by operating activities of $ 146.3 million after interest expense of $ 33.2 million in 2017 resulting from the additional debt undertaken for the ironplanet acquisition ยท declared quarterly dividends aggregating to $ 0.68 per common share in 2017 our 2017 financial performance was influenced by a few notable factors : first , our business experienced broad-based effects of unprecedented demand for infrastructure projects . this led to high equipment utilization rates and an overall equipment shortage , principally in the united states , resulting in lower than expected full year gtv and revenue performance . other notable factors included : ยท our columbus , united states , live on site auction , which generated $ 76.6 million of gtv in the third quarter of 2016 compared to $ 10.5 million in the third quarter of 2017 ; ยท our largest-ever auction in grande prairie , canada , in march 2016 , which generated more than $ 46.0 million ( 62.0 million canadian dollars ) of gtv , with no similar auction on the calendar in 2017 ; and ritchie bros. 40 ยท a volume decrease in our underwritten business , most significantly in western canada , where we continued to see fewer disposals of oil and gas assets due to commodity price improvements .
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the balance at march 31 , 2017 and march 31 , 2016 was $ 0 and $ 232,100 , respectively . bridge notes payable on july 11 , 2014 , tyme received $ 1,100,000 in proceeds from the issuance of a convertible promissory note ( the โ bridge note โ ) from an affiliate of gem global yield fund , llc scs ( โ gem โ ) . the bridge note bears interest at a rate of 10 % story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the โ risk factors โ section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . as used in this report , unless the context suggests otherwise , โ we , โ โ us , โ โ our , โ โ the company โ or โ tyme technologies โ refer to tyme technologies , inc. overview our predecessor was formed in florida on november 22 , 2011 and effective as of september 18 , 2014 , the predecessor ( then constituting a florida corporation with the name global group enterprises corp. ) reincorporated in the state of delaware by merging into a wholly-owned delaware subsidiary , tyme technologies , inc. , which was formed on august 22 , 2014 specifically for this purpose ( the โ reincorporation โ ) . tyme technologies , inc. was the surviving corporation in such merger . as a result of the reincorporation , among other things , ( i ) our name changed to tyme technologies , inc. , ( ii ) we changed our jurisdiction of - 70 - incorporation from florida to delaware , ( iii ) we increased our authorized capital stock from 250,000,000 shares of common stock , $ 0.0001 par value per share , to 300,000,000 shares of common stock , $ 0.0001 par value per share , and 10,000,000 shares of preferred stock , $ 0.0001 par value per share , ( iv ) each share of global group enterprises corp. 's common stock outstanding at the time of the reincorporation was automatically converted into 4.3334 shares of tyme technologies , inc. 's common stock , with the result that the 12,000,000 shares of common stock outstanding immediately prior to the reincorporation were converted into 52,000,800 shares of common stock outstanding immediately thereafter . all share and per share numbers in this annual report on form 10-k relating to our common stock prior to the reincorporation have been adjusted to give effect to this conversion , unless otherwise stated . subsequent to the reincorporation , global group enterprises corp. ceased to exist . as discussed in โ item 1 ; business โ corporate history ; significant organizational events , โ and in the notes to the consolidated financial statements included in this annual report on form 10-k , on march 5 , 2015 , we entered into a โ reverse triangular merger โ and related transactions with tyme inc. , a delaware corporation ( โ tyme โ ) , and other parties that resulted in , among other matters , a change in control of our company and a change in our fiscal year from a fiscal year ending on november 30th of each calendar year to one ending on december 31st of each calendar year . on october 27 , 2016 , our board of directors determined to change the fiscal year of the company from a year ending on december 31 of each year to a year ending on march 31 of each year . the company 's report covering the transition period from january 1 , 2016 through march 31 , 2016 was filed via transition report on form 10-qt . as a result of this change , we provided herein disclosures of our results , financial conditions and liquidity for ( i ) the year ended march 31 , 2017 compared to the year ended december 31 , 2015 ; ( ii ) the three months ended march 31 , 2016 compared to three months ended march 31 , 2015 and ( iii ) the year ended december 31 , 2015 compared to the year ended december 31 , 2014. we are in the process of evaluating our short- and long-term financing requirements in order to effectuate our business plan . we anticipate that we will seek to raise required capital by the issuance of equity or debt securities , through private or public offerings or by other means . other than transactions recently concluded and described below under โ recent financing developments , โ we have no arrangements or plans currently in effect and any inability to raise additional funds could have an adverse effect on our ability to execute our business objectives . in addition , no assurance can be given that we will be able to obtain funds on favorable terms , if at all . recent financing developments in october of 2016 , we raised $ 1.47 million through a private placement of 452,314 shares of our common stock . in march of 2017 , we raised $ 9.2 million in gross proceeds through a private placement of 3,588,620 shares of our common stock and 3,588,620 common stock purchase warrants ( each , a โ warrant โ ) . each warrant entitles its holder to purchase one share of common stock ( each , a โ warrant share โ ) at an exercise price of $ 3.00 per warrant share , subject to adjustment . story_separator_special_tag we account for stock-based awards issued to non-employees in accordance with asc 505-50 , โ equity-based payment to non-employees โ and accordingly the fair value of the stock options granted to non-employees is remeasured each reporting period until the earlier of : a ) the performance commitment date , or b ) the date the services required under the arrangement have been completed and the resulting increase or decrease in value , if any , is recognized as expense or income , respectively , during the period the related services are rendered . refer to note 2 to our consolidated financial statements for a discussion of recent accounting pronouncements . story_separator_special_tag noshade= '' '' size= '' 2 '' width= '' 100 % '' / > 1. transaction costs associated with the merger , which totaled approximately $ 1,000,000 for the three months ended march 31 , 2015 and relate to professional fees incurred in respect of legal , investor relations and accounting and auditing of tyme 's financial statements . there were no such transaction costs incurred in the three months ended march 31 , 2016 . 2. salary expense for non-research and development personnel was $ 243,572 for the three months ended march 31 , 2016 , compared to $ 395,356 for the three months ended march 31 , 2015 , representing a $ 151,784 decrease between the comparable periods . the decrease is due to the fact that during the three months ended march 31 , 2015 , non-research and development personnel were awarded bonus compensation totaling $ 206,690 in connection with the merger . this decrease is offset by a new full time hire during the three months ended march 31 , 2016 . 3. stock based compensation expense related to stock options granted was $ 1,137,435 for the three months ended march 31 , 2016 compared to $ 0 for the three months ended march 31 , 2015. no stock options were granted during or prior to the three months ended march 31 , 2015 . 4. in addition , in the three months ended march 31 , 2016 , we incurred costs of $ 353,362 for legal and accounting fees . other income ( expense ) interest charges for the three months ended march 31 , 2015 were $ 3,503,301 , compared to $ 0 for the three months ended march 31 , 2016. contemporaneous with the closing of the merger , the bridge note in the principal amount of $ 2,310,000 was converted into 2,310,000 shares of company common stock . on march 5 , 2015 , the mandatory conversion feature of the bridge note was amended to a set fixed conversion amount such that , upon conversion , the bridge note purchaser would receive one share of company common stock for each $ 1.00 of principal of the bridge note outstanding as of the date of the mandatory conversion . we evaluated the modification to the conversion rate as an inducement to convert the bridge note and concluded that it provided the purchaser of the bridge note an incremental value of $ 3,465,000 , which is included as interest expense on the consolidated statements of operations for the three months ended march 31 , 2015. we also recorded cash interest expenses of $ 38,301 on the bridge note during the three months ended march 31 , 2015. year ended december 31 , 2015 compared to december 31 , 2014 net loss for the year ended december 31 , 2015 was $ 11,726,818 , compared to $ 2,660,677 for the year ended december 31 , 2014. the increase in the net loss for the year ended december 31 , 2014 , as compared to the net loss for 2014 is due to increased operating costs and expenses in 2015 , as highlighted below . revenues and other income during the years ended december 31 , 2015 and 2014 , we did not realize any revenues from operations . we do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangement , none of which is anticipated to occur in the near future . operating costs and expenses for the year ended december 31 , 2015 , operating costs and expenses totaled $ 8,599,772 , compared to $ 2,584,116 for the year ended december 31 , 2014 , representing an increase of $ 6,015,656. operating costs and expenses were comprised of the following : research and development expenses were $ 3,823,966 for the year ended december 31 , 2015 , compared to $ 761,359 for the year ended december 31 , 2014 , representing an increase of $ 3,062,607. all research and development expenditures have been incurred in respect of our lead drug candidate , sm-88 , and its technology platform . research and development activities primarily consist of the following : salary expense for research and development personnel was $ 773,853 for the year ended december 31 , 2015 , compared to $ 299,880 for the year ended december 31 , 2014 , representing a $ 473,973 increase between the comparable periods , primarily due to a higher salary for the company 's chief executive officer , who primarily provides research and development related services , and an increase in the number of employees . - 75 - consulting and study expenses were $ 1,969,617 for the year ended december 31 , 2015 , compared to $ 382,584 for the year ended december 31 , 2014 , representing an increase of $ 1,587,033 between the comparable periods . these types of expenses are anticipated to vary between future accounting periods as we continue to develop our drug candidates and seek governmental approval of such drug candidates . for the year ended december 31 , 2015 , there was $ 653,369 of expenses incurred in connection with the acquisition of manufactured samples to be used in testing .
| results of operations year ended march 31 , 2017 compared to year ended december 31 , 2015 net loss for the year ended march 31 , 2017 was $ 15,206,781 , compared to $ 11,726,818 for the year ended december 31 , 2015. the increase in the net loss for the year ended march 31 , 2017 , as compared to the net loss for the year ended december 31 , 2015 is due to increased operating costs and expenses in 2017 , as highlighted below . - 72 - revenues and other income during the years ended march 31 , 2017 and december 31 , 2015 , we did not realize any revenues from operations . we do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangement , none of which is anticipated to occur in the near future . operating costs and expenses for the year ended march 31 , 2017 , operating costs and expenses totaled $ 15,206,781 , compared to $ 8,599,772 for the year ended december 31 , 2015 , representing an increase of $ 6,607,009. operating costs and expenses were comprised of the following : research and development expenses were $ 6,111,587 for the year ended march 31 , 2017 , compared to $ 3,823,966 for the year ended december 31 , 2015 , representing an increase of $ 2,287,621. all research and development expenditures have been incurred in respect of our lead drug candidate , sm-88 , and its technology platform . research and development activities primarily consist of the following : salary expense for research and development personnel was $ 923,816 for the year ended march 31 , 2017 , compared to $ 773,853 for the year ended december 31 , 2015 , representing a $ 149,963 increase between the comparable periods , primarily due to an increase in the number of employees .
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a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes story_separator_special_tag you should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this annual report and in the documents that we incorporate by reference into this annual report . this annual report may contain certain โ forward-looking โ information within the meaning of the private securities litigation reform act of 1995. this information involves risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in โ risk factors. โ overview we are an information technology consulting firm serving forbes global 2000 and other large enterprise companies with a primary focus on the united states . we help our clients gain competitive advantage by using internet-based technologies to make their businesses more responsive to market opportunities and threats , strengthen relationships with their customers , suppliers and partners , improve productivity , and reduce information technology costs . we design , build , and deliver business-driven technology solutions using third party software products . our solutions include business analysis , portals and collaboration , business integration , user experience , enterprise content management , customer relationship management , interactive design , enterprise performance management , business process management , business intelligence , ecommerce , mobile platforms , custom applications , and technology platform implementations , among others . our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global , internet-driven , and competitive marketplace . 15 services revenues services revenues are derived from professional services that include developing , implementing , integrating , automating and extending business processes , technology infrastructure , and software applications . most of our projects are performed on a time and materials basis , while a smaller portion of our revenues is derived from projects performed on a fixed fee basis . fixed fee engagements represented approximately 11 % of our services revenues for the year ended december 31 , 2012 compared to 11 % and 13 % for the years ended december 31 , 2011 and 2010 , respectively . for time and material projects , revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates . for fixed fee projects , revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours . amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues . on most projects , we are also reimbursed for out-of-pocket expenses such as airfare , lodging , and meals . these reimbursements are included as a component of revenues . the aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients , the total number of our projects that require travel , and whether our arrangements with our clients provide for the reimbursement of travel and other project-related expenses . software and hardware revenues software and hardware revenues are derived from sales of third-party software and hardware . revenues from sales of third-party software and hardware are generally recorded on a gross basis provided we act as a principal in the transaction . on rare occasions , we do not meet the requirements to be considered a principal in the transaction and act as an agent . in these cases , revenues are recorded on a net basis . software and hardware revenues are expected to fluctuate depending on our clients ' demand for these products . if we enter into contracts for the sale of services and software or hardware , management evaluates whether each element should be accounted for separately by considering the following criteria : ( 1 ) whether the deliverables have value to the client on a stand-alone basis ; and ( 2 ) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control ( only if the arrangement includes a general right of return related to the delivered item ) . further , for sales of software and services , management also evaluates whether the services are essential to the functionality of the software and has fair value evidence for each deliverable . if management concludes that the separation criteria are met , then it accounts for each deliverable in the transaction separately , based on the relevant revenue recognition policies . generally , all deliverables of our multiple element arrangements meet these criteria and are accounted for separately , with the arrangement consideration allocated among the deliverables using vendor-specific objective evidence of the selling price . as a result , we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein . further , delivery of software and hardware sales , when sold contemporaneously with services , can generally occur at varying times depending on the specific client project arrangement . delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract . there are no significant cancellation or termination-type provisions for our software and hardware sales . contracts for professional services provide for a general right , to the client or us , to cancel or terminate the contract within a given period of time ( generally 10 to 30 days ' notice is required ) . the client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract . cost of revenues cost of revenues consists primarily of cash and non-cash compensation and benefits , including bonuses and non-cash compensation related to equity awards . story_separator_special_tag the average number of colleagues performing services , including subcontractors , increased to 1,518 for the year ended december 31 , 2012 from 1,317 for the year ended december 31 , 2011. gross margin . gross margin increased 27 % to $ 103.4 million for the year ended december 31 , 2012 from $ 81.1 million for the year ended december 31 , 2011. gross margin as a percentage of revenues increased to 31.6 % for the year ended december 31 , 2012 from 30.9 % for the year ended december 31 , 2011 , primarily due to an increase in services gross margin . services gross margin , excluding reimbursable expenses , increased to 34.8 % or $ 99.8 million for the year ended december 31 , 2012 from 33.9 % or $ 79.0 million for the year ended december 31 , 2011. the increase in services gross margin was primarily a result of a higher average bill rate . the average bill rate for our professionals , excluding subcontractors , increased to $ 119 per hour for the year ended december 31 , 2012 from $ 116 per hour for the year ended december 31 , 2011 , primarily due to the improved pricing opportunities . the average bill rate for the year ended december 31 , 2012 , excluding china , was $ 129 per hour compared to $ 125 per hour for the year ended december 31 , 2011. selling , general and administrative . sg & a expenses increased 26 % to $ 64.9 million for the year ended december 31 , 2012 from $ 51.7 million for the year ended december 31 , 2011 due primarily to fluctuations in expenses as detailed in the table below . sg & a expenses , as a percentage of revenues , increased slightly to 19.8 % for the year ended december 31 , 2012 from 19.7 % for the year ended december 31 , 2011. replace_table_token_5_th 18 depreciation . depreciation expense increased 28 % to $ 2.3 million for the year ended december 31 , 2012 from $ 1.8 million for the year ended december 31 , 2011. the increase in depreciation expense was mainly attributable to the addition of depreciation related to fixed assets from acquisitions during 2011 and 2012. depreciation expense as a percentage of revenues was 0.7 % for each of the years ended december 31 , 2012 and 2011. amortization . amortization expense increased 23 % to $ 7.8 million for the year ended december 31 , 2012 from $ 6.3 million for the year ended december 31 , 2011. the increase in amortization expense was due to the addition of amortization related to acquired intangible assets from acquisitions during 2011 and 2012. acquisition costs . acquisition-related costs increased 50 % to $ 1.9 million for the year ended december 31 , 2012 from $ 1.2 million for the year ended december 31 , 2011. the acquisition-related costs incurred during 2012 were related to the acquisition of pointbridge , nascent , and northridge , while the acquisition-related costs incurred during 2011 were related to the acquisition of exervio and jcb . acquisition-related costs were incurred for legal , accounting , and valuation services performed by third parties . adjustment to fair value of contingent consideration . an adjustment of $ 0.5 million was made during the year ended december 31 , 2012 for the accretion of the fair value estimate for the earnings-based contingent consideration related to the exervio acquisition . the adjustment of $ 1.6 million made during the year ended december 31 , 2011 related to the speaktech and exervio acquisitions . provision for income taxes . we provide for federal , state , and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses . our effective tax rate decreased to 38.0 % for the year ended december 31 , 2012 from 42.4 % for the year ended december 31 , 2011. the decrease in the effective rate was due primarily to a research and development tax credit on our 2011 income tax return recorded in 2012 when it was determinable and reasonably estimable . the research and development tax credit for 2012 was enacted by congress in january 2013 and the resulting tax benefit will be estimated and recorded in 2013. year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues . total revenues increased 22 % to $ 262.4 million for the year ended december 31 , 2011 from $ 215.0 million for the year ended december 31 , 2010. story_separator_special_tag style= '' display : inline ; font-family : times new roman ; font-size : 10pt '' > amortization . amortization expense increased 60 % to $ 6.3 million for the year ended december 31 , 2011 from $ 4.0 million for the year ended december 31 , 2010. the increase in amortization expense was due to the addition of intangible assets acquired as a result of the company 's acquisition activity during 2010 and 2011. acquisition costs . acquisition-related costs of $ 1.2 million were incurred during 2011 related to the acquisition of exervio and jcb compared to $ 1.0 million during 2010 related to the acquisition of kerdock and speaktech . acquisition-related costs were incurred for legal , accounting , and valuation services performed by third parties . adjustment to fair value of contingent consideration . an adjustment of $ 1.6 million was made during the year ended december 31 , 2011 for the accretion of the fair value estimate for the earnings-based contingent consideration related to the speaktech and exervio acquisitions . provision for income taxes . we provide for federal , state , and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses .
| financial results explanation for increases over prior year period ( in thousands ) ( in thousands ) for the year ended december 31 , 2011 for the year ended december 31 , 2010 total increase/ ( decrease ) over prior year period increase attributable to acquired companies increase/ ( decrease ) attributable to base business services revenues $ 233,166 $ 185,173 $ 47,993 $ 34,949 $ 13,044 software and hardware revenues 15,624 20,556 ( 4,932 ) 1,215 ( 6,147 ) reimbursable expenses 13,649 9,223 4,426 1,107 3,319 total revenues $ 262,439 $ 214,952 $ 47,487 $ 37,271 $ 10,216 services revenues increased 26 % to $ 233.2 million for the year ended december 31 , 2011 from $ 185.2 million for the year ended december 31 , 2010. the increase in services revenues is primarily due to acquisitions during 2010 and 2011. services revenues attributable to our base business increased $ 13.1 million while services revenues attributable to acquired companies increased $ 34.9 million , resulting in a total increase of $ 48.0 million . software and hardware revenues decreased 24 % to $ 15.6 million for the year ended december 31 , 2011 from $ 20.6 million for the year ended december 31 , 2010 due to the decrease in the volume and magnitude of software renewals as compared to 2010. reimbursable expenses increased 48 % to $ 13.6 million for the year ended december 31 , 2011 from $ 9.2 million for the year ended december 31 , 2010 primarily as a result of the increase in services revenue . we did not realize any profit on reimbursable expenses . cost of revenues . cost of revenues increased 19 % to $ 181.3 million for the year ended december 31 , 2011 from $ 152.2 million for the year ended december 31 , 2010. the increase in cost of revenues was directly related to the increase in revenues , specifically the increase in headcount to support the company 's ongoing revenue-producing projects .
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amounts included in accumulated other comprehensive loss are reclassified to earnings in the period in which earnings are impacted by the hedged items , in the period that the hedged transaction is deemed no longer likely to occur , or in the period that the derivative is terminated . for cash flow hedges , a formal assessment is made , both at the hedge 's inception and on an ongoing basis , to determine whether the derivatives that are designated as hedging instruments have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods . to the extent the hedge is determined to be ineffective , the ineffective portion is immediately recognized in earnings . when available , quoted market prices or prices obtained through external sources are story_separator_special_tag this section includes a discussion of our operations for the three fiscal years ended august 31 , 2016 , 2015 and 2014 . the following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition . the discussion should be read in conjunction with the consolidated financial statements and the related notes thereto in part ii , item 8 of this report and the selected financial data contained in part ii , item 6 of this report . business we are one of north america 's largest recyclers of ferrous and nonferrous scrap metal , including end-of-life vehicles , and a manufacturer of finished steel products . we use operating income to measure our segment performance . restructuring charges and other exit-related activities are not allocated to segment operating income because we do not include this information in our measurement of the segments ' performance . expense related to shared services that support operational activities and transactions is allocated from corporate to the segments . unallocated corporate expense consists primarily of expense for management and certain administrative services that benefit both segments . the results of discontinued operations are excluded from segment operating income and are presented separately , net of tax , from the results of ongoing operations for all periods presented . see note 18 โ segment information in the notes to the consolidated financial statements in part ii , item 8 of this report for a discussion of the primary activities of each reportable segment , total assets by reportable segment , operating results from continuing operations , revenues from external customers and concentration of sales to foreign countries . our internal organizational and reporting structure supports two operating and reportable segments : the auto and metals recycling ( `` amr '' ) business and the steel manufacturing business ( `` smb '' ) . amr sells and brokers ferrous scrap metal ( containing iron ) to foreign and domestic steel producers , including smb , and nonferrous scrap metal ( not containing iron ) to both foreign and domestic markets . amr procures scrap supply from salvaged vehicles , rail cars , home appliances , industrial machinery , manufacturing scrap and construction and demolition scrap . our largest source of autobodies is our own network of auto parts stores , which operate under the commercial brand-name pick-n-pull . amr procures salvaged vehicles and sells serviceable used auto parts from these vehicles through 52 self-service auto parts stores . the remaining portions of the vehicles , primarily autobodies and major parts containing ferrous and nonferrous materials , are shipped to our metal recycling facilities , or sold to wholesalers where geographically more economical . amr then processes mixed and large pieces of scrap metal into smaller pieces by crushing , torching , shearing , shredding and sorting , resulting in scrap metal pieces of a size , density and metal content required by customers to meet their production needs . processed recycled metals are shipped to our own domestic steel mill and to other metal producers globally . smb operates a steel mini-mill that produces a wide range of finished steel products . smb 's scrap metal raw material requirements are sourced almost entirely through amr , which smb purchases at rates that approximate market prices for shipments from the west coast of the u.s. smb uses its mini-mill in mcminnville , oregon to melt recycled metal and other raw materials to produce finished steel products . smb also maintains a mill depot in southern california . our results of operations depend in large part on the demand and prices for recycled metal in foreign and domestic markets and on the supply of raw materials , including end-of-life vehicles , available to be processed at our facilities . our deep water port facilities on both the east and west coasts of the u.s. ( in everett , massachusetts ; providence , rhode island ; oakland , california ; portland , oregon ; and tacoma , washington ) and access to public deep water port facilities ( in kapolei , hawaii ; and salinas , puerto rico ) allow us to efficiently meet the global demand for recycled ferrous metal by shipping bulk cargoes to steel manufacturers located in europe , africa , the middle east , asia , and north , central and south america . our exports of nonferrous recycled metal are shipped in containers through various public docks to specialty steelmakers , foundries , aluminum sheet and ingot manufacturers , copper refineries and smelters , brass and bronze ingot manufacturers and wire and cable producers globally . we also transport both ferrous and nonferrous metals by truck , rail and barge in order to transfer scrap metal between our facilities for further processing , to load shipments at our export facilities and to meet regional domestic demand . story_separator_special_tag the persistently low economic growth in the u.s. and the lower scrap metal price environment also contributed to constrained scrap flows in our domestic supply markets which , combined with significant scrap recycling capacity and competition in certain regional markets , led to continued low margins in our amr business during the first half of fiscal 2016 until prices increased significantly in the third quarter . prices increased in the third quarter primarily due to increased demand for recycled metal , before decreasing in the fourth quarter and returning to the levels seen at the beginning of the fiscal year . story_separator_special_tag $ 0.69 per diluted share , compared to $ 4 million , or $ 0.13 per diluted share , in the prior year . adjusted net income from continuing operations attributable to ssi excludes the impact of goodwill impairment charges , other asset impairment charges , restructuring charges and other exit-related activities , the impact of reselling or modifying the terms of certain previously contracted bulk ferrous shipments , net of recoveries , and the non-cash write-off of debt issuance costs . see the reconciliation of adjusted net income ( loss ) from continuing operations attributable to ssi in non-gaap financial measures at the end of this item 7. the following items further highlight selected liquidity and capital structure metrics for fiscal 2016 : net cash provided by operating activities of $ 99 million , compared to $ 145 million in the prior year ; debt of $ 193 million , compared to $ 228 million as of the prior year-end ; debt , net of cash , of $ 166 million , compared to $ 205 million as of the prior year-end ( see the reconciliation of debt , net of cash , in non-gaap financial measures at the end of this item 7 ) ; and dividends paid of $ 20 million , compared to the same amount in the prior year . the following items highlight our reportable segment financial results for fiscal 2016 : amr revenues of $ 1.2 billion and operating income of $ 23 million , compared to revenues of $ 1.7 billion and operating loss of $ 164 million in the prior year ; amr adjusted operating income of $ 49 million , compared to $ 28 million in the prior year ( see the reconciliation of amr adjusted operating income ( loss ) in non-gaap financial measures at the end of this item 7 ) ; smb revenues of $ 270 million and operating income of $ 4 million , compared to revenues of $ 375 million and operating income of $ 20 million in the prior year ; and smb adjusted operating income of $ 6 million , compared to $ 20 million in the prior year ( see the reconciliation of smb adjusted operating income in non-gaap financial measures at the end of this item 7 ) . 30 / schnitzer steel industries , inc. form 10-k 2016 schnitzer steel industries , inc. results of operations replace_table_token_9_th _ nm = not meaningful ( 1 ) amr sells recycled ferrous metal to smb at rates per ton that approximate west coast u.s. market prices . these intercompany revenues and cost of goods sold are eliminated in consolidation . ( 2 ) corporate expense consists primarily of unallocated expenses for management and certain administrative services that benefit both reportable segments . ( 3 ) the joint ventures sell recycled metal to amr and to smb at prices that approximate local market rates , which produces intercompany profit . this intercompany profit is eliminated while the products remain in inventory and is not recognized until the finished products are sold to third parties . ( 4 ) restructuring charges consist of expense for severance , contract termination and other restructuring costs that management does not include in its measurement of the performance of the reportable segments . other exit-related activities consist of asset impairments and accelerated depreciation , net of gains on exit-related disposals , related to site closures . 31 / schnitzer steel industries , inc. form 10-k 2016 schnitzer steel industries , inc. ( 5 ) intercompany profits are not recognized until the finished products are sold to third parties ; therefore , intercompany profit is eliminated while the products remain in inventory . revenues fiscal 2016 compared with fiscal 2015 consolidated revenues for fiscal 2016 were $ 1.4 billion , a decrease of 29 % compared to the $ 1.9 billion of consolidated revenues for the prior year . after experiencing sharp declines in the first half of fiscal 2016 , net selling prices for shipments of ferrous scrap metal increased significantly during the third quarter of fiscal 2016 , primarily due to improved demand , before decreasing in the fourth quarter and returning to the levels seen at the beginning of the fiscal year . overall demand for recycled metals in our end-markets was weaker than in the prior year primarily due to continued low global economic growth , the relative strength of the u.s. dollar and the impact of lower iron ore prices during most of the fiscal year . this resulted in significantly lower average net selling prices for ferrous and nonferrous scrap metal and finished steel products , and reduced sales volumes in fiscal 2016 compared to the prior year . average net selling prices for ferrous and nonferrous scrap metal in fiscal 2016 decreased by 28 % and 21 % , respectively , compared to the prior year . ferrous and nonferrous sales volumes in fiscal 2016 decreased by 11 % and 13 % , respectively , compared to the prior year . demand for our finished steel products was also weaker than in the prior year due to increased competition from lower-priced imports . fiscal 2015 compared with fiscal 2014 consolidated revenues for fiscal 2015 decreased primarily due to significantly lower average net selling prices for ferrous and nonferrous scrap metal and reduced sales volumes compared to the prior year .
| executive overview of financial results we generated consolidated revenues of $ 1.4 billion in fiscal 2016 , a decrease of 29 % from the $ 1.9 billion of consolidated revenues in the prior year due to a combination of lower average net selling prices for ferrous and nonferrous scrap metal and finished steel products , and reduced sales volumes compared to the prior year . average net selling prices for ferrous and nonferrous scrap metal in fiscal 2016 decreased by 28 % and 21 % , respectively , compared to the prior year . ferrous and nonferrous sales volumes in fiscal 2016 decreased by 11 % and 13 % , respectively , compared to the prior year . overall demand for recycled metals in our end-markets was weaker than in the prior year primarily due to continued low global economic growth , the relative strength of the u.s. dollar and the impact of lower iron ore prices during most of the fiscal year . demand for our finished steel products was also weaker than in the prior year primarily due to increased competition from lower-priced imports . consolidated operating loss was $ 8 million in fiscal 2016 , compared to $ 196 million in the prior year . adjusted consolidated operating income in fiscal 2016 was $ 28 million , compared to $ 11 million in the prior year . adjusted results in fiscal 2016 exclude the impact of a goodwill impairment charge of $ 9 million , other asset impairment charges of $ 21 million , restructuring charges and other exit-related activities of $ 7 million , and benefits from contract settlements of $ 1 million .
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( 6 ) consists of ( i ) 14,000 shares of common stock held by dr. laumas , ( ii ) 758,373 shares held by bearing circle capital llc and ( iii ) options to purchase 367,037 shares of common stock held by dr. laumas that are exercisable within 60 days of march 17 , 2020. dr. laumas is affiliated with bearing circle capital and has voting and investment power over the shares held by bearing circle capital . dr. laumas disclaims beneficial ownership of the shares held by bearing circle capital llc except to the extent of his pecuniary interest therein . ( story_separator_special_tag except as otherwise noted or where the context otherwise requires , as used in this report , the words โ we , โ โ us , โ โ our , โ the โ company โ and โ innovate โ refer to innovate biopharmaceuticals , inc. as of and following the closing of the merger of monster and private innovate , or the monster merger , on january 29 , 2018 , and , where applicable , the business of private innovate prior to the monster merger . all references to โ monster โ refer to monster digital , inc. prior to the closing of the monster merger . the following analysis reflects the historical financial results of private innovate prior to the monster merger and that of innovate following the monster merger and does not include the historical financial results of monster . all share and per share disclosures have been retroactively adjusted to reflect the exchange of shares in the monster merger . the following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. in addition to historical information , the following discussion contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including , but not limited to , those set forth in the โ risk factors โ in part i , item 1a of this report . company overview innovate we are a clinical-stage biopharmaceutical company developing novel medicines for autoimmune and inflammatory diseases with unmet medical needs , including drug candidates for celiac disease , ulcerative colitis ( uc ) , nonalcoholic steatohepatitis ( nash ) , alcoholic steatohepatitis ( ash ) and crohn 's disease . in 2019 , we started the phase 3 clinical trial for our lead drug candidate , larazotide acetate or larazotide ( inn-202 ) , for the treatment of celiac disease . larazotide has the potential to be the first-to-market therapeutic for celiac disease , an unmet medical need affecting an estimated 1 % of the u.s. population or more than 3 million individuals . celiac patients have no treatment alternative other than a strict lifelong adherence to a gluten-free diet , which is difficult to maintain and can be deficient in key nutrients . in celiac disease , larazotide is the only drug which has successfully met its primary endpoint with statistical significance in a phase 2b efficacy trial , which was comprised of 342 patients . we completed the end of phase 2 meeting with the fda for the treatment of celiac disease with larazotide and received 71 fast track designation . larazotide has been shown to be safe and effective after being tested in several clinical trials involving nearly 600 patients , most recently in the phase 2b trial for celiac disease . we have approximately 100 active clinical trial sites with three treatment groups , 0.25 mg of larazotide , 0.5 mg of larazotide and a placebo arm . site activation and patient enrollment have been impacted by the announcement of the rdd merger and the winter holiday season . we continue to monitor the evolving situation with covid-19 , which is likely to directly or indirectly impact the pace of enrollment over the next several months . we currently anticipate a top-line readout from the trial in 2021. inn-108 is a novel oral small molecule therapeutic for uc , which affects approximately 1.4 million individuals in the u.s. alone . with the combination of an immunomodulator , inn-108 could lead to a more efficacious drug than the current 5-asa/mesalamine formations being used to treat uc . a phase 1 trial was successfully completed in the u.s. with 24 subjects . we may prepare for a phase 2 trial in uc , subject to receipt of additional financing . intestinal permeability is compromised in numerous diseases where a disruption of the epithelial barrier that separates the lumen from the host 's immune system may contribute to uncontrolled inflammation . larazotide is a gut-restricted peptide which has been shown to re-normalize intestinal permeability in various inflammatory and metabolic preclinical models . during 2019 , we initiated a research collaboration with institut gustave roussy 's laurence zitovogel , md , ph.d. , department of immuno-oncology . through this collaboration , we seek to understand how the therapeutic effect of immune checkpoint inhibitors , such as antibodies to ctla-4 and pd-1 , are modulated by blocking translocation of certain metabolites and bacterial antigens and toxins from interacting with the host immune system in pre-clinical oncology models . building on previous research that showed a type of permeability known as โ leaky gut โ that may cause microbial translocation of toxic products into circulation of the bloodstream , we are expanding our work in liver disease . initial in vitro data suggests the potential use of larazotide in alcoholic liver diseases . we entered into a research collaboration with massachusetts general hospital to explore larazotide in animal models for the treatment of ash . monster merger on january 29 , 2018 , monster and private innovate completed a reverse recapitalization in accordance with the terms of the monster merger agreement . story_separator_special_tag the short-term warrants , as amended , are exercisable for up to an aggregate of 4,181,068 shares of our common stock , par value $ 0.0001 per share , until september 18 , 2020. except as specifically amended , the terms and conditions of each short-term warrant remained in full force and effect and were not affected by this amendment . see โ note 1โsummary of significant accounting policies โ to the accompanying financial statements included in this annual report on form 10-k for additional terms of the short-term warrants . on february 12 , 2020 , we offered to amend outstanding warrants to purchase an aggregate of 12,346,631 shares of common stock , or the original warrants , held by holders of certain outstanding warrants , or the offer to amend and exercise . the original warrants of eligible holders who elect to participate in the offer to amend and exercise will be amended to ( i ) shorten the 73 exercise period so that they expire concurrently with the closing of the rdd merger and ( ii ) significantly reduce the exercise price per share . the amended warrants are required to be exercised for cash , and any cashless exercise provisions in the original warrants have been omitted . amendment to the 2012 omnibus incentive plan on december 4 , 2018 , our stockholders approved an amendment to the 2012 omnibus incentive plan , or the omnibus plan , to provide for an additional 3,000,000 shares of common stock to be issued pursuant to the plan and an evergreen provision to automatically increase the number of shares issuable pursuant to the plan on an annual basis for the period commencing january 1 , 2019 and ending on january 1 , 2022. the plan will automatically terminate on april 30 , 2022. pursuant to the evergreen provision , on january 1 , 2020 and 2019 , the number of shares of common stock available under the omnibus plan automatically increased by 1,973,883 and 1,304,441 shares , respectively . research and development updates during 2019 , we dosed the first patient in our phase 3 clinical trials for inn-202 in adult patients with celiac disease . we have approximately 100 active clinical trial sites , and we are targeting approximately 600 subjects in the first phase 3 clinical trial with three treatment groups , 0.25 mg of larazotide tid , 0.5 mg of larazotide tid and a placebo arm . we currently anticipate a top-line readout from the trial in 2021. recent research and development milestones include : continued research collaboration with institut gustave roussy to study regulation of intestinal permeability and the gut microbiota using larazotide in immuno-oncology checkpoint inhibitor failure preclinical models ; continued research collaboration with dr. anthony blikslager of north carolina state university to explore life-cycle extension of our lead molecule larazotide acetate ; initiated research collaboration with dr. younggeon jin of university of maryland , college park , to understand tight junction biology ; and continued research collaboration with dr. james nataro of the university of virginia , charlottesville to study larazotide 's effect on environmental enteric dysfunction . 74 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > as of december 31 , 2019 , we had cash and cash equivalents of approximately $ 4.6 million , compared to approximately $ 5.7 million as of december 31 , 2018 . the decrease in cash was primarily due to expenditures for business operations , research and development and clinical trial costs , offset by the net proceeds from the march 2019 offering and april 2019 offering , each as described below , in addition to the issuance of convertible debt , further described below . we expect to incur substantial expenditures in the foreseeable future for the continued development and clinical trials of our product candidates . we will continue to require additional financing to develop our product candidates and fund operations for the foreseeable future . we plan to seek funds through debt or equity financings , strategic alliances and licensing arrangements , and other collaborations or sources of financing , including the rdd merger financing . we expect to complete the rdd merger and concurrent rdd merger financing near the end of the first quarter of 2020. however , the covid-19 pandemic may affect access to capital and could impact the timing of the company 's proposed merger with rdd . the rdd merger financing contains a minimum funding requirement of $ 10 million . we plan to use the funds from the rdd merger financing to progress the phase 3 clinical trial in celiac disease as well as for progression of rdd 's current pipeline , including the sbs product candidate , nb-002 upon successful completion of the naia acquisition . there can be no assurance that we will be able to complete the rdd merger and rdd merger financing or raise the additional capital needed to continue our pipeline of research and development programs on terms acceptable to us , on a timely basis or at all . if we are unable to raise additional funds when needed , our ability to develop our product candidates will be impaired . we may also be required to delay , reduce , or terminate some or all of our development programs and clinical trials . march 2019 offering on march 17 , 2019 , we entered into a purchase agreement with sds capital partners ii , llc and certain other accredited investors , or the purchase agreement , pursuant to which we sold , on march 18 , 2019 , 4,181,068 shares of our common stock and issued short-term warrants to purchase up to 4,181,068 shares of our common stock and long-term warrants to purchase up to 2,508,634 shares of common stock , or the march long-term warrants . pursuant to the purchase agreement , we issued shares of common stock and warrants at a purchase price per share of $ 2.33 for aggregate gross proceeds of approximately $ 9.7 million .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table sets forth the key components of our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_3_th research and development expense research and development expense for the year ended december 31 , 2019 increased approximately $ 6.2 million , or 81 % , as compared to the year ended december 31 , 2018 . the increase was driven primarily by an increase of approximately $ 7.6 million associated with progress in our phase 3 clinical trial for inn-202 . in addition , research and development license fees increased by approximately $ 0.3 million due to a milestone payment associated with dosing the first patient in our phase 3 clinical trial . these increases were offset by decreases in ( i ) compensation costs and personnel benefits of $ 0.2 million primarily due to a decrease in severance expense associated with a former research and development executive and ( ii ) non-cash share-based compensation of approximately $ 1.5 million primarily due to a decrease in options granted and vested and a decrease in the fair value of options granted as a result of the decline in our stock price . general and administrative expense general and administrative expense for the year ended december 31 , 2019 decreased approximately $ 0.1 million , or 1 % , as compared to the year ended december 31 , 2018 . the decrease was primarily due to a decrease of approximately $ 1.4 million in accounting and legal fees associated with the monster merger .
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recently adopted accounting guidance in may 2014 , march 2016 , april 2016 , and december 2016 , the financial accounting standards board ( ยfasbย ) issued accounting standards update ( story_separator_special_tag results of operations . executive summary our business . we operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries , neurologically-related injuries and rehabilitation of injured workers . at december 31 , 2018 , we operated 591 clinics in 42 states . the average age of our clinics at december 31 , 2018 was 10.0 years . in addition to our ownership and operation of outpatient physical therapy clinics , we also manage physical therapy facilities for third parties , such as physicians and hospitals , with 28 such third-party facilities under management as of december 31 , 2018. in march 2017 , we purchased a 55 % interest in our initial industrial injury prevention business . on april 30 , 2018 , we made a second acquisition and subsequently combined the two businesses . after the combination , we own a 59.45 % interest in the combined business . services provided include onsite injury prevention and rehabilitation , performance optimization and ergonomic assessments . the majority of these services are contracted with and paid for directly by employers , including a number of fortune 500 companies . other clients include large insurers and their contractors . we perform these services through industrial sports medicine professionals , consisting of both physical therapists and highly specialized certified athletic trainers ( atcs ) . in addition to the above acquired interests in the industrial injury prevention businesses , during 2018 , 2017 and 2016 , we completed the following multi-clinic acquisitions : replace_table_token_7_th 24 besides the multi-clinic acquisitions above , on february 28 , 2018 , we , through several of our majority owned clinic partnerships , acquired five separate clinic practices . these practices will operate as satellites of the respective existing clinic partnership . also , during the year of 2017 , we purchased the assets and business of two physical therapy clinics in separate transactions . one clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of the existing partnerships . in addition to the multi-clinic acquisitions , we acquired two single clinic practices in separate transactions during 2016. the results of operations of the acquired clinics have been included in our consolidated financial statements since the date of their respective acquisition . we intend to continue to pursue additional acquisition opportunities , develop new clinics and open satellite clinics . critical accounting policies critical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring our judgment . our critical accounting policies are : revenue recognition . revenues are recognized in the period in which services are rendered . net patient revenues consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders , sports-related injuries , preventative care , rehabilitation of injured workers and neurological-related injuries . net patient revenues ( patient revenues less estimated contractual adjustments ) are recognized at the estimated net realizable amounts from third-party payors , patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied . there is an implied contract between us and the patient upon each patient visit . generally , this occurs as we provide physical and occupational therapy services , as each service provided is distinct and future services rendered are not dependent on previously rendered services . we have agreements with third-party payors that provide for payments to us at amounts different from its established rates . the allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience . management contract revenues , which are included in other revenues in the consolidated statements of net income , are derived from contractual arrangements whereby we manage a clinic owned by a third party . we do not have any ownership interest in these clinics . typically , revenues are determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed . costs , typically salaries for our employees , are recorded when incurred . revenues from the industrial injury prevention business , which are also included in other revenues in the consolidated statements of net income , are derived from onsite services we provide to clients ' employees including injury prevention , rehabilitation , ergonomic assessments and performance optimization . revenue from the industrial injury prevention business is recognized when obligations under the terms of the contract are satisfied . revenues are recognized at an amount equal to the consideration we expect to receive in exchange for providing injury prevention services to its clients . the revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period . additionally , other revenues include services we provide on-site , such as schools and industrial worksites , for physical or occupational therapy services , and athletic trainers and gym membership fees . contract terms and rates are agreed to in advance between us and the third parties . services are typically performed over the contract period and revenue is recorded at the point of service . if the services are paid in advance , revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time , when the services are performed . story_separator_special_tag the following table sets forth information regarding our patient accounts receivable as of the dates indicated ( in thousands ) : replace_table_token_9_th the following table presents our patient accounts receivable aging by payor class as of the dates indicated ( in thousands ) : replace_table_token_10_th * workers compensation is paid by state administrators or their designated agents . * * other includes primarily litigation claims and , to a lesser extent , vehicular insurance claims . reimbursement for medicare beneficiaries is based upon a fee schedule published by hhs . for a more complete description of our third party revenue sources , see ยbusinessโsources of revenueย in item 1. provision for doubtful accounts . we determine our provision for doubtful accounts based on the specific agings and payor classifications at each clinic . we review the accounts receivable aging and rely on prior experience with particular payors to determine an appropriate reserve for doubtful accounts . historically , clinics that have a large number of aged accounts generally have less favorable collection experience , and thus , require a higher provision . accounts that are ultimately determined to be uncollectible are written off against our bad debt provision . the amount of our aggregate provision for doubtful accounts is regularly reviewed for adequacy in light of current and historical experience . accounting for income taxes . we account for income taxes under the asset and liability 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 and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in 27 income in the period that includes the enactment date . we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . the tax cuts and jobs act of 2017 ( the ยtcjaย ) was passed by congress on december 20 , 2017 and signed into law by president trump on december 22 , 2017. the tcja made significant changes to u.s. corporate income tax laws including a decrease in the corporate income tax rate to 21 % effective january 1 , 2018. as a result , we revalued our deferred tax assets and liabilities . based on a review and analysis as of december 31 , 2017 , we estimated a reduction in our net deferred tax liabilities of $ 4.3 million thereby reducing our provision for income taxes by such amount for the 2017 year . we do not believe that we have any significant uncertain tax positions at december 31 , 2018 , nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation . we did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve months ended december 31 , 2018 and 2017. carrying value of long-lived assets . our property and equipment , intangible assets and goodwill ( collectively , our ยlong-lived assetsย ) comprise a significant portion of our total assets . the accounting standards require that we periodically , and upon the occurrence of certain events , assess the recoverability of our long-lived assets . if the carrying value of our property and equipment exceeds their undiscounted cash flows , we are required to write the carrying value down to estimated fair value . goodwill . the fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events , and are written down to fair value if considered impaired . we evaluate goodwill for impairment on at least an annual basis ( in the third quarter ) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill . we evaluate indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test . we operate a one segment business which is made up of various clinics within partnerships . the partnerships are components of regions and are aggregated to that operating segment level for the purpose of determining reporting units when performing the annual goodwill impairment test . in 2018 , 2017 and 2016 , we had six regions . in addition to the six regions , in 2017 and 2018 , the impairment test included a separate analysis for the industrial injury prevention business . an impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit , inclusive of goodwill and other intangible assets , exceeds the estimated fair value of the reporting unit . the estimated fair value of a reporting unit is determined using two factors : ( i ) earnings prior to taxes , depreciation and amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and ( ii ) a discounted cash flow analysis . a weight is assigned to each factor and the sum of each weight times the factor is considered the estimated fair value . for 2018 , the factors ( i.e. , price/earnings ratio , discount rate and residual capitalization rate ) were updated to reflect current market conditions . the evaluation of goodwill in 2018 , 2017 and 2016 did not result in any goodwill amounts that were deemed impaired .
| results of operations fiscal year 2018 compared to fiscal 2017 net revenues increased $ 39.8 million , or 9.6 % , from $ 414.1 million in 2017 to $ 453.9 million in 2018 , primarily due to an increase in net patient revenues from physical therapy operations from both internal growth and acquisitions , an increase in the revenue from the industrial injury prevention business from a combination of internal growth plus an acquisition and an increase in revenue from management contracts due to acquired contracts . our first company in the industrial injury prevention business was acquired in march 2017 and , on april 30 , 2018 , the company made a second acquisition . for the year ended december 31 , 2018 , our operating results increased 28.1 % to $ 33.5 million , or $ 2.65 per diluted share , as compared to $ 26.2 million , or $ 2.08 per diluted share , for the 2017 year . operating results ( as defined below ) , a non-generally accepted accounting principles ( ยnon-gaapย ) measure , for the 2018 fourth quarter and for the 2018 year , equals net income attributable to our shareholders excluding gain on derecognition of debt , net of taxes . for the 2017 fourth quarter and 2017 year , operating results is defined as net income attributable to our shareholders prior to the benefit due to the revaluation of deferred tax assets and liabilities due to the 2017 tax cuts and jobs act ( ยtcjaย ) , and prior to charges for interest expense โ mandatorily redeemable non-controlling interests โ change in redemption value and charges for costs related to restatement of financials โ legal and accounting , both charges net of tax . see table below .
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the company 's principal asset is the capital stock of northeast bank ( the ยbankย ) , a maine state-chartered universal bank . accordingly , the company 's results of operations are primarily dependent on the results of the operations of the bank . the management 's discussion and analysis of financial condition and results of operations , which follows , presents a review of the consolidated operating results of the company for the fiscal year ended june 30 , 2013 ( ยfiscal 2013ย ) and the fiscal year ended june 30 , 2012 ( ยfiscal 2012ย ) . this discussion and analysis is intended to assist you in understanding the results of our operations and financial condition . you should read this discussion together with your review of the company 's consolidated financial statements and related notes and other statistical information included in this report . certain amounts in the periods prior to fiscal 2013 have been reclassified to conform to the fiscal 2013 presentation . overview financial presentation on december 29 , 2010 , the merger ( the ยmergerย ) of the company and fhb formation llc , a delaware limited liability company ( ยfhbย ) , was consummated . as a result of the merger , the surviving company received a capital contribution of $ 16.2 million ( in addition to the approximately $ 13.1 million in cash consideration paid to former shareholders ) , and the former members of fhb collectively acquired approximately 60 % of our outstanding common stock . the company applied the acquisition method of accounting , as described in accounting standards codification ( ยascย ) 805 , business combinations ( ยasc 805ย ) to the merger , which represents an acquisition by fhb of northeast , with northeast as the surviving company ( the ยsuccessor companyย ) . in the application of asc 805 to this transaction , the following was considered : identify the accounting acquirer : fhb was identified as the accounting acquirer . fhb , which was incorporated on march 9 , 2009 , acquired a controlling financial interest of approximately 60 % of the successor company 's total outstanding voting and non-voting common stock in exchange for contributed capital and cash consideration . in the evaluation and identification of fhb as the accounting acquirer , it was concluded that fhb was a substantive entity involved in significant pre-merger activities , including the following : raising capital ; incurring debt ; incurring operating expenses ; leasing office space ; hiring staff to develop the surviving company 's business plan ; retaining professional services firms ; and identifying acquisition targets and negotiating potential transactions , including the merger . determine the acquisition date : december 29 , 2010 , the closing date of the merger , was the date that fhb gained control of the combined entity . recognize assets acquired and liabilities assumed : because neither northeast bancorp , the predecessor company ( the acquired company ) , nor fhb ( the accounting acquirer ) exist as separate entities after the merger , a new basis of accounting at fair value for the successor company 's assets and liabilities was established in the consolidated financial statements . at the acquisition date , the successor company recognized the identifiable assets acquired and the liabilities assumed based on their then fair values in accordance with asc topic 820 , fair value measurement ( ยasc 820ย ) . the successor company recognized a bargain purchase gain as the difference between the total purchase price and the net assets acquired . as a result of application of the acquisition method of accounting to northeast bancorp after the merger on december 29 , 2010 , the company 's financial statements from the periods prior to the transaction date are not directly comparable to the financial statements for periods subsequent to the transaction date . to make this distinction , the company has labeled balances and results of operations prior to the transaction date as ยpredecessor companyย and balances and results of operations for periods subsequent to the transaction date as ยsuccessor company.ย the lack of comparability arises from the assets and liabilities having new accounting bases as a result of recording them at their fair values as of the transaction date rather than at historical cost basis . to denote this lack of comparability , a heavy black line has been placed between the successor company and predecessor company columns in the discussion herein . 28 in connection with the transaction , as part of the regulatory approval process the company made certain commitments to the board of governors of the federal reserve system ( the ยfederal reserveย ) , the most significant of which are , ( i ) maintain a tier 1 leverage ratio of at least 10 % , ( ii ) maintain a total risk-based capital ratio of at least 15 % , ( iii ) limit purchased loans to 40 % of total loans , ( iv ) fund 100 % of the company 's loans with core deposits ( defined as non-maturity deposits and non-brokered insured time deposits ) , and ( v ) hold commercial real estate loans ( including owner-occupied commercial real estate ) to within 300 % of total risk-based capital . on june 28 , 2013 , the federal reserve approved the amendment of the commitment to hold commercial real estate loans to within 300 % of total risk-based capital to exclude owner-occupied commercial real estate loans . all other commitments made to the federal reserve in connection with the merger remain unchanged . the company and the bank are currently in compliance with all commitments to the federal reserve . the company 's compliance ratios at june 30 , 2013 follow . story_separator_special_tag the company 's employees , on a full-time equivalent basis , totaled 219 at june 30 , 2013 , compared to 203 at june 30 , 2012. the company also incurred approximately $ 388 thousand of severance expense in fiscal 2013 associated with the departure of a senior manager and the bank 's decision to exit the investment brokerage business ; ยท an increase of $ 940 thousand in occupancy and equipment expense , principally due to increased rent associated with the relocation of the company 's office in boston , ma , and depreciation of investments in new technology , principally those associated with ablebanking ; ยท an increase of $ 358 thousand in marketing expense , principally due to promotional efforts for ablebanking and residential mortgage lending ; ยท an increase of $ 660 thousand in loan acquisition and collection expense , principally due an increase of $ 19.6 million in loan acquisitions in fiscal 2013 , as well as the overall size of the purchased loan portfolio which increased by $ 82.3 million ; ยท the settlement of a lawsuit in the amount of $ 1.0 million . the summons and complaint was filed in august of 2011 , in connection with a dispute regarding certain deposit account activity occurring in 2005 and 2006. income taxes income tax expense for the fiscal year ended june 30 , 2013 totaled $ 1.9 million , representing 30.6 % of pretax income . the company 's effective tax rate differed from its statutory federal rate because of affordable housing tax credits totaling $ 117 thousand and non-taxable boli income of $ 718 thousand . income tax expense for the fiscal year ended june 30 , 2012 totaled $ 181 thousand , representing 15.1 % of pretax income . the effective tax rate for the period reflects the level of pretax income in relation to nontaxable income , principally boli income totaling $ 501 thousand , and low-income housing tax credits totaling $ 118 thousand . results of operations ย discontinued operations overview in the first quarter of fiscal 2012 , the company sold intangible assets ( principally customer lists ) and certain fixed assets of northeast bank insurance group ( ยnbigย ) to local insurance agencies in two separate transactions . the varney agency , inc. of bangor , maine purchased the assets of nine nbig offices in anson , auburn , augusta , bethel , livermore falls , scarborough , south paris , thomaston and turner , maine . the nbig office in berwick , maine , which now operates under the name of spence & matthews , was acquired by a member of nbig 's senior management team . in connection with the transaction , the company also repaid borrowings associated with nbig totaling $ 2.1 million . the company no longer conducts any significant operations in the insurance agency business , and therefore has classified the operating results of nbig , and the associated gain on sale of the division , as discontinued operations in the consolidated financial statements . net income from discontinued operations for the fiscal year ended june 30 , 2012 was $ 1.1 million , or $ 0.26 per diluted share , which includes a pre-tax gain on the sale of nbig intangibles and certain fixed assets , net of expenses , of $ 1.6 million . the company also recorded pre-tax income associated with operations of $ 186 thousand prior to the asset sale . income tax expense associated with discontinued operations for the year ended june 30 , 2012 was $ 605 thousand , or 34.5 % of pre-tax income . financial condition overview the company 's total assets grew to $ 670.6 million at june 30 , 2013 , representing an increase of $ 1.4 million , or 0.2 % , compared to $ 669.2 million at june 30 , 2012. significant changes in the company 's balance sheet components include : ยท loan growth of $ 79.1 million , or 22.2 % , principally due to net growth of $ 116.1 million in commercial loans purchased or originated by the bank 's lasg , offset by net amortization and payoffs of $ 37.0 million in the community banking division loan portfolio ; ยท deposit growth $ 62.4 million , or 14.8 % , primarily due to a $ 69.0 million increase in deposits raised through ablebanking , the bank 's online affinity deposit platform ; ยท a $ 56.8 million decrease in borrowings , to the result of maturing wholesale repurchase agreements and fhlb advances , and ยท a $ 5.3 million , or 4.5 % , decrease in stockholders ' equity , primarily due to the redemption of tarp preferred stock and warrants totaling $ 4.3 million . 35 cash and cash equivalents cash and cash equivalents decreased $ 62.3 million , or 48.6 % , to $ 65.9 million at june 30 , 2013 as compared to $ 128.3 million at june 30 , 2012. this decrease occurred as cash was used to fund loan growth . 36 investments securities the available-for-sale securities portfolio totaled $ 121.6 million and $ 133.3 million at june 30 , 2013 and 2012 , respectively . the year over year decrease of $ 11.7 million , or 8.8 % , was primarily due to principal amortization of mortgage-backed securities during the year . mortgage-backed securities and u.s. government-sponsored enterprise bonds totaling $ 53.5 million were pledged for outstanding borrowings at june 30 , 2013. at june 30 , 2013 , the company 's investment portfolio was comprised entirely of u.s. government-sponsored enterprise bonds and mortgage-backed securities guaranteed by government agencies . generally , funds retained by the company as a result of increases in deposits or decreases in loans , to the extent not immediately deployed by the bank , are invested in securities held in its investment portfolio , which serves as a source of liquidity for the company . the composition of the company 's securities portfolio at the dates indicated follows .
| fiscal 2013 financial highlights the company 's financial and strategic highlights for fiscal 2013 include the following : ยท earned net income of $ 4.4 million , or $ 0.39 per diluted share , from continuing operations as compared to $ 1.0 million , or $ 0.15 per diluted share , from continuing operations in fiscal 2012 . ยท purchased commercial loans totaling $ 121.3 million , and earned an average yield on the purchased portfolio of 16.0 % , a result that includes regularly scheduled interest and accretion , and accelerated accretion and fees recognized on loan payoffs . the company also monitors the ยtotal returnย on its purchased loan portfolio , a measure that includes gains on sales of purchased loans , as well as interest , scheduled accretion and accelerated accretion and fees . on this basis , the purchased loan portfolio earned a total return of 18.3 % for fiscal 2013. an overview of the lasg portfolio for fiscal 2013 follows : replace_table_token_8_th ( 1 ) the total return on purchased loans represents scheduled accretion , accelerated accretion , gains on asset sales , and other noninterest income recorded during the period divided by the average invested balance , on an annualized basis . ยท increased the company 's deposit base by $ 62.4 million , principally through $ 69.0 million of net deposits raised through ablebanking , the bank 's online affinity deposit platform . ยท redeemed tarp preferred stock and warrants totaling $ 4.3 million . 29 results of operations ย continuing operations general net income from continuing operations for the year ended june 30 , 2013 was $ 4.4 million , a $ 3.4 million increase over 2012. items of significance affecting the company 's earnings included : ยท an increase in the net interest margin , which grew to 4.62 % , compared to 3.69 % for the year ended june 30 , 2012 , principally due to growth in the company 's purchased loan portfolio .
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63 on march 11 , 2010 , the company filed a certificate of amendment with the delaware secretary of state to amend the company 's certificate of incorporation , which amendment effected a one-for-five reverse stock split of zhone common stock and reduced the authorized shares of zhone common stock from 900,000,000 to 180,000,000. story_separator_special_tag overview we believe that we are the first company dedicated solely to developing the full spectrum of next-generation access network solutions to cost-effectively deliver high bandwidth services while simultaneously preserving the investment in today 's networks . our next-generation solutions are based upon our slms architecture . from its inception , this slms architecture was specifically designed for the delivery of multiple classes of subscriber services ( such as voice , data and video distribution ) , rather than being based on a particular protocol or media . in other words , our slms products are built to support the migration from legacy circuit to packet technologies and from copper to fiber technologies . this flexibility and versatility allows our products to adapt to future technologies while allowing service providers to focus on the delivery of additional high bandwidth services . because this slms architecture is designed to interoperate with existing legacy equipment , service providers can leverage their existing networks to deliver a combination of voice , data and video services today , while they migrate , either simultaneously or at a future date , from legacy equipment to next-generation equipment with minimal interruption . we believe that our slms solution provides an evolutionary path for service providers from their existing infrastructures , as well as gives newer service providers the capability to deploy cost-effective , multi-service networks that can support voice , data and video . our global customer base includes regional , national and international telecommunications carriers . to date , our products are deployed by over 750 network service providers on six continents worldwide . we believe that we have assembled the employee base , technological breadth and market presence to provide a simple yet comprehensive set of next-generation solutions to the bandwidth bottleneck in the access network and the other problems encountered by network service providers when delivering communications services to subscribers . since inception , we have incurred significant operating losses and had an accumulated deficit of $ 1,032.1 million as of december 31 , 2011 , and we expect that our operating losses and negative cash flows from operations may continue . if we are unable to access or raise the capital needed to meet liquidity needs and finance capital expenditures and working capital , or if the economic , market and geopolitical conditions in the united states and the rest of the world do not improve or deteriorate , we may experience material adverse impacts on our business , operating results and financial condition . during 2009 , we implemented several activities intended to reduce costs , improve operating efficiencies and change our operations to more closely align them with our key strategic focus , which included headcount reductions . during the past two years , we have continued our focus on cost control and operating efficiency along with restrictions on discretionary spending . the most significant cost-cutting measure during 2010 was the sale in september 2010 of our land and buildings located in oakland , california and extinguishment of related debt in a sale and leaseback transaction with lba realty , llc , or lba realty . the sale and leaseback transaction allowed us to reduce occupancy costs and improved our financial position by eliminating the related debt which was due in april 2011. going forward , our key financial objectives include the following : increasing revenue while continuing to carefully control costs ; continued investments in strategic research and product development activities that will provide the maximum potential return on investment ; and minimizing consumption of our cash and short-term investments . sale of legacy inventory and other assets in december 2007 , we sold inventory and certain assets related to our access node legacy product line to a third party . the sale of the access node product line was not treated as a discontinued operation since it did not represent a component of our company that had operations and cash flows that were clearly distinguishable , operationally and for financial reporting purposes , from the rest of the entity . upon sale of the access node 27 inventory , we recognized a gain of $ 1.7 million in 2007 that was recorded in cost of revenue . in 2009 , 2010 , and 2011 , we recognized additional gains of $ 0.2 million , $ 0.3 million , and $ 0.2 million , respectively , which were recorded in cost of revenue . we will continue to record additional gain in the future contingent upon attainment of certain earnout provisions . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . the policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss . for all of these policies , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . revenue recognition we recognize revenue when the earnings process is complete . we recognize product revenue upon shipment of product under contractual terms which transfer title to customers upon shipment , under normal credit terms , net of estimated sales returns and allowances at the time of shipment . story_separator_special_tag generally , our marketing strategy differs from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis . therefore , we are typically not able to determine tpe for our products . when we are unable to establish selling price using vsoe or tpe , we use bsp . the objective of bsp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . the bsp of each deliverable is determined using average discounts from list price from historical sales transactions or cost plus margin approaches based on the factors , including but not limited to our gross margin objectives and pricing practices plus customer and market specific considerations . the adoption did not have a material effect on our consolidated financial statements for the year ended december 31 , 2011 and is not expected to have a material effect on future periods . allowances for sales returns and doubtful accounts we record an allowance for sales returns for estimated future product returns related to current period product revenue . the allowance for sales returns is recorded as a reduction of revenue and an allowance against 29 our accounts receivable . we base our allowance for sales returns on periodic assessments of historical trends in product return rates and current approved returned products . if the actual future returns were to deviate from the historical data on which the reserve had been established , our future revenue could be adversely affected . we record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments for amounts owed to us . the allowance for doubtful accounts is recorded as a charge to general and administrative expenses . we base our allowance on periodic assessments of our customers ' liquidity and financial condition through analysis of information obtained from credit rating agencies , financial statement reviews and historical collection trends . additional allowances may be required in the future if the liquidity or financial condition of our customers deteriorates , resulting in impairment in their ability to make payments . stock-based compensation we estimate the fair value of stock-based payment awards on the date of grant using the black scholes pricing model , which is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , actual and projected employee option exercise behaviors , risk free interest rate and expected dividends . the expected stock price volatility is based on the weighted average of the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our stock options . we base our expected life assumption on our historical experience and on the terms and conditions of the stock awards we grant to employees . risk free interest rates reflect the yield on zero-coupon u.s. treasury securities . we do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero . if factors change , and we employ different assumptions for estimating stock-based compensation expense in future periods , or if we decide to use a different valuation model , the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income , net loss and net loss per share . we are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . in addition , stock-based compensation expense was recorded for options issued to non-employees . these options are generally immediately exercisable and expire seven to ten years from the date of grant . we value non-employee options using the black scholes model . non-employee options subject to vesting are valued as they become vested . in 2008 , we completed the exchange of certain stock options issued to eligible employees , officers and directors of zhone under our equity incentive compensation plans in the exchange offer . on march 31 , 2010 , our board of directors approved the acceleration of vesting of all unvested options to purchase shares of zhone common stock issued in connection with the exchange offer that were held by members of our senior management . the acceleration was effective as of march 31 , 2010. options to purchase an aggregate of approximately 0.9 million shares of zhone common stock were subject to the acceleration and resulted in a compensation charge of $ 0.9 million which was fully expensed in the three-month period ended march 31 , 2010. the acceleration of these options was undertaken in recognition of the achievement of certain performance objectives by our senior management . on august 23 , 2011 , our board of directors approved the acceleration of vesting of all unvested options to purchase shares of zhone common stock that were held by members of our senior management as of that date . the acceleration was effective as of september 30 , 2011. options to purchase an aggregate of approximately 0.6 million shares of zhone common stock were subject to the acceleration and resulted in a compensation charge of $ 0.7 million which was fully expensed in the three-month period ended september 30 , 2011. the acceleration of these options was undertaken to partially offset previous reductions in cash compensation and other benefits by our senior management . 30 inventories inventories are stated at the lower of cost or market , with cost being determined using the first-in , first-out ( fifo ) method .
| results of operations we list in the table below the historical consolidated statement of operations as a percentage of net revenue for the periods indicated . replace_table_token_3_th 2011 compared with 2010 net revenue information about our net revenue for products and services for 2011 and 2010 is summarized below ( in millions ) : replace_table_token_4_th information about our net revenue for north america and international markets for 2011 and 2010 is summarized below ( in millions ) : replace_table_token_5_th 32 net revenue decreased 3 % or $ 4.5 million to $ 124.5 million for 2011 compared to $ 129.0 million for 2010. the decrease in net revenue was primarily attributable to a decrease in product revenue , which in 2011 decreased 4 % or $ 5.2 million compared to 2010. the decrease was primarily due to decreased sales in our slms product portfolio . service revenue increased 16 % or $ 0.7 million compared to 2010 , primarily due to an increase in the number of service contracts accompanied by the timing of services performed and revenue earned . service revenue represents revenue from maintenance and other services associated with product shipments . international net revenue decreased 9 % or $ 7.1 million to $ 71.7 million in 2011 and represented 58 % of total net revenue compared with 61 % in 2010. the decrease in international net revenue was primarily due to decreased sales in the middle east , which was partially offset by higher revenue from latin america as a result of recent growth in demand for our products in this region .
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during the fourth quarter of 2012 covered by this form 10-k , there were no changes in internal control over financial reporting that materially affected , or that are reasonably likely to materially affect , the company 's internal control over financial reporting . attached as exhibits 31.1 and 31.2 to this annual report are certifications of the ceo and story_separator_special_tag forward-looking statements the securities and exchange commission ( the sec ) encourages companies to disclose forward-looking information so that investors can better understand the future prospects of a company and make informed investment decisions . this annual report on form 10-k , including ยmanagement 's discussion and analysis of financial condition and results of operations , ย contains these types of statements , which are forward-looking within the meaning of the private securities litigation reform act of 1995. words such as ยanticipate , ย ยestimate , ย ยexpect , ย ยproject , ย ยintend , ย ยmay , ย ยplan , ย ยpredict , ย ยbelieve , ย ยshouldย and similar words or expressions are intended to identify forward-looking statements . investors should not place undue reliance on forward-looking statements , and the company undertakes no obligation to publicly update or revise any forward-looking statements . all forward-looking statements reflect the present expectation of future events of our management as of the date of this annual report on form 10-k and are subject to a number of important factors , risks , uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements . these factors , risks , assumptions and uncertainties include , but are not limited to , general economic conditions including downturns in the business cycle ; the creditworthiness of our customers and their ability to pay for services ; competitive initiatives and pricing pressures , including in connection with fuel surcharge ; the company 's need for capital and uncertainty of the current credit markets ; the possibility of defaults under the company 's debt agreements ( including violation of financial covenants ) ; possible issuance of equity which would dilute stock ownership ; integration risks ; indemnification obligations associated with the 2006 sale of jevic transportation , inc. ; the effect of litigation including class action lawsuits ; cost and availability of qualified drivers , fuel , purchased transportation , real property , revenue equipment and other assets ; governmental regulations , including but not limited to hours of service , engine emissions , the compliance , safety , accountability ( csa ) initiative , compliance with legislation requiring companies to evaluate their internal control over financial reporting , changes in interpretation of accounting principles and homeland security ; dependence on key employees ; inclement weather ; labor relations , including the adverse impact should a portion of the company 's workforce become unionized ; effectiveness of company-specific performance improvement initiatives ; terrorism risks ; self-insurance claims and other expense volatility ; increased costs as a result of recently-enacted healthcare reform legislation and other financial , operational and legal risks and uncertainties detailed from time to time in the company 's sec filings . these factors and risks are described in part ii , item 1a . ยrisk factorsย of this annual report on form 10-k. as a result of these and other factors , no assurance can be given as to our future results and achievements . accordingly , a forward-looking statement is neither a prediction nor a guarantee of future events or 20 circumstances and those future events or circumstances may not occur . you should not place undue reliance on the forward-looking statements , which speak only as of the date of this form 10-k. we are under no obligation , and we expressly disclaim any obligation , to update or alter any forward-looking statements , whether as a result of new information , future events or otherwise . executive overview the company 's business is highly correlated to non-service sectors of the general economy . the company 's strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography . the company 's business is labor intensive , capital intensive and service sensitive . the company looks for opportunities to improve cost effectiveness , safety and asset utilization ( primarily tractors and trailers ) . the pricing initiatives that were implemented in 2010 and continued since then have had a positive impact on yield and profitability . the company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction . technology continues to be an important investment that is facilitating operational efficiencies and improving company image . the company 's operating revenue increased by 6.6 percent in 2012 over 2011. the increase resulted primarily from improved yield from pricing actions . consolidated operating income was $ 58.7 million for 2012 compared to consolidated operating income of $ 28.1 million in 2011. the 2012 operating income increase resulted primarily from improved yield from pricing , business mix actions and higher fuel surcharge along with savings in expenses realized from company initiatives . the company generated $ 101.6 million in cash provided by operating activities of continuing operations in 2012 versus $ 59.3 million in 2011. cash flows from operating activities of discontinued operations were a use of $ 910 thousand and $ 1.1 million for 2012 and 2011 , respectively . the company used $ 90.4 million of net cash in investing activities during 2012 , principally for the purchase of revenue equipment and also for the robart acquisition , compared to $ 67.9 million during 2011. the company amended its revolving credit agreement and its long-term note agreement in june and december 2009 to obtain financial covenant relief to address continuing challenges associated with the macro-economic conditions . as part of the amendments , the company agreed to reduce the revolving credit facility from $ 160 million to $ 120 million and pledged certain assets as security for the indebtedness under both facilities . story_separator_special_tag claims and insurance in 2011 was $ 10.2 million more than 2010 reflecting unfavorable trends in self-insurance claims , primarily due to increased accident severity in 2011. the company can experience volatility in accident expense as a result of its self-insurance structure and $ 2.0 million retention limits per occurrence . purchased transportation expense increased $ 6.3 million in 2011 primarily due to higher fuel surcharge . other substantially all non-operating expenses represent interest expense . interest expense in 2011 was slightly lower due to lower borrowings . the effective tax rate was 35.9 percent for the year ended december 31 , 2011 compared to a net benefit of 1.2 percent in 2010 due to improved earnings in 2011. the 2011 and 2010 effective tax rate included approximately $ 1.0 million in alternative fuel tax credits . the notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate . working capital/capital expenditures working capital at december 31 , 2011 was $ 18.5 million which decreased from working capital at december 31 , 2010 of $ 47.7 million primarily due to a decrease in cash on-hand resulting from increases in capital expenditures in 2011 primarily for replacement revenue equipment . cash flows from operating activities were $ 58.2 million for 2011 versus $ 23.4 million for 2010. cash flows from operating activities in 2011 included $ 1.1 million used in discontinued operations while $ 1.6 million was used in discontinued operations in 2010. for 2011 , cash used in investing activities was $ 67.9 million versus $ 3.3 million in the prior year primarily due to higher revenue equipment purchases . the company had reduced capital expenditures in recent years in response to the challenging economic environment but returned to a more normal level in 2011. cash used in financing activities was $ 18.0 million in 2011 versus $ 0.2 million for the prior year . outlook our business remains highly correlated to the general economy and competitive pricing pressures , as well as the success of company-specific improvement initiatives . while improved through 2011 and 2012 , there remains uncertainty as to the timing and strength of economic recovery . we are continuing initiatives to increase yield , to reduce costs and improve productivity . we focus on providing top quality service and improving safety performance . if significant competitors were to cease operations and their capacity leave the market , current industry excess capacity conditions would likely improve . however , there can be no assurance that any industry consolidation will indeed happen or if such consolidation occurs that it will materially improve the excess industry capacity . the company continues to pursue revenue and cost initiatives to improve profitability . planned revenue initiatives include , but are not limited to , building density in our current geography , targeted marketing initiatives to grow revenue in more profitable segments , as well as pricing and yield management . on july 9 , 2012 , saia implemented a 6.9 percent general rate increase for customers comprising approximately 30 percent of saia 's operating revenue . the extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends , competitor initiatives and other factors discussed under ยforward-looking statementsย and part ii , item 1a . ยrisk factors.ย in 2009 , the company implemented certain cost reduction measures including : the suspension of the company 's 401 ( k ) match ; effective reduction in compensation equal to ten percent of salary for the company 's leadership team and a five percent wage and salary reduction for hourly , linehaul and salaried employees in operations , maintenance and administration ; and a ten percent reduction in the annual retainer and meeting fees paid to the non-employee members of the company 's board of directors . despite these necessary reductions , the company 's compensation philosophy remained committed to a market-based program . based on the continued improvement in the company 's operating results and the company 's desire to attract and retain employees needed for the company to continue to deliver best-in-class service to customers , management began taking steps in april 2011 to reinstate some or all of certain compensation programs and amounts subject to the 2009 reductions . one half of the 401 ( k ) match suspension was reinstated effective april 1 , 2011. the company 25 implemented a two and one-half percent wage and salary increase for hourly , linehaul and salaried employees in operations , maintenance , administration and management effective december 1 , 2011. effective july 1 , 2012 , the company implemented a salary and wage increase for all its employees of approximately three percent . the impact of the july 2012 compensation increase is expected to be approximately $ 13 million annually . also effective july 1 , 2012 , the company increased board of director 's compensation to market levels . the company anticipates the impact of the july 2012 compensation increase to be partially offset by further productivity and efficiency gains . if the company builds market share , there are numerous operating leverage cost benefits . conversely , should the economy soften from present levels , the company plans to attempt to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage . the success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation , fuel , insurance claims , regulatory changes , successful implementation of profit improvement initiatives and other factors discussed under ยforward-looking statementsย and part ii , item 1a . ยrisk factors.ย see ยforward-looking statementsย and part ii , item 1a . ยrisk factorsย for a more complete discussion of potential risks and uncertainties that could materially affect our future performance . new accounting pronouncements there were no new accounting pronouncements issued or effective during 2012 which have had or are expected to have a material impact on the consolidated financial statements .
| results of operations saia , inc. and subsidiaries selected results of continuing operations and operating statistics for the years ended december 31 , 2012 , 2011 and 2010 ( in thousands , except ratios and revenue per hundredweight ) replace_table_token_5_th 22 continuing operations year ended december 31 , 2012 as compared to year ended december 31 , 2011 revenue and volume consolidated revenue increased 6.6 percent to $ 1.1 billion as a result of increased yield due to measured pricing and mix management actions . improvements in the economic environment that were evident during 2011 and the first half of 2012 permitted the company to implement measured pricing actions to improve yield . saia 's ltl revenue per hundredweight ( a measure of yield ) increased 6.9 percent to $ 13.82 per hundredweight for 2012 as a result of increased rates and the impact of higher fuel surcharge . saia 's ltl tonnage decreased 0.2 percent to 3.7 million tons and ltl shipments decreased 3.0 percent to 6.3 million shipments . approximately 70 percent of saia 's operating revenue is subject to specific customer price adjustment negotiations that occur throughout the year . the remaining 30 percent of operating revenue is subject to a general rate increase which is typically taken once a year . saia implemented two 6.9 percent general rate increases , the first on august 22 , 2011 and the more recent on july 9 , 2012. competitive factors , customer turnover and mix changes , among other factors , impact the extent to which customer rate increases are retained over time . operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel .
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realization of the deferred costs at november 30 , 2012 is dependent upon receipt of future story_separator_special_tag unless otherwise indicated or required by the context , as used in this annual report on form 10-k , the terms ยwe , ย ยourย and ยusย refer to gencorp inc. and all of its subsidiaries that are consolidated in conformity with accounting principles generally accepted in the united states of america ( ยgaapย ) . we begin management 's discussion and analysis of financial condition and results of operations with an overview of our business and operations , followed by a discussion of our results of operations , including results of our operating segments , for the past three fiscal years . we then provide an analysis of our liquidity and capital resources , including discussions of our cash flows , debt arrangements , sources of capital , and contractual obligations . in the next section , we discuss the critical accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and notes thereto appearing in item 8. consolidated financial statements and supplementary data of this report , the risk factors appearing in item 1a . risk factors of this report , and the disclaimer regarding forward-looking statements appearing at the beginning of item 1. business of this report . historical results set forth in item 6. selected financial data and item 8. consolidated financial statements and supplementary data of this report should not be taken as indicative of our future operations . overview we are a manufacturer of aerospace and defense products and systems with a real estate segment that includes activities related to the re-zoning , entitlement , sale , and leasing of our excess real estate assets . we develop and manufacture propulsion systems for defense and space applications , and armaments for precision tactical and long range weapon systems applications . a summary of the significant financial highlights for fiscal 2012 which management uses to evaluate our operating performance and financial condition is presented below . net sales for fiscal 2012 increased to $ 994.9 million from $ 918.1 million for fiscal 2011. net loss for fiscal 2012 was ( $ 2.6 ) million , or ( $ 0.04 ) loss per share , compared to a net income of $ 2.9 million , or $ 0.05 diluted income per share , for fiscal 2011. adjusted ebitdap ( non-gaap measure ) for fiscal 2012 was $ 110.9 million or 11.1 % of net sales , compared to $ 115.4 million or 12.6 % of net sales , for fiscal 2011. segment performance ( non-gaap measure ) before environmental remediation provision adjustments , retirement benefit plan expense , and unusual items was $ 119.2 million for fiscal 2012 , compared to $ 114.2 million for fiscal 2011. cash provided by operating activities in fiscal 2012 totaled $ 86.2 million , compared to $ 76.8 million in fiscal 2011. free cash flow ( non-gaap measure ) in fiscal 2012 totaled $ 49.0 million , compared to $ 55.7 million in fiscal 2011. as of november 30 , 2012 , we had $ 86.6 million in net debt ( non-gaap measure ) compared to $ 138.4 million as of november 30 , 2011. funded backlog was $ 1,018 million as of november 30 , 2012 compared to $ 902 million as of november 30 , 2011. we provide non-gaap measures as a supplement to financial results based on gaap . a reconciliation of the non-gaap measures to the most directly comparable gaap measures is presented later in the management 's discussion and analysis under the heading ยoperating segment informationย and ยuse of non-gaap financial measures.ย in july 2012 , we signed a definitive agreement to acquire the rocketdyne business from utc for $ 550 million . the purchase price of $ 550 million , which is subject to adjustment for changes in working capital and other 35 specified items , is expected to be financed with a combination of cash on hand and issuance of debt . the acquisition of the rocketdyne business is conditioned upon , among other things , the receipt of required regulatory approvals and other customary closing conditions . subject to the satisfaction of these conditions , the acquisition is expected to close in the first half of 2013. if the acquisition is not completed , we will be required to pay a termination fee of up to $ 20.0 million in the event that the purchase agreement is terminated in certain circumstances . the rocketdyne business is the largest liquid rocket propulsion designer , developer , and manufacturer in the u.s. for more than 50 years , the rocketdyne business has set the standard in space propulsion design , development and manufacturing . the rocketdyne business has powered nearly all of nasa 's human-rated launch vehicles to date and has recorded more than 1,600 space launches . we believe the rocketdyne business acquisition will provide strategic value for the country , our customers , and our stakeholders . the combined enterprise will be better positioned to compete in a dynamic , highly competitive marketplace , and provide more affordable products for our customers . in addition , this transaction is expected to almost double our net sales and provide additional growth opportunities as we build upon the complementary capabilities of each legacy company . on january 28 , 2013 , we issued $ 460.0 million in aggregate principal amount of our 7 1 / 8 % notes . the 7 1 / 8 % notes were sold to qualified institutional buyers in accordance with rule 144a under the securities act and outside the u.s. in accordance with regulation s under the securities act . story_separator_special_tag as a result , the dod gfy 2013 budget request submitted to congress on february 13 , 2012 is $ 525.4 billion for the base budget , $ 45 billion below the amount planned for gfy 2013 a year ago and $ 5.2 billion below the final gfy 2012 appropriated amount . the dod budget request includes cuts and other initiatives that will reduce dod spending by $ 259 billion over the next five years and $ 487 billion over ten years , consistent with the budget control act . the nasa gfy 2013 budget request is $ 17.7 billion . since the bicameral and bipartisan congressional joint select committee on deficit reduction created by the budget control act of 2011 charged with reducing the deficit by an additional $ 1.2 trillion over the ten years beginning with gfy 2013 failed to reach a compromise , additional discretionary spending caps ( sequestration ) were expected to be triggered beginning on january 2 , 2013 when congress and the administration were not able to reach agreement on means to reduce the deficit by $ 1.2 trillion . however , the agreement that led to enactment of the american taxpayer relief act of 2012 included a two month delay to sequestration in order to allow additional time to continue work on reaching an agreement on discretionary spending levels . subsequently , there 37 remains a significant level of uncertainty and lack of detail available to predict specific future aerospace and defense spending . however , defense and aerospace contractors will likely only gradually feel the effects of any additional cuts over the next year as research and development and procurement funding already appropriated are spent over two to three years , respectively . environmental matters our current and former business operations are subject to , and affected by , federal , state , local , and foreign environmental laws and regulations relating to the discharge , treatment , storage , disposal , investigation , and remediation of certain materials , substances , and wastes . our policy is to conduct our business with due regard for the preservation and protection of the environment . we continually assess compliance with these regulations and we believe our current operations are materially in compliance with all applicable environmental laws and regulations . summary of our environmental reserve , estimated range of liability , and recoverable amounts as of november 30 , 2012 is presented below : replace_table_token_13_th ( 1 ) excludes the long-term receivable from northrop of $ 69.3 million as of november 30 , 2012. most of our environmental costs are incurred by our aerospace and defense segment , and certain of these future costs are allowable to be included in our contracts with the u.s. government and allocable to northrop until the cumulative expenditure limitation is reached . prior to the third quarter of fiscal 2010 , approximately 12 % of such costs related to our sacramento site and our former azusa site were not reimbursable and were therefore directly charged to the consolidated statements of operations . subsequent to the third quarter of fiscal 2010 , because we reached the reimbursement ceiling under the northrop agreement , approximately 37 % of such costs were not reimbursable and were therefore directly charged to the consolidated statements of operations . however , we are seeking to amend our agreement with the u.s. government to increase the amount allocable to u.s. government contracts . there can be no assurances that we will be successful in this pursuit . the inclusion of such environmental costs in our contracts with the u.s. government does impact our competitive pricing and earnings ; however , we believe that this impact is mitigated by driving improvements and efficiencies across our operations as well as our ability to deliver innovative and quality products to our customers . capital structure although we substantially reduced our debt levels , improved our maturity profile , increased liquidity , and increased our credit ratings during fiscal 2012 , we still have a substantial amount of debt for which we are required to make interest and principal payments . interest on long-term financing is not a recoverable cost under our u.s. government contracts . as of november 30 , 2012 , we had $ 248.7 million of total debt outstanding . following the proposed acquisition of the rocketdyne business , it is anticipated that we will have approximately $ 759 million of outstanding indebtedness , representing an increase of approximately $ 510 million from our outstanding indebtedness as of november 30 , 2012 , of which $ 460 million has been incurred as of january 28 , 2013 through the sale of the 7 1 / 8 % notes ( see note 15 in notes to the consolidated financial statements ) , and $ 50 million is expected to be incurred through the borrowing of the new term loan under the senior credit facility . 38 retirement benefits the decline in the discount rate used to measure the present value of the defined benefit pension liabilities from our fiscal year end 2011 to our fiscal year end 2012 resulted in a significant increase in the unfunded pension obligation for our tax-qualified defined benefit pension plan . the unfunded pension obligation for our tax-qualified defined benefit pension plan was $ 454.5 million as of november 30 , 2012 with total defined benefit pension assets of $ 1,243.1 million as of such date . however , as a result of map-21 , which was signed into law on july 6 , 2012 and provides temporary relief for employers who sponsor defined benefit pension plans , we do not expect to make any cash contributions to our tax-qualified defined benefit pension plan until fiscal 2015 or later . in addition , under the office of federal procurement policy rules , we will recover portions of any required pension funding through our government contracts and we estimate that approximately 84 % of our unfunded pension obligation as of november 30 , 2012 is related to our government contracting business .
| results of operations replace_table_token_14_th net sales replace_table_token_15_th * primary reason for change . the increase in net sales was primarily due to ( i ) increased deliveries on the thaad program generating $ 39.6 million in additional net sales ; ( ii ) increase of $ 34.5 million in the various standard missile programs primarily from the timing of deliveries ; and ( iii ) increased engineering technology activities on the t3 contracts resulting in $ 17.7 million of additional net sales . the increase in net sales was partially offset by a reduction of $ 24.9 million on the hawk program due to the completion of the production contract in the first quarter of fiscal 2012 . * * primary reason for change . the increase in net sales was primarily due to the following : ( i ) an increase of $ 27.7 million in the various air-breathing propulsion programs primarily due to the prior year 's awards on ssst and t3 contracts ; ( ii ) awards received in fiscal 2010 on the hawk program resulting in $ 24.8 million of additional net sales ; and ( iii ) awards received in fiscal 2010 on the bomb live unit ย 129b composite case resulting in $ 22.2 million of additional net sales . the increase in net sales was partially offset by a decrease of $ 22.0 million on the orion program due to nasa funding constraints . sales by contract type were as follows : replace_table_token_16_th 40 cost of sales ( exclusive of items shown separately below ) replace_table_token_17_th * primary reason for change . cost of sales as a percentage of net sales was essentially unchanged . * * primary reason for change . the decrease in costs of sales as a percentage of net sales was primarily driven by lower non-cash aerospace and defense retirement benefit plan expense of $ 8.3 million . see discussion of ยretirement benefit plansย below .
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factors that could cause or contribute to such differences include those discussed below and elsewhere in this report , as well as those discussed in other filings made by biocryst with the securities and exchange commission . the following management 's discussion and analysis ( ยmd & aย ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our audited financial statements and the accompanying notes to the financial statements and other disclosures included in this annual report on form 10-k ( including the disclosures under ยitem 1a . risk factorsย ) . cautionary statement the discussion herein contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended , which are subject to the ยsafe harborย created in section 21e . forward-looking statements regarding our financial condition and our results of operations that are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted within the united states , as well as projections for the future . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . the results of our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we operate in a highly competitive environment that involves a number of risks , some of which are beyond our control . we are subject to risks common to biotechnology and biopharmaceutical companies , including risks inherent in our drug discovery , drug development and commercialization efforts , clinical trials , uncertainty of regulatory actions and marketing approvals , reliance on collaborative partners , enforcement of patent and proprietary rights , the need for future capital , competition associated with products , potential competition associated with our drug candidates and retention of key employees . in order for any of our drug candidates to be commercialized , it will be necessary for us , or our collaborative partners , to conduct clinical trials , demonstrate efficacy and safety of the drug candidate to the satisfaction of regulatory authorities , obtain marketing approval , enter into manufacturing , distribution and marketing arrangements , and obtain market acceptance and adequate reimbursement from government and private insurers . we can not provide assurance that we will generate significant revenues or achieve and sustain profitability in the future . in addition , we can provide no assurance that we will have sufficient funding to meet our future capital requirements . statements contained in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report which are not historical facts are , or may constitute , forward-looking statements . forward-looking statements involve known and unknown risks that could cause our actual results to differ materially from expected results . the most significant known risks are discussed in the section entitled ยrisk factors.ย although we believe the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . we caution you not to place undue reliance on any forward-looking statements . our revenues are difficult to predict and depend on numerous factors , including the prevalence and severity of influenza in regions for which peramivir has received regulatory approval , as well as in those geographies that impact enrollment in our ongoing peramivir clinical trial . furthermore , revenues related to our collaborative development activities are dependent upon the progress toward and the achievement of developmental milestones by us or our collaborative partners . 41 our operating expenses are also difficult to predict and depend on several factors . research and development expenses , drug manufacturing , and clinical research activities , depend on the ongoing requirements of our development programs , availability of capital and direction from regulatory agencies , which are difficult to predict . management may be able to control the timing and level of research and development and general and administrative expenses , but many of these expenditures will occur irrespective of our actions due to contractually committed activities and or payments . as a result of these factors , we believe that period to period comparisons are not necessarily meaningful and you should not rely on them as an indication of future performance . due to all of the foregoing factors , it is possible that our operating results will be below the expectations of market analysts and investors . in such event , the prevailing market price of our common stock could be materially adversely affected . overview we are a biotechnology company that designs , optimizes and develops novel drugs that block key enzymes involved in the pathogenesis of diseases . we focus on therapeutic areas with unmet medical needs that are of interest to us and aligned with our capabilities and expertise . our areas of interest and related development of drug candidates are determined by the scientific discoveries and the potential advantages that our experienced drug discovery group identifies , as well as by the associated potential commercial opportunity of those discoveries . we integrate the disciplines of biology , crystallography , medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design . our strategy is to create a sustainable portfolio of commercial products and drug candidates whereby we out-license rights to drug candidates in geographies or therapeutic areas where we do not intend to and or do not have the ability commercialize them . story_separator_special_tag in addition , the decrease was also partially related to an estimate revision of prior period expenses for a peramivir clinical trial associated with services performed by a contract research organization ( ยcroย ) , and its subsequent revision of service costs in 2011 related to a final cost reconciliation . at the end of 2010 , we estimated expenses related to this clinical trial and the associated revenue we expected to receive from barda/hhs from estimates provided to us by this cro . revisions to the estimated costs resulted in a $ 3.0 million reduction of peramivir expenses and a $ 3.6 million reduction to collaboration revenue during the first quarter of 2011 , resulting in a net impact of $ 0.6 million to net loss . research and development ( r & d ) expenses decreased to $ 56.9 million in 2011 compared to $ 83.9 million for the prior year . the $ 27.0 million decrease was driven by lower development costs associated with our peramivir development program ( as discussed above ) and lower costs associated with our forodesine clinical programs . in connection with the amended and restated agreement with mundipharma , we ceased incurring all forodesine development costs in november 2011 and we received $ 0.9 million for previously expensed compound development costs . the decrease in aforementioned costs was partially offset by higher development costs associated with the bcx4208 program for the treatment of gout during 2011. additionally , peramivir costs for 2010 included $ 8.2 million of manufacturing costs associated with peramivir api production for shionogi and green cross . the following table summarizes our r & d expenses for the years ended december 31 , 2011 , 2010 and 2009. replace_table_token_6_th research and development expenses include all direct and indirect expenses and are allocated to specific programs at the point of development of a lead drug candidate . direct expenses are charged directly to the program to which they relate and indirect expenses are allocated based upon internal direct labor hours dedicated to each respective program . direct expenses consist of compensation for r & d personnel and costs of outside parties to conduct laboratory studies , develop manufacturing processes , manufacture the drug candidates , conduct and manage clinical trials , patent-related costs , as well as other costs related to our clinical and preclinical studies . indirect r & d expenses consist of lab supplies and services , facility expenses , depreciation of development equipment and other overhead of our research and development efforts . r & d expenses vary according to the number of programs in clinical development and the stage of development of our clinical programs . later stage clinical programs tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of patients enrolled in these clinical trials . general and administrative ( g & a ) expenses decreased to $ 12.3 million for 2011 from $ 12.8 million in the prior year . the small change reflects timing of expenses between the years associated with the transition of our headquarters to durham , north carolina and cost containment procedures instituted in 2011 . 45 additionally , we incurred interest expense and losses on our foreign currency derivative during 2011 , associated with our $ 30 million non-recourse debt financing transaction completed in march 2011 to monetize certain future royalty and milestone payments associated with a license agreement with shionogi ย see ยnote 3 ย royalty monetizationย in our notes to the consolidated financial statements . we incurred $ 3.8 million in interest expense related to our pharma notes and recognized a $ 4.0 million mark to market loss related to our currency hedge agreement . we entered into the foreign currency hedge agreement to hedge changes in the value of the japanese yen relative to the u.s. dollar . the currency hedge does not qualify for hedge accounting treatment and therefore mark to market adjustments will be recognized in our consolidated statements of operations . although we can not predict the future yen/dollar exchange rate , we are aware that the applicable foreign currency rates have moved to increase the hedge loss in early 2012 , and it is likely that additional cash collateral will be required in the first quarter of 2012. we are unable to predict future changes in the yen/dollar exchange rate or increases/decreases in our hedge loss associated with the currency hedge agreement . year ended december 31 , 2010 compared to 2009 total revenues of $ 62.4 million consisted primarily of reimbursement of collaboration expenses , including $ 42.5 million from barda/hhs for the continued development of i.v . peramivir and the sale of $ 8.3 million of peramivir api and other starting materials to shionogi and green cross , as well as a $ 7.0 million milestone payment from shionogi related to the marketing and manufacturing approval of rapiacta in japan during 2010. full year 2009 total revenue of $ 74.6 million was significantly impacted by a $ 22.5 million product sale of i.v . peramivir for the treatment of critically ill influenza patients under an eua to barda/hhs , and includes $ 37.9 million of peramivir development expense reimbursement from barda/hhs . in addition , we recognized less revenue from our collaboration with mundipharma during 2010 compared to 2009. cost of products sold for the year ended december 31 , 2010 was negligible due to the lower amount of product sale as compared to 2009. cost of products sold for the year ended december 31 , 2009 was approximately $ 4.5 million . included in cost of products sold for the year ended december 31 , 2009 is a $ 4.0 million provision for peramivir finished goods inventory . we expense costs related to the production of inventories as research and development expenses in the period incurred until such time it is believed that future economic benefit is expected to be recognized , which generally is reliant upon receipt of regulatory approval .
| recent corporate highlights peramivir on february 24 , 2011 , barda/hhs awarded us a $ 55.0 million contract modification intended to fund completion of the phase 3 development of i.v . peramivir for the treatment of patients hospitalized with influenza . this contract modification brings the total award from barda/hhs to $ 234.8 million and extends the contract term by 24 months through december 31 , 2013. the contract , as it currently stands , provides for funding through completion of phase 3 and to support the filing of an nda to seek regulatory approval for i.v . peramivir in the u.s. through december 31 , 2011 , approximately $ 174.7 million has been recognized as revenue under this contract . this contract modification supports implementation of our proposed changes to our 301 clinical trial . significant changes to the 301 clinical trial are as follows : ( 1 ) modifying the primary efficacy analysis population of the study to focus on a subset of approximately 160 patients not treated with neuraminidase inhibitors as soc , in order to provide the greatest opportunity to demonstrate a statistically significant peramivir treatment effect ; 42 ( 2 ) increasing the total study target enrollment to approximately 600 subjects from the prior target of 445 subjects ; and ( 3 ) adding more clinical site locations in geographical regions where neuraminidase inhibitors are not widely used , including sites in india and possibly china . these changes are expected to increase the amount of time required to complete enrollment in this ongoing study . the actual time to reach completion of enrollment will depend on the prevalence and severity of influenza , as well as the ability of the more than 265 investigator sites to successfully enroll patients . in addition , we have agreed with the fda and barda/hhs to conduct a planned interim analysis in our 301 clinical trial , which includes a futility assessment .
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โ overview we are a leading provider of management and technology consulting , analytics , digital solutions , engineering , mission operations , and cyber expertise to u.s. and international governments , major corporations , and not-for-profit organizations . our ability to deliver value to our clients has always been , and continues to be , a product of the strong character , expertise and tremendous passion of our people . our approximately 26,100 employees work to solve hard problems by making clients ' missions their own , combining decades of consulting and domain expertise with functional expertise in areas such as analytics , digital solutions , engineering , and cyber , all fostered by a culture of innovation that extends to all reaches of the company . through our dedication to our clients ' missions , and a commitment to evolving our business to address their client needs , we have longstanding relationships with our clients , some more than 75 years . we support critical missions for a diverse base of federal government clients , including nearly all of the u.s. government 's cabinet-level departments , as well as increasingly for top-tier commercial and international clients . we support our federal government clients by helping them tackle their most complex and pressing challenges such as protecting soldiers in combat and supporting their families , advancing cyber capabilities , keeping our national infrastructure secure , enabling and enhancing digital services , transforming the healthcare system , and improving government efficiency to achieve better outcomes . we serve commercial clients across industries including financial services , health and life sciences , energy , and transportation to solve the hardest and most consequential challenges , including through our cybersecurity products and services . our international clients are primarily in the middle east and southeast asia . 43 financial and other highlights effective april 1 , 2018 , the company adopted accounting standard codification ( asc ) no . 606 , revenue from contracts with customers ( topic 606 ) , and accounting standard updates ( asu ) 2017-07 , improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , using the full retrospective method . all amounts , percentages and disclosures set forth in this form 10-k for fiscal 2019 , 2018 and 2017 reflect these changes . see note 2 to our accompanying consolidated financial statements for more information on the impact of the adoption of these accounting standards on revenue and operating income . during fiscal 2019 , the company generated its highest annual revenue since its initial public offering and reported increases in headcount and backlog for the year . revenue increased 8.7 % from fiscal 2018 to fiscal 2019 primarily driven by continued strength in client demand , which led to increased client staff headcount , and an increase in client staff labor , as well as improved contract performance . revenue also benefited from higher billable expenses as compared to the prior year . operating income increased 15.9 % to $ 602.4 million in fiscal 2019 from $ 519.7 million in fiscal 2018 , which reflects an increase in operating margin to 9.0 % from 8.4 % in the comparable year . the increase in operating income was primarily driven by the same factors driving revenue growth as well as improved contract performance . during fiscal 2019 the company also benefited from an $ 11.2 million reduction in expense as a result of an amendment and associated revaluation of our long term disability plan liability . the company also incurred incremental legal costs during fiscal 2018 and 2019 in response to the u.s. department of justice investigation and matters which purport to relate to the investigation , a portion of which was offset by the receipt of insurance reimbursements . we expect to incur additional costs in the future . based on the information currently available , the company is not able to reasonably estimate the expected long-term incremental legal costs or amounts that may be reimbursed associated with this investigation and these related matters . 44 non-gaap measures we publicly disclose certain non-gaap financial measurements , including revenue , excluding billable expenses , adjusted operating income , adjusted ebitda , adjusted ebitda margin on revenue , adjusted ebitda margin on revenue , excluding billable expenses , adjusted net income , and adjusted diluted earnings per share , or adjusted diluted eps , because management uses these measures for business planning purposes , including to manage our business against internal projected results of operations and measure our performance . we view adjusted operating income , adjusted ebitda , adjusted ebitda margin on revenue , adjusted ebitda margin on revenue , excluding billable expenses , adjusted net income , and adjusted diluted eps as measures of our core operating business , which exclude the impact of the items detailed below , as these items are generally not operational in nature . these non-gaap measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items . in addition , we use revenue , excluding billable expenses because it provides management useful information about the company 's operating performance by excluding the impact of costs that are not indicative of the level of productivity of our consulting staff headcount and our overall direct labor , which management believes provides useful information to our investors about our core operations . we also utilize and discuss free cash flow , because management uses this measure for business planning purposes , measuring the cash generating ability of the operating business , and measuring liquidity generally . we present these supplemental measures because we believe that these measures provide investors and securities analysts with important supplemental information with which to evaluate our performance , long-term earnings potential , or liquidity , as applicable , and to enable them to assess our performance on the same basis as management . story_separator_special_tag ( c ) reflects the combination of interest expense and other income ( expense ) , net from the consolidated statement of operations . ( d ) release of pre-acquisition income tax reserves assumed by the company in connection with the carlyle acquisition . ( e ) reflects primarily the adjustments made to the provisional income tax benefit associated with the re-measurement of the company 's deferred tax assets and liabilities as a result of the 2017 tax act , including a measurement period adjustment associated with the unbilled receivables method change approved by the irs in the third quarter of fiscal 2019 . ( f ) fiscal 2017 reflects the tax effect of adjustments at an assumed effective tax rate of 40 % . with the enactment of the 2017 tax act , fiscal 2018 and fiscal 2019 adjustments are reflected using assumed effective tax rates of 36.5 % and 26 % , which approximate the blended federal and state tax rates for fiscal 2018 and 2019 , respectively , and consistently exclude the impact of other tax credits and incentive benefits realized . ( g ) excludes an adjustment of approximately $ 1.8 million , $ 1.9 million , and $ 2.3 million of net earnings for fiscal 2019 , 2018 , and 2017 , respectively , associated with the application of the two-class method for computing diluted earnings per share . factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under โ โ results of operations. โ business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : uncertainty around the timing , extent , nature and effect of congressional and other u.s. government actions to approve funding of the u.s. government , address budgetary constraints , including caps on the discretionary budget for defense and non-defense departments and agencies , as established by the bipartisan budget control act of 2011 ( `` bca '' ) and subsequently adjusted by the american tax payer relief act of 2012 , the bipartisan budget act of 2013 , the bipartisan budget act of 2015 and the bipartisan budget act of 2018 , and address the ability of congress to determine how to allocate the available budget authority and pass appropriations bills to fund both u.s. government departments and agencies that are , and those that are not , subject to the caps ; budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; cost-cutting and efficiency initiatives , current and future budget restrictions , continued implementation of congressionally mandated automatic spending cuts and other efforts to reduce u.s. government spending could cause clients to reduce or delay funding for orders for services or invest appropriated funds on a less consistent or rapid basis or not at all , particularly when considering long-term initiatives and in light of uncertainty around congressional efforts to approve funding of the u.s. government and to craft a long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and generally in the current political environment , there is a risk that clients will not issue task orders in sufficient volume to reach current contract ceilings , alter historical patterns of contract awards , including the typical increase in the award of task orders or completion of other contract actions by the u.s. government in the period before the end of the u.s. government 's fiscal year on september 30 , delay requests for new proposals and contract awards , rely on short-term extensions and funding of current contracts , or reduce staffing levels and hours of operation ; delays in the completion of future u.s. government 's budget processes , which have in the past and could in the future delay procurement of the products , services , and solutions we provide ; 48 changes in the relative mix of overall u.s. government spending and areas of spending growth , with lower spending on homeland security , intelligence , defense-related programs as certain overseas operations end , and continued increased spending on cybersecurity , command , control , communications , computers , intelligence , surveillance , and reconnaissance ( c4isr ) , advanced analytics , technology integration and healthcare ; legislative and regulatory changes to limitations on the amount of allowable executive compensation permitted under flexibly priced contracts following implementation of interim rules adopted by federal agencies pursuant to the bipartisan budget act of 2013 , which substantially further reduce the amount of allowable executive compensation under these contracts and extend these limitations to a larger segment of our executives and our entire contract base ; efforts by the u.s. government to address organizational conflicts of interest and related issues and the impact of those efforts on us and our competitors ; increased audit , review , investigation and general scrutiny by u.s. government agencies of government contractors ' performance under u.s. government contracts and compliance with the terms of those contracts and applicable laws ; the federal focus on refining the definition of โ inherently governmental โ work , including proposals to limit contractor access to sensitive or classified information and work assignments , which will continue to drive pockets of insourcing in various agencies , particularly in the intelligence market ; negative publicity and increased scrutiny of government contractors in general , including us , relating to u.s. government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information ; u.s. government agencies awarding contracts on a technically acceptable/lowest cost basis , which could have a negative impact on our ability to win certain contracts ; increased competition from other government contractors
| results of operations the following table sets forth items from our consolidated statements of operations for the periods indicated : replace_table_token_12_th nm - not meaningful fiscal 2019 compared to fiscal 2018 revenue revenue increased to $ 6,704.0 million from $ 6,167.6 million , or an 8.7 % increase , primarily due to continued strength in client demand , which led to increased client staff headcount , and an increase in client staff labor , as well as improved contract performance . revenue growth was also driven by an increase in billable expenses , including subcontractors and direct expenses on behalf of our clients . 57 cost of revenue cost of revenue increased to $ 3,100.5 million from $ 2,866.3 million , or an 8.2 % increase . this increase was primarily due to an increase in salaries and salary-related benefits of $ 176.2 million , higher incentive compensation of $ 24.6 million , and an increase in employer retirement plan contributions of $ 7.2 million . the increase in salaries and salary-related benefits was driven by an increase in headcount growth and annual base salary increases . cost of revenue as a percentage of revenue was 46.2 % and 46.5 % in fiscal 2019 and fiscal 2018 , respectively . billable expenses billable expenses increased to $ 2,004.7 million from $ 1,861.3 million , or a 7.7 % increase . the overall increase was primarily attributable to an increase in use of subcontractors in fiscal 2019 driven by client demand . in addition , contracts which require the company to incur direct and travel expenses on behalf of clients increased over the prior year . billable expenses as a percentage of revenue were 29.9 % and 30.2 % for fiscal 2019 and fiscal 2018 , respectively . general and administrative expenses general and administrative expenses increased to $ 927.9 million from $ 855.5 million , or an 8.5 % increase .
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the increases in operating cash flow in each year were primarily a result of the increase in sales and net income . cash flows used in investing activities included capital expenditures related to property , plant , equipment and software capitalization of $ 95 million , $ 100 million and $ 91 million in 2016 , 2015 and 2014 , respectively . in september 2016 , the company acquired rubotherm gmbh for approximately $ 6 million in cash and the company made payments of $ 3 million and $ 15 million to acquire and license intellectual property during 2015 and 2014 , respectively . these acquisitions did not have a significant impact on the company 's sales and profits in 2016. during 2016 and 2014 , the company issued and sold senior unsecured notes for an aggregate principal amount of $ 250 million and $ 200 million , respectively . during 2016 , 2015 and 2014 , the company repurchased $ 318 million , $ 327 million and $ 329 million of the company 's outstanding common stock , respectively , under 27 authorized share repurchase programs . the company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity , as well as to invest in research , technology and business acquisitions to further grow the company 's sales and profits . results of operations sales by geography geographic sales information is presented below for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_6_th in 2016 , sales growth in the u.s. sales was driven by increases in recurring revenues , which were offset by declines in instrument systems sales . u.s. sales increased to pharmaceutical customers but declined to non-pharmaceutical end-markets . europe 's sales in 2016 were also driven by recurring revenues and primarily due to increases to pharmaceutical and industrial customers . china achieved strong sales growth in all product and customer classes in 2016 , with double-digit growth in lc-ms instrument systems and chemistry consumables as well as double-digit growth to pharmaceutical customers . japan 's increase in sales in 2016 was largely driven by the benefit of foreign currency translation , which increased sales by 12 % . the increase in sales in the rest of asia in 2016 was driven by lc-ms instrument systems and chemistry consumables sales to pharmaceutical and industrial customers . sales to the rest of asia decreased 6 % due to the negative effect of foreign currency translation . sales in the rest of the world in 2016 were broad-based across all product classes as sales increased to industrial customers but declined across all other customer classes . in 2015 , the u.s. sales growth was broad-based across all products and was driven by pharmaceutical and industrial customers . europe 's sales in 2015 were broad-based across all product and customer classes , but declined as a result of the negative effects of foreign currency . china achieved strong double-digit sales growth in all product and customer classes in 2015. japan 's 2015 sales were negatively impacted by foreign currency translation , which decreased sales by 12 % . the increase in sales in the rest of asia in 2015 was driven by pharmaceutical and industrial customers across all product classes . sales in the rest of the world in 2015 increased to pharmaceutical customers but declined across all other customer and product classes . the decline in sales in the rest of the world in 2015 was significantly attributable to a reduction in customer demand in latin america caused by the strengthening of the u.s. dollar and the weak brazilian economy . 28 waters products and services net sales net sales for waters products and services are as follows for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_7_th the increase in waters instrument system sales ( lc and ms technology-based ) in both 2016 and 2015 is primarily attributable to higher sales of hplc , uplc , acquity arc , qda and vion ims q-tof instrument systems , as well as other lc-ms systems that incorporate the company 's benchtop tandem quadrupole technologies . chemistry consumables sales increased in both 2016 and 2015 on the uptake in acquity columns , cortecs ยฎ columns and application-specific testing kits . waters service sales in both 2016 and 2015 benefited from increased sales of service plans and higher service demand billings to a higher installed base of customers . the effect of foreign currency translation had a minimal impact on waters sales in 2016 and decreased waters sales across all products and services by 7 % in 2015. in 2016 , waters sales increased 2 % in the u.s. , 4 % in europe , 14 % in asia and 5 % in the rest of the world . waters sales increased 21 % in china and were broad-based across all product and customer classes . waters sales in japan increased 15 % , primarily due to the benefit of foreign currency translation , which increased sales by 12 % . waters sales in the rest of asia increased 6 % and were driven by product sales to pharmaceutical and industrial customers , offset by weakness within governmental and academic markets . in 2015 , waters sales increased 10 % in the u.s. and 8 % in asia , while sales decreased 8 % in europe and the rest of the world . the increase in sales in the u.s. in 2015 was across all customer classes . waters sales in china increased 16 % in 2015 , but decreased 11 % in japan due to the effects of foreign currency translation . waters sales in the rest of asia increased 14 % and were driven by sales to pharmaceutical and industrial customers . story_separator_special_tag provision for income taxes the four principal jurisdictions in which the company manufactures are the u.s. , ireland , the u.k. and singapore , where the marginal effective tax rates were approximately 37.5 % , 12.5 % , 20 % and 0 % , respectively , as of december 31 , 2016. the company has a contractual tax rate in singapore of 0 % through march 2021 , based upon the achievement of certain contractual milestones , which the company expects to continue to meet . the current statutory tax rate in singapore is 17 % . the effect of applying the contractual tax rate rather than the statutory tax rate to income from qualifying activities in singapore increased the company 's net income in 2016 , 2015 and 2014 by $ 23 million , $ 20 million and $ 20 million , respectively and increased the company 's net income per diluted share by $ 0.29 , $ 0.25 and $ 0.24 , respectively . the company 's effective tax rate is influenced by many significant factors , including , but not limited to , the wide range of income tax rates in jurisdictions in which the company operates ; sales volumes and profit levels in each tax jurisdiction ; changes in tax laws , tax rates and policies ; the outcome of various ongoing tax audit examinations ; and the impact of foreign currency transactions and translation . as a result of variability in these factors , the company 's effective tax rates in the future may not be similar to the effective tax rates for the current or prior years . the company 's effective tax rates were 13.1 % , 13.4 % and 12.0 % in 2016 , 2015 and 2014 , respectively . the change in the effective tax rates can primarily be attributed to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates . in addition , the income tax provision for 2016 included a $ 3 million tax benefit related to a release of a valuation allowance on certain net operating loss carryforwards . in 2015 , the income tax provision included a $ 3 million tax benefit related to the completion of tax audit examinations . 31 liquidity and capital resources condensed consolidated statements of cash flows ( in thousands ) : replace_table_token_9_th cash flow from operating activities net cash provided by operating activities was $ 629 million , $ 560 million and $ 512 million in 2016 , 2015 and 2014 , respectively . the changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities , aside from the changes in net income : the changes in accounts receivable were primarily attributable to timing of payments made by customers and timing of sales . days sales outstanding was 71 days at both december 31 , 2016 and 2015 and 68 days at december 31 , 2014. the changes in inventory were primarily attributable to anticipated annual increases in sales volumes , as well as new product launches . the changes in accounts payable and other current liabilities were a result of timing of payments to vendors . net cash provided from deferred revenue and customer advances results from annual increases in new service contracts as a higher installed base of customers renew annual service contracts . other changes were attributable to variation in the timing of various provisions , expenditures , prepaid income taxes and accruals in other current assets , other assets and other liabilities . in addition , the company made one-time contributions totaling $ 21 million to certain non-u.s. pension plans during 2014. cash used in investing activities net cash used in investing activities totaled $ 488 million , $ 400 million and $ 402 million in 2016 , 2015 and 2014 , respectively . additions to fixed assets and capitalized software were $ 95 million , $ 100 million and $ 91 million in 2016 , 2015 and 2014 , respectively . during 2016 , 2015 and 2014 , the company purchased $ 2.4 billion , $ 2.0 billion and $ 2.2 billion of investments , respectively , while $ 2.0 billion , $ 1.7 billion and $ 1.9 billion of 32 investments matured , respectively . business acquisitions , net of cash acquired , were $ 6 million , $ 23 million and $ 27 million during 2016 , 2015 and 2014 , respectively . in 2016 , the company sold an equity investment for $ 4 million and , in 2015 , the company received $ 5 million cash from the sale of a building in the u.k. during 2015 and 2014 , the company made payments of $ 3 million and $ 15 million , respectively , to acquire and license intellectual property . cash used in financing activities the company issued and sold senior unsecured notes with an aggregate principal amount of $ 250 million and $ 200 million in may 2016 and june 2014 , respectively . the proceeds from the issuance of the senior unsecured notes in 2016 were used to repay existing debt and for general corporate purposes . interest on the fixed rate senior unsecured notes is payable semi-annually each year . interest on the floating rate senior unsecured notes is payable quarterly . the company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10 % of the aggregate principal amount outstanding , plus the applicable make-whole amount or prepayment premium for series h senior unsecured notes . in the event of a change in control of the company ( as defined in the note purchase agreement ) , the company may be required to prepay the senior unsecured notes at a price equal to 100 % of the principal amount thereof , plus accrued and unpaid interest .
| results of operations business and financial overview the company has two operating segments : waters ยฎ and ta ยฎ . waters products and services primarily consist of high performance liquid chromatography ( ยhplcย ) , ultra performance liquid chromatography ( ยuplc ยฎ ย and together with hplc , referred to as ยlcย ) , mass spectrometry ( ยmsย ) and chemistry consumable products and related services . ta products and services primarily consist of thermal analysis , rheometry and calorimetry instrument systems and service sales . the company 's products are used by pharmaceutical , biochemical , industrial , nutritional safety , environmental , academic and governmental customers . these customers use the company 's products to detect , identify , monitor and measure the chemical , physical and biological composition of materials and to predict the suitability and stability of fine chemicals , pharmaceuticals , water , polymers , metals and viscous liquids in various industrial , consumer goods and healthcare products . 25 the company 's operating results are as follows for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands , except per share data ) : replace_table_token_5_th in 2016 , the company 's sales increased 6 % as compared to 2015. the growth was mainly driven by continued strength in our pharmaceutical market followed by growth in our industrial market , which includes sales to industrial chemical , nutritional safety and environmental customers , offset by a decline in sales to our governmental and academic customers . instrument systems produced mid-single-digit sales growth during 2016 and our chemistry and service businesses continued to generate high-single-digit growth rates due to higher instrument utilization and a growing base of installed instrument systems .
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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 us or any other person that our objectives and plans will be achieved . general on-site was originally incorporated in virginia in december 1992 , and changed its state of incorporation to delaware in january 1996. we began providing reprographic and facilities management services in june 1993. in november 1996 , we also began providing imaging and scanning services . in april 2000 , we began providing commercial printing services utilizing digital printing technology . today , we provide document and information management services through our facilities in the greater atlanta , chicago , new york city , philadelphia , washington , d.c. and wilmington metropolitan areas . we help clients in information-intensive industries manage large volumes of documents and information , allowing them to concentrate on their core business operations . our core clients , mainly law firms , typically generate large volumes of documents and information and require specialized processing , distribution , storage , and retrieval of these documents and the information they contain . our typical clients include law firms , insurance companies , healthcare organizations , non-profit organizations , accounting , consulting and finance firms and other organizations throughout the united states . we have three significant operating segments including , imaging , reprographics and digital printing , each of which is described above under ยitem 1. business.ย our imaging services accounted for approximately 39 % , 29 % and 27 % of our consolidated revenues for the years ended december 31 , 2002 , 2001 and 2000 , respectively . our reprographic services accounted for approximately 50 % , 57 % and 59 % of our consolidated revenues for the years ended december 31 , 2002 , 2001 and 2000 , respectively . our digital printing services accounted for approximately 8 % , 7 % and 5 % of our consolidated revenues for the years ended december 31 , 2002 , 2001 and 2000 , respectively . segment disclosures are presented in note 15 of the notes to financial statements included in this annual report on form 10-k. prior to 2002 , we also operated an additional segment , facilities management services , which involved the on-premises management of a client 's support services , including mailroom operations , facsimile transmission , records and supply room management and copying services . in december 2001 , we terminated several contracts related to our facilities management division and exited this segment . we currently have one ongoing facilities management engagement . beginning with fiscal year 2002 , we no longer viewed facilities management services as a separate segment . in the future , we do not intend to enter into traditional facilities management engagements as described above . we may however enter into facilities managements arrangements which involve the 13 management of electronic documents and other electronic information . revenues for the year 2001 from our facilities management segment totaled $ 2.6 million and accounted for approximately 6 % of our consolidated revenues . we derive our revenues primarily from our imaging , reprographics , and digital printing segments . we collect revenues from these segments on a per job basis . our customers generally retain us on a job-by-job basis . we typically do not have material contracts that commit a customer to use our services on a long-term basis . revenue is recognized upon completion and delivery of a job . our billing methodology for imaging services depends on the type of service provided . for scanning and blowback printing , we typically charge the client on a per-page basis . for coding , we typically charge the client on a per-page basis and according to the number of fields coded on each page . we generally charge for services involving data extraction , manipulation , indexing , formatting and other similar services on a per file basis . for our data storage services , we typically charge the client a fee based on the amount of data to be stored and length of storage , as well as licensing fees for the third-party software applications we use to store and retrieve the data . we generally charge for our reprographics services on a page-by-page basis , depending on the level of difficulty involved in the photocopying , and for our other reprographics-related services on a time and materials basis . we typically charge for our printing services on a time and materials basis , depending on several factors , including whether the work involves electronic or print press printing , quantity of items printed , number of colors involved in the printing , quality of paper used and graphic design time . revenues from our segments vary from period to period depending on the volume and size of work orders received . our revenues can vary from period to period due to the impact of specific large jobs . currently , we derive our revenues primarily from law firms . today , approximately 3 % of our total revenues are recurring in nature . as we continue to diversify our service offerings and continue expanding into other markets , including healthcare , insurance , and government , we expect the period-to-period fluctuations in our revenues to decrease . cost of revenue includes expenses related to compensation and benefits to employees , occupancy costs , equipment costs , supplies , and other costs , which are directly related to providing goods and services to our clients . sales and marketing expense includes commissions , salaries , travel and entertainment and other costs related to our sales staff . administrative expense consists primarily of compensation and related benefits to executive management , accounting , human resources , and other administrative employees , communications costs , insurance costs , legal and accounting professional fees , and other costs incurred to provide support to our operating segments . story_separator_special_tag other expense decreased approximately $ 345,000 from approximately $ 414,000 in 2001 to approximately $ 69,000 in 2002. other expense includes losses incurred as a result of disposal of certain fixed assets , and in 2001 included expenses related to the maintenance and management of the alexandria , virginia property . as the property was used in 2002 , and continues to be used as the company 's headquarters , the expenses incurred in maintaining the property are included as part of the company 's operating expenses in 2002. interest expense decreased approximately $ 355,000 from approximately $ 1.2 million in 2001 to approximately $ 840,000 in 2002. the decrease is due to reduced overall market rates of interest related to borrowings under credit agreements and certain other 16 current debt arrangements and lower utilization of the company 's line of credit . the company 's line of credit balance as of december 31 , 2002 was $ 2,861,414 compared to $ 3,120,166 as of december 31 , 2001. income taxes for the year ended december 31 , 2002 the company recorded total income tax expense of $ 85,530 compared to income tax expense of $ 950,468 for the year ended december 31 , 2001. the company 's effective income tax rates were 38.4 % and 42.3 % for 2002 and 2001 , respectively . the decrease in the effective rate was due to the adjustment of deferred tax assets and liabilities in the current year . year ended december 31 , 2001 compared with the year ended december 31 , 2000 revenue revenues increased $ 4.0 million or 11 % , to $ 39.5 million in 2001 from $ 35.5 million in 2000. the increase resulted from an increase in demand for our services in all three of our business segments as a result of hiring additional sales staff and additional market penetration into legal , insurance , and heath care markets . the revenue increase in 2001 was offset by a general decrease in demand for our services immediately following the september 11 , 2001 terrorist attacks . revenue increases by segment are as follows : digital printing revenues increased $ 1.1 million or 60 % to $ 3.0 million from $ 1.9 million in 2000. imaging revenues increased $ 1.9 million or 20 % to $ 11.4 million from $ 9.5 million in 2000. reprographics revenues increased $ 1.5 million or 7 % to $ 22.6 million from $ 21.1 million in 2000. the imaging segment , which accounted for 29 % of our revenue in 2001 , played an important role in the company 's future growth . as the needs of our clients shift from traditional reprographic document management solutions to more technology-based solutions , we expect imaging revenues as a percentage of total company revenues to increase . in the future , as clients shift to imaging , we expect a decrease in reprographic revenues . gross profit gross profit increased $ 2.1 million , or 19 % , to $ 13.2 million in 2001 from $ 11.0 million in 2000 , largely due to the increases in revenue and improvements in gross profit margins . gross profit as percentage of sales increased from 31 % in 2000 to 33 % in 2001. the increase is attributable in part to improved management of our labor force by increasing utilization of part-time workers , compared to full-time workers , to handle peak demand periods . as a result , the company incurred significantly lower labor costs , as a percentage of revenues , in 2001 compared to 2000. other factors contributing to the increase in gross profit include higher profit margins attributable to the company 's imaging segment , which accounted for a higher percentage of total revenues in 2001 compared to 2000 , as compared to margins in our reprographics and digital printing segments , and efficiencies achieved as a result of spreading increased revenues over certain fixed costs . gross profit was negatively impacted by a loss of $ 734,486 incurred in the company 's digital printing operations . sales and marketing expense selling expense as a percentage of revenues decreased from 10 % in 2000 to 9 % in 2001. the decrease is attributable to a larger percentage of ยhouseย accounts , or accounts under which no account executives are assigned , on which no commissions are paid . administrative expense administrative expense increased $ 1.5 million to $ 6.1 million in 2001 compared to $ 4.6 million in 2000. this increase is due to the significant investments in people and equipment we made in 2001 in order to prepare for anticipated future growth . key factors which contributed to the increase include the following : approximately $ 700,000 of our 2001 administrative expenses consist of increases in administrative salaries and wages as a result of the two acquisitions completed during the second and third quarter of 2000 , additional administrative personnel hired to support the growth and the expansion of our imaging services to georgia and new york , and additions of corporate administrative and management personnel ; approximately $ 240,000 of our 2001 administrative expenses related to a severance payment to our former director of sales & marketing who resigned in may 2001 ; 17 approximately $ 220,000 of our 2001 administrative expenses consisted of bonus payments , used to reward and motivate employees for meeting certain performance objectives ; and approximately $ 165,000 of our 2001 administrative expenses consisted of increases in depreciation costs related to the purchase of computer and other information technology equipment used to manage our computer network and process administrative functions in our imaging and digital printing segments and our accounting and human resources departments . merger related costs in july 2000 , the company signed a definitive merger agreement with u.s. technologies inc. pursuant to which u.s. technologies would acquire the company .
| results of operations year ended december 31 , 2002 compared with the year ended december 31 , 2001 revenue revenue decreased approximately $ 2.3 million or 6.0 % , from approximately $ 39.5 million in 2001 to approximately $ 37.1 million in 2002. the company generates a large percentage of its revenue from law firms , which typically engage in large transactional matters involving mergers and acquisitions . as a result of a weak economy , which in turn resulted in a significantly lower level of merger and acquisition activities , the company experienced a lower than expected amount of revenue in its reprographic and imaging segments . revenue and changes by segment are as follows : imaging revenue increased approximately $ 3.0 million or 26.6 % , to approximately $ 14.4 million in 2002. digital printing revenue increased approximately $ 76,000 or 2.6 % , to approximately $ 3.0 million in 2002. reprographic revenue decreased approximately $ 3.9 million or 17.2 % , from approximately $ 22.6 million in 2001. the shift of revenue from the reprographics to the imaging segment was expected by management as clients are moving away from the traditional paper-based documents to the use of electronic files and documents . the imaging segment of our company continues to play an important role in the company 's growth and profitability . as we expect the revenue from the imaging segment to continue to grow , we expect overall demand for our reprographic services within the existing markets and clientele , primarily law firms , to decline . we expect to offset this decline by generating additional reprographics revenue in the government and commercial sectors .
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the senior second lien notes contain covenants that limit or prohibit our ability and the ability of certain story_separator_special_tag the following discussion and analysis should be read in conjunction with financial statements and supplementary data under part ii , item 8 in this form 10-k. the following discussion includes forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this form 10-k , particularly in risk factors under part i , item 1a in this form 10-k. overview we are an independent oil and natural gas producer with operations offshore in the gulf of mexico . we have grown through acquisitions , exploration and development , and currently hold working interests in 48 offshore fields in federal and state waters ( 47 producing and one field capable of producing ) . we currently have under lease approximately 720,000 gross acres ( 390,000 net acres ) spanning across the outer continental shelf ( โ ocs โ ) off the coasts of louisiana , texas , mississippi and alabama , with approximately 515,000 gross acres on the conventional shelf and approximately 205,000 gross acres in the deepwater . a majority of our daily production is derived from wells we operate . we currently own interests in 123 offshore structures , 81 of which are located in fields that we operate . we currently own interest in 201 productive wells , 135 of which we operate . our interest in fields , leases , structures and equipment are primarily owned by us directly and by our wholly-owned subsidiary , w & t energy vi , llc and through our proportionately consolidated interest in monza , as described in more detail in financial statements and supplementary data โ note 4 โ joint venture drilling program under part ii , item 8 in this form 10-k. in managing our business , we are focused on optimizing production and increasing reserves in a profitable and prudent manner , while managing cash flows to meet our obligations and investment needs . our cash flows are materially impacted by the prices of commodities we produce ( crude oil and natural gas , and the ngl 's extracted from the natural gas ) . in addition , the prices of goods and services used in our business can vary and impact our cash flows and margins . during 2018 , average commodity realized prices improved from those we experienced during 2017 and 2016. our margins in 2018 have improved from 2017 and 2016 levels , and are approximately the margin levels achieved prior to 2015. we have historically increased our reserves and production through acquisitions , our drilling programs , and other projects that optimize production on existing wells . while our production decreased 8.5 % in 2018 from the prior year , we added 23.1 mmboe of proved reserves in 2018 replacing 174 % of production . the 13.2 % increase in proved reserves year-over-year is a result of successful drilling , technical revisions driven by improved well performance , recompletion and workover efforts , and improved commodity prices . during 2018 , we completed one well which had reached target depth in 2017 , and drilled and completed five additional wells which began producing during 2018. one of these wells , the viosca knoll 823 a-12 bp2 , is currently offline and we are evaluating methods by which to enhance production at that well . our plans for the short-term include operating within cash flow , maintaining liquidity , meeting our financial obligations and pursuing acquisitions meeting our criteria . see properties โ proved reserves under part i , item 2 ; selected financial data under part ii , item 6 and financial statements and supplementary data โ note 20 โ supplemental oil and gas disclosures under part ii , item 8 in this form 10-k for additional information on our proved reserves . our drilling efforts in recent years have included the deepwater of the gulf of mexico . production from our deepwater fields represented 41 % , 42 % , and 46 % of our total production for the years 2018 , 2017 , and 2016 , respectively . one of our larger deepwater fields is the big bend field , which commenced production in late 2015. over 90 % of our reserves in this field are composed of oil and ngls on a boe basis . as of december 31 , 2018 , the big bend field was in our top ten fields based on reserves , net to our interest , on a boe basis . 53 to provide additional financial flexibility , we created the jv drilling program during 2018 and initiated drilling on several of the projects . the jv drilling program enables w & t to receive returns on its investment on a promoted basis and enables private investors to participate in 14 drilling projects . it also allows more projects to be taken on which leverages our capital expenditures and diversifies our risk . during 2018 , there were four wells in the jv drilling program that came on production . in addition , as of december 31 , 2018 , one well was being drilled and one well was in the completion stage . the current plan is to complete the 14 projects within a three-year period , but is subject to change as needed with any required approval of the other investors . see financial statements and supplementary data โ note 4 โ joint venture drilling program under part ii , item 8 in this form 10-k for additional information on the jv drilling program . in october 2018 , we entered into a series of transactions to effect a refinancing of substantially all of our outstanding indebtedness . story_separator_special_tag per barrel for 2018 compared to an average of $ 3.37 per barrel for 2017. for 2018 , our average realized crude oil sales price was $ 65.62 per barrel . our average realized crude oil sales price differs from the wti benchmark average crude price due primarily to premiums or discounts , crude oil quality adjustments , volume weighting ( collectively referred to as differentials ) and other factors . crude oil quality adjustments can vary significantly by field . for example , crude oil from our east cameron 321 field normally receives a positive quality adjustment , whereas crude oil from our mahogany field normally receives a negative quality adjustment . all of our crude oil is produced offshore in the gulf of mexico and is characterized as poseidon , light louisiana sweet ( โ lls โ ) , heavy louisiana sweet ( โ hls โ ) and others . wti is frequently used to value domestically produced crude oil , and the majority of our crude oil production is priced using the spot price for wti as a base price , then adjusted for the type and quality of crude oil and other factors . similar to crude oil prices , the differentials for our offshore crude oil have also experienced volatility in the past . the monthly average differentials of wti versus poseidon , lls and hls for 2018 improved on average by approximately $ 2.00 per barrel compared to 2017 for these types of crude oils . the eia projects average crude oil prices for both wti and brent to decrease by approximately $ 11.00 per barrel each for the year 2019 compared to 2018 as supply is forecasted to be greater than consumption . eia 's forecast of crude oil prices for wti and brent for 2020 is an increase above 2019 levels of approximately $ 5.00 per barrel each . during 2018 , our average realized ngls sales price per barrel increased by 21.6 % compared to 2017. two major components of our ngls , ethane and propane , typically make up over 70 % of an average ngl barrel . during 2018 , average prices for domestic ethane increased by 24 % and average domestic propane prices increased by 14 % from 2017 as measured using a price index for mount belvieu . the average price for other domestic ngls components ranged from an increase of 9 % to 24 % for 2018 year-over-year . we believe the increase in prices for ngls is mostly a function of the change in crude oil prices and propane usage during the recent winter season . per eia , production of ethane is expected to increase by 15 % in 2019 compared to 2018 and increase by 9 % in 2020 compared to 2019. propane production is expected to increase by 13 % in 2019 compared to 2018 and by 4 % in 2020 compared to 2019. ethane inventories decreased 7 % as of december 2018 compared to december 2017. ethane usage is not impacted by weather , but primarily by demand from petrochemical plants . additional ethane steam crackers coming on line is impacting the usage of ethane , which is believed to positively impact the price . propane usage is affected by weather as it is used for house heating fuel in certain areas and for crop drying , along with other uses . propane inventory levels are 3 % higher at the end of 2018 compared to the end of 2017. heating degree days were 16 % higher in the first half of 2018 compared to the same period last year . during 2018 , our average realized natural gas sales price increased 5.1 % compared to 2017. according to data from eia 's web site , spot prices for natural gas at henry hub ( the primary u.s. price benchmark ) were 5.2 % higher in 2018 compared to 2017. natural gas prices are more affected by domestic issues ( as compared to crude oil prices ) , such as weather ( particularly extreme heat or cold ) , supply , local demand issues , other fuel competition ( coal ) and domestic economic conditions , and they have historically been subject to substantial fluctuation . natural gas inventories at the end of 2018 were 11 % lower than year end 2017 and were 18 % below the five-year average for the previous five years . eia projects natural gas supply to be greater than consumption in 2019 and forecast prices to drop by 8 % to approximately $ 3.00 per mcf . we believe several factors are causing the continued weakness including ( i ) producers continuing to drill in order to secure and to hold large lease positions before expiration , particularly in shale and similar resource plays , ( ii ) natural gas continuing to be produced as a by-product of oil drilling , ( iii ) production efficiency gains being achieved in the shale gas areas resulting from better hydraulic fracturing , horizontal drilling , pad drilling and production techniques and ( iv ) re-injecting ethane from time to time into the natural gas stream , which increases the natural gas supply . 55 eia 's reports that electrical power generation sourced by natural gas consumption increased from 32 % in 2017 to 35 % in 2018 and forecast this percentage to increase to 36 % in 2019 and 37 % in 2020. the percentage of electrical power generation sourced from coal fell in 2018 and is expected to decrease further in 2019 and 2020. the percentage of electrical power sourced from renewable sources such as hydropower and wind remained constant in 2018 as compared to 2017 at 17 % , but is forecast to increase during 2019 and 2020 to 18 % and 20 % , respectively .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues . total revenues increased $ 93.6 million , or 19.2 % , to $ 580.7 million in 2018 as compared to $ 487.1 million in 2017. oil revenues increased $ 98.8 million , or 29.1 % , ngls revenues increased $ 4.9 million , or 15.1 % , natural gas revenues decreased $ 9.3 million , or 8.5 % , and other revenues decreased $ 0.8 million . the oil revenue increase was attributable to a 36.3 % per barrel increase in the average realized sales price to $ 65.62 per barrel in 2018 from $ 48.13 per barrel in 2017 , partially offset by a 5.3 % decrease in sales volumes . the ngls revenue increase was attributable to a 21.6 % increase in the average realized sales price to $ 28.40 per barrel in 2018 from $ 23.35 per barrel in 2017 , partially offset by a decrease of 5.4 % in sales volumes . the decrease in natural gas revenue was attributable to a 13.0 % decrease in sales volumes , partially offset by a 5.1 % increase in the average realized natural gas sales price to $ 3.11 per mcf in 2018 from $ 2.96 per mcf in 2017. overall , prices increased 30.8 % on a per boe basis and production declined 8.5 % on a per boe per day basis . the largest production increases for 2018 compared to 2017 were from our newly acquired interest in the heidelberg field and our ship shoal 300 field . revenue and production was adjusted for royalty relief on two of our deepwater fields related to their 2017 and 2016 production and realized prices which is recognized in the subsequent year . this royalty relief impact to revenues during 2018 and 2017 was $ 1.0 million and $ 5.0 million , respectively .
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in addition , we intend to expand upon our development activities with complementary acreage acquisitions in our core areas of operation . success in our development and exploration activities is critical in the maintenance and growth of our current production levels and associated reserves . while we have attained positive net income in three of the last five years , there can be no assurance that operating income and net earnings will be achieved in future periods . our financial results depend upon many factors which significantly affect our results of operations including the following : commodity prices and the effectiveness of our hedging arrangements ; the level of total sales volumes of oil and gas ; the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs ; the level of and interest rates on borrowings ; and the level and success of exploration and development activity . 45 commodity prices and hedging arrangements . the results of our operations are highly dependent upon the prices received for our oil and gas production . the prices we receive for our production are dependent upon spot market prices , differentials and the effectiveness of our derivative contracts , which we sometimes refer to as hedging arrangements . substantially all of our sales of oil and gas are made in the spot market , or pursuant to contracts based on spot market prices , and not pursuant to long-term , fixed-price contracts . accordingly , the prices received for our oil and gas production are dependent upon numerous factors beyond our control . significant declines in prices for oil and gas could have a material adverse effect on our financial condition , results of operations , cash flows and quantities of reserves recoverable on an economic basis . oil and gas prices have been volatile , and this volatility is expected to continue . as a result of the many uncertainties associated with the world political environment , worldwide supplies of oil , ngl and gas , the availability of other worldwide energy supplies and the relative competitive relationships of various energy sources in the view of consumers , we are unable to predict what changes may occur in oil , ngl , and gas prices in the future . the market price of oil and condensate , ngl and gas in 2019 will impact the amount of cash generated from operating activities , which will in turn impact our financial position . as of march 8 , 2019 , the nymex oil and gas price was $ 56.07 per bbl of oil and $ 2.87 per mcf of gas , respectively . during 2018 , the nymex future price for oil averaged $ 64.98 per barrel as compared to $ 50.85 per barrel in 2017 and the nymex future spot price for gas averaged $ 3.07 per mcf compared to $ 3.14 per mcf in 2017. prices closed on december 31 , 2018 at $ 45.41 per bbl of oil and $ 2.94 per mcf of gas . if commodity prices decline from these levels , our revenue and cash flows from operations will also likely decline . in addition , lower commodity prices could also reduce the amount of oil and gas that we can produce economically . if oil and gas prices decline , our revenues , profitability and cash flows from operations will also likely decrease which could cause us to alter our business plans , including reducing our drilling activities . such declines could also require us to write down the carrying value of our oil and gas assets which would also cause a reduction in net income . finally , low commodity prices will likely cause a reduction of the borrowing base under our credit facility . the borrowing base under our credit facility is scheduled to be redetermined on march 28 , 2019. the realized prices that we receive for our production differ from nymex futures and spot market prices , principally due to : basis differentials which are dependent on actual delivery location ; adjustments for btu content ; quality of the hydrocarbons ; and gathering , processing and transportation costs . the following table sets forth our average differentials for the years ended december 31 , 2016 , 2017 and 2018 : replace_table_token_14_th _ ( 1 ) average realized prices are before the impact of hedging activities . the company 's derivative contracts as of december 31 , 2018 consisted of nymex-based fixed price swaps and basis differential swaps . under fixed price swaps , we receive a fixed price for our production and pay a variable market price to the contract counter-party . our hedging arrangements equate to approximately 51 % of the oil production of our estimated net proved developed producing reserves ( as of december 31 , 2018 ) through december 31 , 2019 , 62 % for 2020 and 66 % for 2021. subsequent to december 31 , 2018 , in connection with the redetermination of our credit facility , we have entered into additional fixed price commodity swaps . taking these additional contracts into consideration , we have entered into fixed price commodity swap arrangements on approximately 61 % of the oil production of our estimated net proved developed producing reserves ( as of december 31 , 2018 ) through december 31 , 2019 , 80 % for 2020 and 75 % for 2021. by removing a portion of price volatility on our future oil and gas production , we believe we will mitigate , but not eliminate , the potential effects of changing commodity prices on our cash flows from operations for those periods . however , when prevailing market prices are higher than our contract prices , we will not realize increased cash flows on the portion of the production that has been hedged . we have in the past and will in the future sustain losses on both open and settled derivative contracts if market prices are higher than our contract prices . story_separator_special_tag as a result , we would need to increase our cash flow from operations in order to fund the development of our drilling opportunities which , in turn , will be dependent upon the level of our production volumes and commodity prices . exploration and development activity . we believe that our asset base , high degree of operational control and inventory of drilling projects position us for future growth . at december 31 , 2018 , we operated properties comprising approximately 96 % of the boe 's of our estimated net proved reserves , giving us substantial control over the timing and incurrence of operating and capital expenditures . we have identified numerous additional drilling locations on our existing leaseholds , the successful development of which we believe could significantly increase our production and proved reserves . over the five years ended december 31 , 2018 , we drilled or participated in 122 gross ( 60.4 net ) wells of which 98 % were commercially productive . our future oil and gas production , and therefore our success , is highly dependent upon our ability to find , acquire and develop additional reserves that are profitable to produce . the rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves , conduct successful development and exploration activities or , through engineering studies identify additional behind-pipe zones or secondary recovery reserves . we can not assure you that our exploration and development activities will result in increases in our proved reserves . if our proved reserves decline in the future , our production may also decline and , consequently , our cash flows from operations and the amount that we are able to borrow under our credit facility may also decline . in addition , approximately 63 % of our estimated proved reserves on a boe basis at december 31 , 2018 were undeveloped . by their nature , estimates of undeveloped reserves are less certain . recovery of such reserves will require significant capital expenditures and successful drilling operations . we may be unable to acquire or develop additional reserves , in which case our results of operations and financial condition could be adversely affected . story_separator_special_tag color : # 000000 ; background-color : # 000000 '' / > depreciation , depletion , and amortization ( โ dd & a โ ) expenses . dd & a expense excluding accretion , increased to $ 42.8 million for the year ended december 31 , 2018 from $ 26.2 million in 2017. dd & a expense increased primarily due to higher future development costs included in the december 31 , 2018 reserve report , based on current development program , as well as higher production volumes in 2018 as compared to 2017. dd & a per boe for 2018 was $ 11.94 compared to $ 9.72 in 2017. the increase in dd & a expense per boe was primarily due to a higher full cost pool as well as higher future development costs in 2018 as compared to 2017 and higher capital cost in relation to reserve additions . interest expense . interest expense increased to $ 7.1 million in 2018 from $ 2.5 million for 2017. the increase was primarily due to higher debt levels in 2018 as compared to 2017 , as well as higher interest rates in 2018 as compared to 2017. in 2018 the interest rate on our credit facility averaged 5.4 % as compared to 4.1 % in 2017. income taxes . due to loss carry forwards , we did not recognize any income tax expense for the years ended december 31 , 2018 and 2017 . ( gain ) loss on derivative contracts . derivative gains or losses are determined by actual derivative settlements during the period and by periodic mark to market valuation of derivative contracts in place . we have elected not to apply hedge accounting to our derivative contracts as prescribed by accounting standards codification 815 , derivatives and hedging `` asc 815 '' ; therefore , fluctuations in the market value of the derivative contracts are recognized in earnings during the current period . our derivative contracts consisted of fixed price swaps and basis differential swaps in 2018 and fixed price swaps and basis differential swaps and collar contracts in 2017. the net estimated value of our commodity derivative contracts was an asset of approximately $ 15.1 million as of december 31 , 2018. when our derivative contract prices are higher than prevailing market prices , we recognize gains and conversely , when our derivative contract prices are lower than prevailing market prices , we incur losses . for the year-ended december 31 , 2018 , we recognized a gain of $ 8.1 million , consisting of a loss of $ 19.0 million on closed contracts and a gain of $ 27.1 million on the mark to market valuation on open contracts . for the year ended december 31 , 2017 , we incurred a loss on our derivative contracts of approximately $ 1.8 million , consisting of a gain of $ 2.5 million on closed contracts and a loss of $ 4.3 million on the mark to market valuation of open contracts . ceiling limitation write-down . we record the carrying value of our oil and gas properties using the full cost method of accounting for oil and gas properties . under this method , we capitalize the cost to acquire , explore for and develop oil and gas properties .
| results of operations selected operating data . the following table sets forth operating data for the periods presented . replace_table_token_17_th _ ( 1 ) revenue and average sales prices are before the impact of hedging activities . 48 comparison of year ended december 31 , 2018 to year ended december 31 , 2017 revenue . during the year ended december 31 , 2018 , revenue increased to $ 149.2 million from $ 86.3 million in 2017. the increase in revenue was primarily due to higher oil and ngl prices in 2018 as well as higher sales volumes in 2018 for all products as compared to 2017. higher commodity prices added $ 26.9 million to revenue , while higher sales volumes contributed $ 36.0 million to revenue in 2018. during 2018 we experienced an increase in the average realized oil price of approximately 23 % from 2017 levels . average realized gas prices decreased by approximately 3 % and average realized ngl prices increased by approximately 36 % from 2017 levels . gas and ngl sales were negatively impacted by pipeline constraints in the permian and rocky mountain regions during 2018. oil sales volumes increased to 2,308 mbbls for the year ended december 31 , 2018 from 1,574 mbbls for the same period of 2017. the increase in oil sales volumes was due to new production brought on line offset by natural field declines and sales of non-core properties . new production brought on line added 665 mboe to sales in 2018. gas sales volumes increased to 4,587 mmcf for the year ended december 31 , 2018 from 3,889 mmcf for the year ended december 31 , 2017. the increase in gas sales volumes was primarily due to new wells brought on line as well as the acquisition of additional interests in existing wells .
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macatawa bank is a michigan chartered bank with depository accounts insured by the fdic . the bank operates twenty-six branch offices and a lending and operational service facility , providing a full range of commercial and consumer banking and trust services in kent county , ottawa county , and northern allegan county , michigan . macatawa statutory trusts i and ii are grantor trusts and have issued $ 20.0 million each of pooled trust preferred securities . these trusts are not consolidated in our consolidated financial statements . for further information regarding consolidation , see the notes to the consolidated financial statements . at december 31 , 2016 , we had total assets of $ 1.74 billion , total loans of $ 1.28 billion , total deposits of $ 1.45 billion and shareholders ' equity of $ 162.2 million . we recognized net income of $ 16.0 million in 2016 compared to net income of $ 12.8 million in 2015. earnings in 2016 and 2015 improved over their respective previous years through growth in total revenue , primarily net interest income , while holding noninterest expenses flat . as of december 31 , 2016 , the company 's and the bank 's risk-based regulatory capital ratios were significantly above those required under the regulatory standards and the bank continued to be categorized as โ well capitalized โ at december 31 , 2016. during 2013 , the company improved its capital structure by prepaying and redeeming its $ 1.7 million of 11 % unsecured subordinated debt , resuming interest payments on its trust preferred securities and completing an exchange of all of the company 's series a and series b preferred stock for company common stock and cash , at the election of the holder . each of these transactions are discussed in detail in item 7. beginning with the first quarter of 2014 , the company paid a cash dividend of $ 0.02 per share in each quarter of 2014 , after a hiatus of over five years . in the second quarter of 2015 , the company increased this cash dividend by 50 % , to $ 0.03 per share and continued to pay at this level for the third and fourth quarters of 2015 and for each quarter in 2016. over the past several years , much progress has been made at reducing our nonperforming assets . the following table reflects period end balances of these nonperforming assets as well as total loan delinquencies . replace_table_token_13_th earnings in recent years have been impacted by high costs associated with administration and disposition of nonperforming assets . these costs , including losses on repossessed and foreclosed properties , were $ 1.3 million , $ 3.0 million and $ 3.1 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . going forward , as further reductions in nonperforming assets are accomplished , we expect the costs associated with these assets to continue to decline thereby allowing for improved earnings in future periods . - 25 - our earnings in 2016 , 2015 and 2014 were favorably impacted by negative provision for loan losses of $ 1.35 million , $ 3.5 million and $ 3.35 million , respectively . as discussed in detail later in item 7 of this report under the heading `` allowance for loan losses '' , the large negative provision in 2015 was the result of the reversal of a portion of a specific reserve on an individual credit that was upgraded to accruing status in the fourth quarter of 2015 as well as the net loan recoveries for the year . the negative provision in each period was also impacted by other recoveries from our collection efforts and a continual decline in our historical charge-off levels from prior years . we had our fourth consecutive full year of net recoveries in 2016. the following table reflects the provision for loan losses for the past five years along with certain metrics that impact the determination of the level of the provision for loan losses . replace_table_token_14_th economic conditions in our market areas of grand rapids and holland have improved during the past several years . the state 's unemployment rate at the end of 2016 was 4.5 % . the grand rapids and holland area unemployment rate was 3.1 % at the end of 2016. residential housing values and commercial real estate property values have shown signs of improvement , with some of our newer appraisals tending to reflect values at or above prior year values . it also appears that the housing market in our primary market area is improving . in the grand rapids market during 2016 , there were 65 % more living unit starts than in 2015. similarly , in the holland-grand haven/lakeshore region , there were 27 % more living unit starts in 2016 than in 2015. these improvements are on top of improved results in 2015 over 2014. also , these markets are now also seeing significant activity in duplex , condominium and apartment starts after years of virtually no activity . beginning in 2014 , with our improved financial condition , and earnings growth , our primary focus was on high quality loan portfolio growth . we experienced strong commercial loan growth in the fourth quarter of 2014 and throughout 2015 and 2016. most of our emphasis has been on growing commercial and industrial loans . story_separator_special_tag with the recent increases in the federal funds rate , we anticipate some increase in our funding costs , but with a lesser impact than on our interest earning assets . net interest margin continued to be dampened by the impact of our elevated levels of nonperforming assets , particularly other real estate owned . however , as we work to further reduce these levels , our net interest margin is expected to continue to benefit . the estimated negative impact of these nonperforming assets on net interest margin decreased from 14 basis points in 2014 to 9 basis points in 2015 and 4 basis points in 2016. we are encouraged by the increase in higher yielding average earning assets in 2016 and expect these balances to continue to increase in 2017 , which should positively affect net interest income . - 27 - the following table shows an analysis of net interest margin for the years ended december 31 , 2016 , 2015 and 2014 ( dollars in thousands ) . replace_table_token_15_th ( 1 ) yields are presented on a tax equivalent basis using a 35 % tax rate . ( 2 ) loan fees of $ 883,000 , $ 550,000 and $ 583,000 for 2016 , 2015 and 2014 are included in interest income . includes average nonaccrual loans of approximately $ 372,000 million , $ 5.5 million and $ 10.3 million for 2016 , 2015 and 2014 . - 28 - the following table presents the dollar amount of changes in net interest income due to changes in volume and rate . replace_table_token_16_th provision for loan losses : the provision for loan losses for 2016 was a negative $ 1.35 million compared to a negative $ 3.5 million for 2015 and a negative $ 3.35 million for 2014. the negative provisions in each period were the result of continued realization of net recoveries in each of these years , reduction in the balances and required reserves on nonperforming loans , and stabilizing real estate values on problem credits . of the $ 3.5 million negative provision for loan losses in 2015 , $ 2.0 million was attributable to a reduction in specific reserve on our largest individual impaired loan relationship . this loan relationship was upgraded to accruing status in the fourth quarter of 2015 upon the sale of the company and multiple years of profitable operations and positive cash flows . as such , with the upgrade , we changed our method of estimating the specific reserve from one based on liquidation value to one based on expected cash flow from operations . this resulted in the $ 2.0 million reduction in the required reserve discussed above . net charge-offs were $ 58.0 million in 2009 , $ 29.7 million in 2010 , $ 11.1 million in 2011 , and $ 802,000 in 2012 , turning to net recoveries of $ 1.3 million in 2013 , $ 1.5 million in 2014 , $ 1.6 million in 2015 and $ 1.2 million in 2016. net recoveries in recent years were attributable to positive results from our aggressive collection recovery efforts . we continue to see an increase in the quality of some credits within our loan portfolio resulting in an improved loan grade . over the past three years , we have experienced improvements in our weighted average loan grade . our weighted average commercial loan grade was 3.73 at december 31 , 2016 reflecting improvement compared to 3.77 at december 31 , 2015 , 3.78 at december 31 , 2014 , 3.88 at december 31 , 2013 and 4.01 at december 31 , 2012. this loan grade improvement has also been a contributing factor to allowing for the reduction in the level of the allowance for loan losses since then . the amounts of loan loss provision in each period were the result of establishing our allowance for loan losses at levels believed necessary based upon our methodology for determining the adequacy of the allowance . the sustained level of net recoveries over the past three years has had a significant effect on the historical loss component of our methodology . more information about our allowance for loan losses and our methodology for establishing its level may be found in this item 7 of the report under the heading โ allowance for loan losses โ below and in item 8 of this report in note 3 of the consolidated financial statements . - 29 - noninterest income : noninterest income totaled $ 19.1 million in 2016 , compared to $ 17.8 million in 2015 and $ 16.2 million in 2014. the components of noninterest income are shown in the table below ( in thousands ) : replace_table_token_17_th revenue from deposit services was $ 4.4 million in 2016 , compared to $ 4.4 million in 2015 and $ 4.3 million in 2014. the increase from 2015 to 2016 and from 2014 to 2015 was due primarily to better penetration into our business customer base in providing fee-based services . net gains on mortgage loans included gains on the sale of real estate mortgage loans in the secondary market . we sell the majority of the fixed-rate mortgage loans we originate . we do not retain the servicing rights for the loans we sell . a summary of gain on sales of loans and related loan volume was as follows ( in thousands ) : replace_table_token_18_th as demonstrated in the table above , mortgage volume was slightly higher in 2016 compared to 2015 and was up significantly compared to 2014. mortgage rates increased in the second half of 2013 , reducing the residential mortgage volume and thus reducing gains on mortgage loans in the latter half of 2013 and into 2014. volume increased again in 2015 as a result of the continued low mortgage rate environment , our focus on increasing originations from purchase activity and the addition of a couple of residential mortgage lenders in 2015. rates increased again in late 2016 , reducing volume in the fourth quarter of 2016. during the
| summary : over the past several years , we focused on improving our financial condition through diversification of credit risk , improved capital ratios , and reduced reliance on non-core funding . we experienced positive results in each of these areas . with the success in strengthening our financial condition , we also turned our focus in 2014 to achieving high quality loan portfolio growth , and have experienced this growth since then . total assets were $ 1.741 billion at december 31 , 2016 , an increase of $ 11.4 million from $ 1.730 billion at december 31 , 2015. this change reflected increases of $ 17.6 million in securities available for sale , $ 17.5 million in securities held to maturity , $ 82.9 million in our loan portfolio and $ 10.4 million in bank owned life insurance , partially offset by decreases of $ 91.2 million in cash and cash equivalents and $ 5.3 million in other real estate owned . total deposits increased by $ 13.2 million and other borrowed funds were down by $ 12.0 million at december 31 , 2016 compared to december 31 , 2015. total shareholders ' equity increased by $ 10.3 million from december 31 , 2015 to december 31 , 2016. shareholders ' equity was increased by $ 16.0 million of net income in 2016 , partially offset by cash dividends of $ 4.0 million , or $ 0.12 per share . shareholders ' equity also decreased by $ 1.8 million in 2016 as a result of a swing in accumulated other comprehensive income due to the effect of interest rate movement on the fair value of our available for sale securities portfolio . as of december 31 , 2016 , the bank was categorized as โ well capitalized โ under applicable regulatory guidelines .
| 2,725 |
during the year ended december 31 , 2009 , an other-than-temporary impairment charge of $ 1,825 pertaining to ยavailable-for-saleย debt securities was recognized in ยother-revenueย on the consolidated statement of operations , representing the credit loss component of debt securities whose fair value was below amortized cost . there were no other-than-temporary impairment charges recognized during the year ended december 31 , 2010. the company 's debt securities included in the table above are categorized as ยtradingย securities . non-u.s. government and other debt includes u.s. state and municipal debt securities , as well as amounts seeding products of our asset management business . equities primarily represent the company 's investments in marketable equity securities of large- , mid- and small-cap domestic , international and global companies seeding new asset management products and includes investments in public and private asset management funds managed both by lam and third-party asset managers . interests in alternative asset management funds represent ( i ) story_separator_special_tag the following discussion should be read in conjunction with lazard ltd 's consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k ( this ยform 10-kย ) . this discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties . actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors , including those set forth in the section entitled ยrisk factorsย and elsewhere in this form 10-k. business summary lazard is a preeminent financial advisory and asset management firm . we have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world , including corporations , governments , institutions , partnerships and individuals . founded in 1848 in new orleans , we currently operate from 42 cities in key business and financial centers across 27 countries throughout europe , north america , asia , australia , the middle east and central and south america . our principal sources of revenue are derived from activities in the following business segments : financial advisory , which offers corporate , partnership , institutional , government , sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions ( ยm & aย ) and other strategic matters , restructurings , capital structure , capital raising and various other financial matters , and asset management , which includes strategies for the management of equity and fixed income securities and alternative investment and private equity funds , as well as wealth management . in addition , we record selected other activities in our corporate segment , including management of cash , certain investments and the commercial banking activities of lazard group 's paris-based lazard frรจres banque sa ( ยlfbย ) . we also allocate outstanding indebtedness to our corporate segment . lfb is a registered bank regulated by the autoritรฉ de contrรดle prudentiel . it is engaged primarily in commercial and private banking services for clients and funds managed by lazard frรจres gestion sas ( ยlfgย ) and other clients , investment banking activities , including participation in underwritten offerings of securities in france , asset-liability management and limited trading in securities and foreign exchange . our consolidated net revenue was derived from the following segments : replace_table_token_4_th we also invest our own capital from time to time , generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments , and , since 2005 , we have engaged in a number of alternative investments and private equity activities , including investments through ( i ) the edgewater funds ( ยedgewaterย ) , our chicago-based private equity firm ( see note 9 of notes to consolidated financial statements ) , ( ii ) lazard australia corporate opportunities fund 2 , which has an opportunistic investment strategy focused on the australian mid-market , ( iii ) a mezzanine fund , which invests in mezzanine debt of a diversified selection of small-to mid cap european companies , ( iv ) corporate partners ii limited 37 ( ยcp iiย ) , a private equity fund targeting significant non-controlling investments in established public and private companies and ( v ) lazard senior housing partners lp ( ยsenior housingย ) , which acquires companies and assets in the senior housing , extended stay and shopping center sectors . we continue to explore and discuss opportunities to expand the scope of our alternative investment and private equity activities in europe , the u.s. and elsewhere . these opportunities could include internal growth of new funds and direct investments by us , partnerships or strategic relationships , investments with third parties or acquisitions of existing funds or management companies . also , consistent with our obligations to lfcm holdings llc ( ยlfcm holdingsย ) , we may explore discrete capital markets opportunities . business environment economic and global financial market conditions can materially affect our financial performance . as described above , our principal sources of revenue are derived from activities in our financial advisory and asset management business segments . as our financial advisory revenues are for the most part dependent on the successful completion of merger , acquisition , restructuring , capital raising or similar transactions , and our asset management revenues are primarily driven by the levels of assets under management ( ยaumย ) , weak economic and global financial market conditions can result in a challenging business environment for m & a and capital-raising activity as well as our asset management business , but may provide opportunities for our restructuring business . overall , equity market indices at december 31 , 2011 reflected little change in the u.s. , and declined outside the u.s. , when compared to such indices at december 31 , 2010 , with periods of significant volatility during the year . story_separator_special_tag 39 asset management as shown in the table below , major equity market indices at december 31 , 2011 were mixed in the u.s. , but declined outside the u.s. , when compared to such indices at december 31 , 2010. global market indices at december 31 , 2010 increased in most markets versus the corresponding indices at december 31 , 2009. replace_table_token_6_th the fees that we receive for providing investment management and advisory services are primarily driven by the level of aum . accordingly , since market movements and foreign currency volatility impact the level of our aum , such items will impact the level of revenues we receive from our asset management business . a substantial portion of our aum is invested in equities , and market movements reflected in the changes in lazard 's aum during the period generally corresponded to the changes in global market indices . our aum at december 31 , 2011 decreased 9 % versus aum at december 31 , 2010 ( primarily due to market and foreign exchange depreciation ) , while our average aum for 2011 increased 11 % as compared to our average aum in 2010. the higher levels of average aum contributed to increased management fee revenues in 2011. financial statement overview net revenue the majority of lazard 's financial advisory net revenue is earned from the successful completion of m & a transactions , strategic advisory matters , restructuring and capital structure advisory services , capital raising and similar transactions . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings and for referring opportunities to lfcm holdings for underwriting , distribution and placement of securities . the referral fees received from lfcm holdings are generally one-half of the revenue recorded by lfcm holdings in respect of such activities . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lazard asset management llc ( together with its subsidiaries , ยlamย ) , lfg , edgewater ( commencing july 15 , 2009 ) and lazard wealth management . asset management net revenue is derived from fees for investment management and advisory services provided to institutional and private clients . as noted above , the main driver of asset management net revenue is the level of aum , which is influenced by the performance of the global equity markets and , to a lesser extent , fixed income markets and lazard 's investment performance , which impacts its ability to successfully attract and retain assets . 40 as a result , fluctuations ( including timing thereof ) in financial markets and client asset inflows and outflows have a direct effect on asset management net revenue and operating income . asset management fees are generally based on the level of aum measured daily , monthly or quarterly , and an increase or reduction in aum , due to market price fluctuations , currency fluctuations , net client asset flows or otherwise , will result in a corresponding increase or decrease in management fees . the majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less . institutional and individual clients , and firms with which we have strategic alliances , can terminate their relationship with us , reduce the aggregate amount of aum or shift their funds to other types of accounts with different rate structures for a number of reasons , including investment performance , changes in prevailing interest rates and financial market performance . in addition , as lazard 's aum includes significant amounts of assets that are denominated in currencies other than u.s. dollars , changes in the value of the u.s. dollar relative to foreign currencies will impact the value of lazard 's aum . fees vary with the type of assets managed and the vehicle in which they are managed , with higher fees earned on equity assets , alternative investments ( such as hedge funds ) and private equity investments , and lower fees earned on fixed income and cash management products . the company earns performance-based incentive fees on various investment products , including traditional products and alternative investment funds such as hedge funds and private equity funds . for hedge funds , incentive fees are calculated based on a specified percentage of a fund 's net appreciation , in some cases in excess of established benchmarks or thresholds . the company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period , when potential uncertainties regarding the ultimate realizable amounts have been determined . the incentive fee measurement period is generally an annual period ( unless an account terminates during the year ) , and therefore such incentive fees are usually recorded in the fourth quarter of lazard 's fiscal year . these incentive fees received at the end of the measurement period are not subject to reversal or payback .
| operating results as reflected in the table above , the 2010 and 2009 special items had a significant impact on the company 's reported operating results for the respective years . lazard management believes that comparisons between years are most meaningful after excluding the impact of such items . year ended december 31 , 2011 versus december 31 , 2010 the company reported net income attributable to lazard ltd in both 2011 and 2010 of $ 175 million . the company 's results in 2010 were significantly impacted by the 2010 special items , which served to decrease net income attributable to lazard ltd by $ 72 million . accordingly , excluding the after-tax impact of the 2010 special items , net income attributable to lazard ltd in 2011 decreased $ 72 million , or 29 % , as compared to 2010. the changes in the company 's operating results during these years are described below . net revenue decreased by $ 76 million , or 4 % , with operating revenue decreasing by $ 95 million , or 5 % . fees from investment banking and other advisory activities decreased $ 135 million , or 12 % , reflecting the continued cyclical decline in restructuring activity and the number of corporate debt defaults , as well as a slowdown in overall m & a activity . restructuring fee revenues in 2011 declined by $ 96 million , or 33 % . m & a and strategic advisory fees in 2011 decreased $ 14 million , or 2 % .
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in particular , statements about our expectations , beliefs , plans , objectives , assumptions or future events or performance contained are forward-looking statements . we have based these forward-looking statements on our current expectations , assumptions , estimates and projections . while we believe these expectations , assumptions , estimates and projections are reasonable , such forward-looking statements are only predictions and involve known and unknown risks , uncertainties and other factors , many of which are outside of our control , which could cause our actual results , performance or achievements to differ materially from any results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and other factors include , but are not limited to : review of our acquisition of priory by the cma ; our significant indebtedness , our ability to meet our debt obligations , and our ability to incur substantially more debt ; difficulties in successfully integrating the operations of acquired facilities , including those acquired in the priory and crc acquisitions , or realizing the potential benefits and synergies of our acquisitions ; our ability to implement our business strategies in the united kingdom and adapt to the regulatory and business environment in the united kingdom ; the impact of payments received from the government and third-party payors on our revenues and results of operations including the significant dependence of the priory and partnerships in care facilities on payments received from the nhs ; the occurrence of patient incidents , which could result in negative media coverage , adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations ; our future cash flow and earnings ; our restrictive covenants , which may restrict our business and financing activities ; our ability to make payments on our financing arrangements ; the impact of the economic and employment conditions in the united states and the united kingdom on our business and future results of operations ; compliance with laws and government regulations ; the impact of claims brought against our facilities ; the impact of governmental investigations , regulatory actions and whistleblower lawsuits ; the impact of healthcare reform in the united states and abroad ; the impact of our highly competitive industry on patient volumes ; our ability to recruit and retain quality psychiatrists and other physicians ; the impact of competition for staffing on our labor costs and profitability ; our dependence on key management personnel , key executives and local facility management personnel ; our acquisition strategy , which exposes us to a variety of operational and financial risks , as well as legal and regulatory risks ( e.g. , exposure to the new regulatory regimes such as the united kingdom for priory and partnerships in care and various investigations relating to crc ) ; the impact of state efforts to regulate the construction or expansion of healthcare facilities ( including those from priory , crc and partnerships in care ) on our ability to operate and expand our operations ; our potential inability to extend leases at expiration ; the impact of controls designed to reduce inpatient services on our revenues ; the impact of different interpretations of accounting principles on our results of operations or financial condition ; the impact of environmental , health and safety laws and regulations , especially in states where we have concentrated operations ; the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations ; the risk of a cyber-security incident and any resulting violation of laws and regulations regarding information privacy or other negative impact ; the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions ; the impact of a change in the mix of our earnings , and changes in tax rates and laws generally ; failure to maintain effective internal control over financial reporting ; the impact of fluctuations in our operating results , quarter to quarter earnings and other factors on the price of our securities ; the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients ; 46 the impact of fluctuations in foreign exchange rates ; and those risks and uncertainties described from time to time in our filings with the securities and exchange commission . given these risks and uncertainties , you are cautioned not to place undue reliance on such forward-looking statements . these risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements . these forward-looking statements are made only as of the date of this annual report on form 10-k. we do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments . overview our business strategy is to acquire and develop behavioral healthcare facilities and improve our operating results within our facilities and our other behavioral healthcare operations . we strive to improve the operating results of our facilities by providing high-quality services , expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare services through expansion of our current locations as well as developing new services within existing locations . at december 31 , 2015 , we operated 258 behavioral healthcare facilities with over 9,900 beds in 39 states , the united kingdom and puerto rico . during the year ended december 31 , 2015 , we acquired 176 facilities and added approximately 670 new beds , including 460 to existing facilities and 210 in two de novo facilities . for the year ending december 31 , 2016 , we expect to add approximately 800 total beds exclusive of acquisitions . we are the leading publicly traded pure-play provider of behavioral healthcare services , with operations in the united states and the united kingdom . story_separator_special_tag million . at the acquisition date , partnerships in care was the second largest independent provider of inpatient behavioral healthcare services in the united kingdom , operating 23 inpatient behavioral healthcare facilities with over 1,200 beds . on january 1 , 2014 , we acquired the assets of pacific grove , an inpatient psychiatric facility with 68 beds located in riverside , california , for cash consideration of $ 10.5 million . revenue our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care , outpatient psychiatric care and adolescent residential treatment . we receive payments from the following sources for services rendered in our facilities : ( i ) state governments under their respective medicaid and other programs ; ( ii ) commercial insurers ; ( iii ) the federal government under the medicare program administered by cms ; ( iv ) the nhs ( including local authorities ) in the united kingdom ; and ( v ) individual patients and clients . revenue is recorded in the period in which services are provided at established billing rates less contractual adjustments based on amounts reimbursable by medicare or medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates . 48 story_separator_special_tag partnerships in care in 2015 , compared to six months in 2014 , partnerships in care is located in a lower taxing jurisdiction and for which earnings are permanently reinvested . 50 year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 295.7 million , or 40.2 % , to $ 1.0 billion for the year ended december 31 , 2014 from $ 735.1 million for the year ended december 31 , 2013. the increase related primarily to revenue generated during the year ended december 31 , 2014 from the facilities acquired in our 2013 and 2014 acquisitions , particularly the acquisition of partnerships in care . same-facility revenue before provision for doubtful accounts increased by $ 79.1 million , or 10.8 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , resulting from same-facility growth in patient days of 10.3 % and same-facility revenue per day of 0.6 % . consistent with the same-facility patient day growth in 2013 , the growth in same-facility patient days for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 resulted from the addition of beds to our existing facilities and ongoing demand for our services . provision for doubtful accounts . the provision for doubtful accounts was $ 26.2 million for the year ended december 31 , 2014 , or 2.5 % of revenue before provision for doubtful accounts , compared to $ 21.7 million for the year ended december 31 , 2013 , or 3.0 % of revenue before provision for doubtful accounts . the same-facility provision for doubtful accounts was $ 23.3 million for the year ended december 31 , 2014 , or 2.9 % of revenue before provision for doubtful accounts , compared to $ 21.7 million for the year ended december 31 , 2013 , or 3.0 % of revenue before provision for doubtful accounts . salaries , wages and benefits . salaries , wages and benefits ( ยswbย ) expense was $ 575.4 million for the year ended december 31 , 2014 compared to $ 408.0 million for the year ended december 31 , 2013 , an increase of $ 167.4 million . swb expense included $ 10.1 million and $ 5.2 million of equity-based compensation expense for the year ended december 31 , 2014 and 2013 , respectively . excluding equity-based compensation expense , swb expense was $ 565.3 million , or 56.3 % of revenue , for the year ended december 31 , 2014 , compared to $ 402.8 million , or 56.4 % of revenue , for the year ended december 31 , 2013. the $ 162.5 million increase in swb expense , excluding equity-based compensation expense , was primarily attributable to swb expense incurred by the facilities acquired in our 2013 and 2014 acquisitions , particularly the acquisition of partnerships in care . same-facility swb expense was $ 412.8 million for the year ended december 31 , 2014 , or 52.4 % of revenue , compared to $ 381.5 million for the year ended december 31 , 2013 , or 53.7 % of revenue . professional fees . professional fees were $ 52.5 million for the year ended december 31 , 2014 , or 5.2 % of revenue , compared to $ 37.2 million for the year ended december 31 , 2013 , or 5.2 % of revenue . the $ 15.3 million increase was primarily attributable to professional fees incurred by the facilities acquired in our 2013 and 2014 acquisitions , particularly the acquisition of partnerships in care . same-facility professional fees were $ 34.2 million for the year ended december 31 , 2014 , or 4.3 % of revenue , compared to $ 31.2 million , for the year ended december 31 , 2013 , or 4.4 % of revenue . supplies . supplies expense was $ 48.4 million for the year ended december 31 , 2014 , or 4.8 % of revenue , compared to $ 37.6 million for the year ended december 31 , 2013 , or 5.3 % of revenue . the $ 10.8 million increase was primarily attributable to supplies expense incurred by the facilities acquired in our 2013 and 2014 acquisitions , particularly the acquisition of partnerships in care . same-facility supplies expense was $ 39.5 million for the year ended december 31 , 2014 , or 5.0 % of revenue , compared to $ 37.4 million for the year ended december 31 , 2013 , or 5.3 % of revenue . rents and leases .
| results of operations the following table illustrates our consolidated results of operations from continuing operations for the respective periods shown ( dollars in thousands ) : replace_table_token_4_th year ended december 31 , 2015 compared to the year ended december 31 , 2014 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 798.8 million , or 77.5 % , to $ 1.8 billion for the year ended december 31 , 2015 from $ 1.0 billion for the year ended december 31 , 2014. the increase related primarily to revenue generated during the year ended december 31 , 2015 from the facilities acquired in our 2014 and 2015 acquisitions , particularly the acquisition of crc . same-facility revenue before provision for doubtful accounts increased by $ 78.9 million , or 7.8 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , primarily resulting from same-facility growth in patient days of 8.0 % . consistent with the same-facility patient day growth in 2014 , the growth in same-facility patient days for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 resulted from the addition of beds to our existing facilities and ongoing demand for our services . provision for doubtful accounts . the provision for doubtful accounts was $ 35.1 million for the year ended december 31 , 2015 , or 1.9 % of revenue before provision for doubtful accounts , compared to $ 26.2 million for the year ended december 31 , 2014 , or 2.5 % of revenue before provision for doubtful accounts . the same-facility provision for doubtful accounts was $ 26.0 million for the year ended december 31 , 2015 , or 2.4 % of revenue before provision for doubtful accounts , compared to $ 25.6 million for the year ended december 31 , 2014 , or 2.5 % of revenue before provision for doubtful accounts . salaries , wages and benefits .
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the program is expected to include a pre-tax charge to earnings of approximately $ 40 million to $ 50 million , of which $ 25 million to $ 30 million consist of non-cash charges . for the fourth quarter and year ended december 31 , 2014 , we recorded a $ 15.2 million pre-tax charge relating to the program consisting of goodwill impairment of $ 12.9 million , an indefinite-lived 27 intangible asset impairment of $ 0.5 million , and other transformation and deployment costs of $ 1.8 million . the goodwill impairment charge was based on a quantitative assessment of the asia-pacific reporting unit goodwill performed as a result of it being more likely than not that the asia-pacific reporting unit 's third party and intersegment net sales would be significantly reduced as a result of the program . we estimated the fair value of the reporting unit using the expected present value of future cash flows . the remaining total pre-tax charge for the program is expected to include costs of severance benefits of $ 8 million to $ 10 million , facility decommissioning , clean-up and other related exit costs of $ 3 million to $ 4 million , accelerated depreciation and amortization of long-lived assets of $ 8 million to $ 10 million , and other transformation and deployment costs including inventory charges , consulting fees , and other associated costs of $ 5.8 million to $ 10.8 million . the total net after-tax charge for this program is expected to be $ 30 million to $ 40 million , inclusive of the asia-pacific charges that are expected to have no tax benefit . the remaining costs of the program are expected to be incurred during 2015. we expect to generate approximately $ 5.0 million in after-tax cash proceeds from the sale of assets associated with the program by the end of fiscal 2017. we estimate consolidated operating margins will increase by approximately 1.0 percentage point as a result of these actions by 2017. story_separator_special_tag in operating income was attributable to the following : replace_table_token_12_th the decrease in consolidated operating income was due primarily to an increase in restructuring and impairment charges offset by an increase in gross profit from increased sales volume and cost containment initiatives . the increase in americas ' organic operating income was driven by higher sales volume and reduced sg & a expenses offset partially by increased restructuring expenses . the emea organic operating income decrease was primarily due to lower sales volumes , higher restructuring costs and transformation deployment costs partially offset by productivity efficiencies and cost containment efforts . asia-pacific 's organic operating income decreased primarily due to the impact on gross margins from reduced absorption driven by lower intercompany sales and higher sg & a expenses . as of january 1 , 2014 , we began allocating certain expenses to our three operating segments that had previously been recorded as corporate expenses . these expenses primarily include stock compensation , legal expenses and audit expenses that are directly attributable to and benefit the three operating segments . the 2013 results have been retrospectively revised for comparative purposes . interest expense . interest expense decreased $ 1.6 million , or 7.4 % , in 2014 compared to 2013 , primarily due to the retirement in mid-may 2013 of $ 75 million in unsecured senior notes and lower borrowing rates on our stand-by letters of credit , offset by interest on our borrowings under our credit agreement . see note 10 of notes to consolidated financial statements in this annual report on form 10-k , for additional information regarding financing arrangements . other expense ( income ) , net . other expense ( income ) , net increased $ 0.3 million in 2014 compared to 2013 , primarily due to higher foreign currency transaction losses in canada . income taxes . our effective tax rate for continuing operations increased to 39.5 % in 2014 from 30.6 % in 2013. the increase in the rate is primarily due to the $ 12.9 million goodwill impairment charge recorded in asia-pacific with no tax benefit . in addition , the increase was also due to audit settlements in belgium and germany recorded during the third quarter of 2014 and to earnings mix , with the u.s. contributing a larger portion of worldwide earnings in 2014 than in 2013 . 31 net income from continuing operations . net income from continuing operations for 2014 was $ 50.3 million , or $ 1.42 per common share , compared to $ 60.9 million , or $ 1.71 per common share , for 2013. results for 2014 include net after-tax charges of $ 38.5 million , or $ 1.09 per common share , including acquisitions and impairment related costs of $ 0.51 , restructuring and other net charges of $ 0.39 , and emea and americas transformation deployment costs of $ 0.19. results for 2013 include net after-tax charges of $ 18.3 million , or $ 0.51 per common share , including legal settlement charges of $ 0.26 , restructuring and other net charges of $ 0.17 , goodwill and other long-lived asset impairments of $ 0.04 , earnout adjustments of $ 0.02 and emea transformation deployment costs of $ 0.02. loss from discontinued operations . loss from discontinued operations in 2013 of $ 2.3 million , or ( $ 0.07 ) per common share , was related to the operations and loss on disposal of austroflex . see note 3 of notes to consolidated financial statements . results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 net sales . our business is reported in three geographic segments : americas , emea and asia-pacific . story_separator_special_tag our net sales in each of these segments for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_13_th the change in net sales was attributable to the following : replace_table_token_14_th our products are sold to wholesalers , diy chains , and oems . the change in organic net sales by channel was attributable to the following : replace_table_token_15_th 32 organic net sales in 2013 in the americas wholesale market increased compared to 2012 mainly from increased sales in residential and commercial flow product lines and from our customers continuing to transition to lead free products . organic sales into the americas diy market in 2013 increased compared to 2012 , primarily due to increased product sales of $ 1.9 million in residential and commercial flow control products and $ 1.2 million in water quality products . unit sales increases were substantially offset by competitive pricing in the diy market . organic net sales in the emea wholesale market decreased compared to 2012 primarily due to the economic market conditions in france and germany . organic net sales into the emea oem market decreased as compared to 2012 primarily due to a slower hvac market in germany and fewer large project sales in the drains business , offset by increased sales in the electronics business . the net increase in sales due to foreign exchange was primarily due to the appreciation of the euro against the u.s. dollar . we can not predict whether these currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales . acquired net sales growth in americas was due to tekmar . gross profit . gross profit and gross profit as a percent of net sales ( gross margin ) for 2013 and 2012 were as follows : replace_table_token_16_th in americas , gross margin decreased primarily due to inefficiencies related to our lead free transition program and retail pricing pressure offset partially by product mix and volume growth . emea gross margin increased slightly as compared to 2012 , primarily due to production efficiencies driven from ongoing restructuring programs offsetting lower overhead absorption related to reduced manufacturing volumes . selling , general and administrative expenses . selling , general and administrative expenses , or sg & a expenses , for 2013 increased $ 24.7 million , or 6.5 % , compared to 2012. the increase in sg & a expenses was attributable to the following : replace_table_token_17_th the net organic increase in sg & a is primarily attributable to increased legal costs of $ 12.5 million , increased product liability cost of $ 4.5 million , increased freight and commission costs of $ 4.1 million associated with increased sales , and increased personnel costs of $ 2.2 million , offset by lower depreciation and amortization of $ 1.6 million and lower advertising costs of $ 1.3 million . incremental legal costs include the impact of a settlement of all claims in the trabakoolas et al. , v. watts water technologies , inc. , et al. , matter in the united states district court for the northern district of california . the net settlement charged to operations amounted to $ 13.6 million in 2013. refer to note 14 of the notes to consolidated financial statements in this annual report on form 10-k for more detail . increased product liability cost of $ 4.5 million in the americas is based on a third-party actuarial analysis that incorporated higher reported claims in 2013 offset to some extent 33 by the impact of the trabakoolas settlement . increased personnel costs primarily relate to investments in new positions and increased stock incentive plan costs . the increase in sg & a expenses from foreign exchange was primarily due to the appreciation of the euro against the u.s. dollar . acquired sg & a expenses related to the tekmar acquisition . total sg & a expense , as a percentage of sales , was 27.5 % in 2013 and 26.7 % in 2012. restructuring and other charges . in 2013 , we recorded a net charge of $ 8.7 million primarily for severance and other costs incurred as part of our previously announced restructuring programs , as compared to $ 4.2 million for 2012. for a more detailed description of our current restructuring plans , see note 4 of notes to consolidated financial statements in this annual report on form 10-k. goodwill and other long-lived asset impairment charges . in 2013 , we recorded asset impairment charges of $ 1.2 million , primarily relating to a $ 0.3 million goodwill impairment charge for brae , and trade name impairment charges of $ 0.3 million and $ 0.4 million for the americas and emea , respectively . the goodwill impairment was based on historical results being below our expectations and a reduction in the expected future cash flows to be generated by brae . see note 2 of notes to consolidated financial statements in this annual report on form 10-k , for additional information regarding these impairments . operating income . operating income by geographic segment for 2013 and 2012 was as follows : replace_table_token_18_th the change in operating income was attributable to the following : replace_table_token_19_th the decrease in consolidated organic operating income was due primarily to an increase in sg & a expenses , as previously discussed . acquired operating income relates to the tekmar acquisition . the increase in restructuring , impairment charges and other from 2013 to 2012 is primarily driven by the emea restructuring programs , as previously discussed . the net increase in operating income from foreign exchange was primarily due to the appreciation of the euro against the u.s. dollar . we can not predict whether the euro will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales . our business is reported in three geographic segments : americas , emea and asia-pacific . our net sales in each of these segments for the years ended december 31 , 2014 and 2013 were as follows : replace_table_token_6_th the change in net sales was attributable to the following : replace_table_token_7_th 28 our products are sold to wholesalers , diy chains , and oems . the change in organic net sales by channel was attributable to the following : replace_table_token_8_th organic net sales in the americas wholesale , diy and oem markets increased in 2014 compared to 2013. the increase was driven by growth in all principle products lines , and in particular , growth in our residential and commercial flow product lines . organic net sales in the emea wholesale market decreased as compared to 2013 primarily due to softening in the france , germany and italy wholesale markets . decreases in the diy channel were primarily due to decreases in the france diy market . decreases in the oem channel were primarily due to decreases in the germany and italy markets , partially offset by increases in our electronic controls and drains businesses . organic net sales in the asia-pacific wholesale market increased as compared to 2013 primarily due to increased sales in residential valve and heating products and the expansion in the east and north regions of china . the net decrease in sales due to foreign exchange was primarily due to the depreciation of the canadian dollar against the u.s. dollar . we can not predict with any degree of certainty whether foreign currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales .
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the act provides a safe haven for such disclosure ; in other words , protection from unwarranted litigation if actual results are not the same as management expectations . united desires to provide its shareholders with sound information about past performance and future trends . consequently , any forward-looking statements contained in this report , in a report incorporated by reference to this report , or made by management of united in this report , in any other reports and filings , in press releases and in oral statements , involve numerous assumptions , risks and uncertainties . actual results could differ materially from those contained in or implied by united 's statements for a variety of factors including , but not limited to : changes in economic conditions ; business conditions in the banking industry ; movements in interest rates ; competitive pressures on product pricing and services ; success and timing of business strategies ; the nature and extent of governmental actions and reforms ; and rapidly changing technology and evolving banking industry standards . the discussion in item 1a , โ risk factors , โ lists some of the factors that could cause united 's actual results to vary materially from those expressed or implied by any forward-looking statements , and such discussion is incorporated into this discussion by reference . pending acquisition on november 17 , 2019 , united entered into an agreement and plan of merger ( the agreement ) with carolina financial corporation ( carolina financial ) , a delaware corporation headquartered in charleston , south carolina . in accordance with the agreement , carolina financial shall merge with and into united ( the merger ) . carolina financial will cease to exist and united shall survive and continue to exist as a west virginia corporation . at the effective time of the merger , crescom bank , a wholly-owned subsidiary of carolina financial , will merge with and into united bank , a wholly-owned subsidiary of united ( the bank merger ) . united bank will survive the bank merger and continue to exist as a virginia banking corporation . as of december 31 , 2019 , carolina financial had $ 4.71 billion in assets with banking locations in north carolina and south carolina . crescom bank owns and operates crescent mortgage company , which is based in atlanta . crescent mortgage company is approved to originate loans in 48 states partnering with community banks , credit unions and mortgage brokers . adoption of the current expected credit losses standard the company has adopted accounting standards update ( asu ) 2016-13 , โ financial instruments โ credit losses ( topic 326 ) : measurement of credit losses on financial instruments , โ as amended , on january 1 , 2020 , as required by the financial accounting standards board ( fasb ) . asu 2016-13 requires entities to report โ expected โ credit losses on financial instruments measured at amortized cost and other commitments to extend credit rather than the prior โ incurred loss โ model . these expected credit losses for financial assets held at the reporting date are to be based on historical experience , current conditions , and reasonable and supportable forecasts . management is in the process of finalizing the impact of the adoption of this guidance on united 's financial condition , results of operations , liquidity , and regulatory capital ratios . based on current economic conditions , management expects the allowance for credit losses to increase by 20 % to 30 % . for additional discussion of accounting pronouncements pending adoption , see note a of the notes to the condensed consolidated financial statements in part ii , item 8 of this form 10-k. 31 transition from the london interbank offerered rate ( libor ) in 2017 , the united kingdom 's financial conduct authority , which regulates libor , publicly announced that it intends to stop persuading or compelling banks to submit the rates used to calculate libor after 2021. currently , it is unclear whether these banks , as a group or individually , will continue to submit the rates used to calculate libor after 2021. it is also unclear whether libor will continue to be viewed as an acceptable market benchmark , what rate or rates may become accepted alternatives to libor , or what the effect of any such changes may be on the markets for libor-indexed financial instruments . working groups comprised of various regulators and other industry groups have been formed in the united states and other countries in order to provide guidance on this topic . in particular , the alternative reference rates committee ( arrc ) has been formed in the united states by the federal reserve board and the federal reserve bank of new york . the arrc has identified the secured overnight financing rate ( sofr ) as its preferred alternative reference rate for u.s. dollar libor . the arrc has also published recommended fall-back language for libor-linked financial instruments , among numerous other areas of guidance . at this time , however , it is unclear whether these recommendations will be broadly accepted by industry participants , whether they will continue to evolve , and what impact they will ultimately have on the broader markets that utilize libor as a reference rate . united has loans , derivative contracts , borrowings , and other financial instruments that are directly or indirectly dependent on libor . the transition from libor will cause changes to payment calculations for existing contracts that use libor as the reference rate . these changes will create various risks surrounding the financial , operational , compliance and legal aspects associated with changing certain elements of existing contracts . united will also be subject to risks surrounding changes to models and systems that currently use libor reference rates , as well as market and strategic risks that could arise from the use of alternative reference rates . additionally , united could face reputational risks if this transition is not managed appropriately with its customers . story_separator_special_tag determining the allowance for loan losses requires management to make estimates of losses that are highly uncertain and require a high degree of judgment . at december 31 , 2019 , the allowance for loan losses was $ 77.1 million and is subject to periodic adjustment based on management 's assessment of current probable losses in the loan portfolio . such adjustment from period to period can have a significant impact on united 's consolidated financial statements . to illustrate the potential effect on the financial statements of our estimates of the allowance for loan losses , a 10 % increase in the allowance for loan losses would have required $ 7.7 million in additional allowance ( funded by additional provision for credit losses ) , which would have negatively impacted the year of 2019 net income by approximately $ 6.1 million , after-tax or $ 0.06 diluted per common share . management 's evaluation of the adequacy of the allowance for loan losses and the appropriate provision for loan losses is based upon a quarterly evaluation of the loan portfolio . this evaluation is inherently subjective and requires significant estimates , including estimates related to the amounts and timing of future cash flows , value of collateral , losses on pools of homogeneous loans based on historical loss experience , and consideration of qualitative factors such as current economic trends , all of which are susceptible to constant and significant change . the allowance allocated to specific credits and loan pools grouped by similar risk characteristics is 33 reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances . in determining the components of the allowance for loan losses , management considers the risk arising in part from , but not limited to , qualitative factors which include charge-off and delinquency trends , current economic and business conditions , lending policies and procedures , the size and risk characteristics of the loan portfolio , concentrations of credit , and other various factors . the methodology used to determine the allowance for loan losses is described in note a , notes to consolidated financial statements . a discussion of the factors leading to changes in the amount of the allowance for loan losses is included in the provision for loan losses section of this management 's discussion and analysis of financial condition and results of operations ( md & a ) . for a discussion of concentrations of credit risk , see item 1 , under the caption of loan concentrations in this form 10-k. investment securities accounting estimates are used in the presentation of the investment portfolio and these estimates impact the presentation of united 's financial condition and results of operations . united classifies its investments in debt as either held to maturity or available for sale . securities held to maturity are accounted for using historical costs , adjusted for amortization of premiums and accretion of discounts . securities available for sale are accounted for at fair value , with the net unrealized gains and losses , net of income tax effects , presented as a separate component of shareholders ' equity . when available , fair values of securities are based on quoted prices or prices obtained from third party vendors . third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data . prices obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . where prices reflect forced liquidation or distressed sales , as is the case with united 's portfolio of trust preferred securities ( trup cdos ) , management estimates fair value based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks . due to the subjective nature of this valuation process , it is possible that the actual fair values of these securities could differ from the estimated amounts , thereby affecting united 's financial position , results of operations and cash flows . the potential impact to united 's financial position , results of operations or cash flows for changes in the valuation process can not be reasonably estimated . if the estimated value of investments is less than the cost or amortized cost , the investment is considered impaired and management evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred , management must exercise judgment to determine the nature of the potential impairment ( i.e. , temporary or other-than-temporary ) in order to apply the appropriate accounting treatment . if united intends to sell , or is more likely than not they will be required to sell an impaired debt security before recovery of its amortized cost basis less any current period credit loss , other-than-temporary impairment is recognized in earnings . the amount recognized in earnings is equal to the entire difference between the security 's amortized cost basis and its fair value at the balance sheet date . if united does not intend to sell , and is not more likely than not they will be required to sell the impaired debt security prior to recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is separated into the following : 1 ) the amount representing the credit loss , which is recognized in earnings , and 2 ) the amount related to all other factors , which is recognized in other comprehensive income . for additional information on management 's consideration of investment valuation and other-than-temporary impairment , see note c and note v , notes to consolidated financial statements . accounting for acquired loans loans acquired are initially recorded at their acquisition date fair values . the fair value of the acquired loans is based on the present value of the expected cash flows , including principal , interest and prepayments .
| quarterly results net income for the first three months of 2019 was $ 63.64 million or $ 0.62 per diluted share compared to $ 61.71 million or $ 0.59 per share for the first three months of 2018. united 's annualized return on average assets for the first three months of 2019 was 1.34 % and return on average shareholders ' equity was 7.88 % as compared to 1.35 % and 7.65 % for the first three months of 2018. net interest income for the first three months of 2019 was $ 144.17 million , which was relatively flat from net interest income of $ 144.04 million for the first three months of 2018. the slight increase of $ 125 thousand in net interest income occurred because total interest income increased $ 21.91 million while total interest expense increased $ 21.79 million from the first quarter of 2018. the provision for credit losses was $ 5.00 million for the first three months of 2019 as compared to $ 5.18 million for the first three months of 2018. noninterest income was $ 31.22 million for the first three months of 2019 , which was relatively flat from the first three months of 2018 , increasing $ 31 thousand or less than 1 % . noninterest expense for the first three months of 2019 decreased $ 1.03 million or 1.14 % from the first three months of 2018. income taxes decreased $ 571 thousand or 3.19 % for the first three months of 2019 as compared to the first three months of 2018. the effective tax rate was 21.40 % and 22.48 % for the first quarter of 2019 and 2018 , respectively .
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there were no liabilities recorded at january 31 , 2016 or 2015 as the company did not believe that there was a probable and reasonably estimable loss associated with any legal contingencies . 58 16. net sales and revenue the following table summarizes sales for each product and service group for the periods presented ( amounts in thousands ) : replace_table_token_38_th all of the company 's ethanol and distillers grains are sold in the domestic market . the company 's distillers grains marketers make all decisions with regard to where products they purchase from the company are distributed . 17. quarterly unaudited information the following tables set forth the company 's net sales and revenue , gross profit , net income and net income per share ( basic and diluted ) for each quarter during the last two fiscal years . in the opinion of 59 management , all adjustments ( consisting of normal recurring accruals ) considered necessary for a fair presentation have been story_separator_special_tag overview we have been an investor in various alternative energy entities beginning with synthetic fuel partnerships in 1998 and later ethanol production facilities beginning in 2006. we currently have equity investments in three ethanol production entities , two of which we have a majority ownership interest . we may make additional alternative energy investments in the future . our ethanol operations are highly dependent on commodity prices , especially prices for corn , ethanol , distillers grains , non-food grade corn oil and natural gas . as a result of price volatility for these commodities , our operating results can fluctuate substantially . the price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general , including crop conditions , weather , federal policy and foreign trade . because the market price of ethanol is not always directly related to corn prices , at times ethanol prices may not follow movements in corn prices and , in an environment of higher corn prices or lower ethanol prices , reduce the overall margin structure at the plants . as a result , at times , we may operate our plants at negative or marginally positive operating margins . we expect our ethanol plants to produce approximately 2.8 gallons of denatured ethanol for each bushel of grain processed in the production cycle . we refer to the difference between the price per gallon of ethanol 22 and the price per bushel of grain ( divided by 2.8 ) as the โ crush spread. โ should the crush spread decline , our ethanol plants are likely to generate operating results that do not provide adequate cash flows for sustained periods of time . in such cases , production at the ethanol plants may be reduced or stopped altogether in order to minimize variable costs at individual plants . we attempt to manage the risk related to the volatility of grain and ethanol prices by utilizing forward grain purchase and forward ethanol , distillers grains and non-food grade corn oil sale contracts . we attempt to match quantities of these sale contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed . however , the market for future ethanol sales contracts is not a mature market . consequently , we generally execute fixed price contracts for no more than two months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time . as a result of the relatively short period of time our fixed price contracts cover , we generally can not predict the future movements in the crush spread for more than two months ; thus , we are unable to predict the likelihood or amounts of future income or loss from the operations of our ethanol facilities . the crush spread realized in fiscal year 2015 was subject to significant volatility . for fiscal year 2015 , the average chicago board of trade ( โ cbot โ ) near-month corn price ranged from a low of approximately $ 3.48 per bushel in june 2015 to a high of approximately $ 4.41 per bushel in july 2015. corn prices were favorably impacted throughout the year from the three strongest corn harvests in u. s. history in 2013 , 2014 and 2015 ( in order of strength of harvest production ) . ethanol prices had significant fluctuations ranging from approximately $ 1.31 per gallon in january 2016 to a high of approximately $ 1.69 per gallon in may 2015. ethanol prices were influenced by many factors throughout the year including low energy prices , particularly late in fiscal year 2015 and over-production of ethanol . the cbot crush spread during fiscal year 2015 ranged from approximately $ 0.02 in february 2015 to approximately $ 0.37 in may 2015. income from continuing operations , net of tax was approximately $ 31.4 million in fiscal year 2015 compared to approximately $ 86.8 million in fiscal year 2014. we sold our interest in patriot holdings , llc ( โ patriot โ ) effective june 1 , 2015 for an after tax gain of approximately $ 6.6 million . the gain and resulting loss of income from patriot using the equity method of accounting affects comparability between years . the decrease in profitability primarily resulted from lower crush spreads ( compared to the prior year ) experienced in the ethanol industry for a majority of fiscal year 2015 as lower energy prices and over supply of ethanol reduced ethanol pricing during fiscal year 2015. we expect that future operating results , from our consolidated plants , will be based upon combined annual production of between 215 and 240 million gallons of ethanol , which assumes that our consolidated ethanol plants will operate at or above nameplate capacity . story_separator_special_tag due to the inherent volatility of the crush spread , we can not predict the likelihood of future operating results from big river being similar to the fiscal year 2015 results . interest and other income โ interest and other income of approximately $ 0.6 million for fiscal year 2015 was consistent with the fiscal year 2014 amount . interest expense โ there was no interest expense for fiscal year 2015 compared to approximately $ 2.1 million for fiscal year 2014. this decrease was attributable to scheduled and accelerated principal repayments that paid off our debt balances in full during fiscal year 2014. gain ( loss ) on disposal of real estate and property and equipment , net โ we recognized gains of approximately $ 0.5 million in fiscal year 2015 compared to losses of approximately $ 0.2 million in fiscal year 2014. we sold three real estate properties in fiscal year 2015 classified in continuing operations while such sales were classified as discontinued operations in fiscal year 2014. the change in classification is a result of us adopting accounting standards update ( โ asu โ ) 2014-08 , โ reporting discontinued operations and disclosures of disposals of components of an entity โ ( โ asu 2014-08 โ ) . provision for income taxes โ our effective tax rate was 27.4 % and 32.5 % for fiscal years 2015 and 2014 , respectively . our effective rate is impacted by the noncontrolling interests of the companies we consolidate , as we recognize 100 % of their income or loss in continuing operations before income taxes and noncontrolling interests . however , we only provide an income tax provision or benefit for our portion of the subsidiaries ' income or loss with a noncontrolling interest . in addition , our effective rate was favorably impacted as state and local taxes decreased from 3.6 % to a benefit of 1.5 % primarily as a result of lower tax rates and apportionment in certain jurisdictions . income from continuing operations โ as a result of the foregoing , income from continuing operations was approximately $ 37.4 million for fiscal year 2015 versus approximately $ 103.2 million for fiscal year 2014 . 27 discontinued operations โ during fiscal year 2009 , we closed our remaining retail store and warehouse operations and reclassified all retail related results at that time as discontinued operations . income or loss from discontinued operations , net of taxes was insignificant for both fiscal years 2015 and 2014. we expect such income or loss to be insignificant for future periods . there was no gain on sale , net of taxes , during fiscal year 2015 compared to approximately $ 0.3 million , which was recognized for four properties classified as discontinued operations during fiscal year 2014. the change in classification is a result of us adopting asu 2014-08. we expect gain on sale of discontinued operations to be insignificant in future periods . noncontrolling interests โ income attributable to noncontrolling interests was approximately $ 6.0 million and $ 16.4 million during fiscal years 2015 and 2014 , respectively , and represents the owners ' ( other than us ) share of the income or loss of one earth , nugen and future energy . noncontrolling interests of one earth and nugen were approximately $ 6.0 million and $ 0.1 million , respectively , during fiscal year 2015. noncontrolling interests of one earth and nugen were approximately $ 16.2 million and $ 0.4 million , respectively , during fiscal year 2014. the loss related to noncontrolling interests of future energy was approximately $ 0.1 million and $ 0.2 million during fiscal years 2015 and 2014 , respectively . net income attributable to rex common shareholders โ as a result of the foregoing , net income attributable to rex common shareholders was approximately $ 31.4 million for fiscal year 2015 compared to $ 87.3 million for fiscal year 2014. comparison of fiscal years ended january 31 , 2015 and 2014 the following table summarizes selected operating data from one earth and nugen during periods of consolidation : replace_table_token_7_th net sales and revenue โ net sales and revenue in fiscal year 2014 were approximately $ 572.2 million , a 14.1 % decrease from approximately $ 666.0 million in fiscal year 2013. net sales and revenue do not include sales from operations classified as discontinued operations . ethanol sales decreased from approximately $ 500.2 million in fiscal year 2013 to approximately $ 452.8 million in fiscal year 2014 , primarily a result of a $ 0.20 decline in the price per gallon sold . dried distillers grains sales decreased from approximately $ 125.6 million in fiscal year 2013 to approximately $ 96.3 million in fiscal year 2014 , primarily a result of a $ 67.27 decrease in the price per ton sold . our non-food grade corn oil sales decreased from approximately $ 18.8 million in fiscal year 2013 to approximately $ 17.0 million in fiscal year 2014 , primarily a result of a $ 0.06 decline in the price per pound sold . our modified distillers grains sales decreased from approximately $ 19.0 28 million in fiscal year 2013 to approximately $ 4.8 million in fiscal year 2014 , primarily a result of a $ 51.44 decline in the price per ton sold and a decline of 89,500 tons sold . gross profit โ gross profit was approximately $ 141.9 million in fiscal year 2014 , or 24.8 % of net sales and revenue , versus approximately $ 64.3 million in fiscal year 2013 or 9.7 % of net sales and revenue . this represents an increase of approximately $ 77.6 million .
| results of operations comparison of fiscal years ended january 31 , 2016 and 2015 the following table summarizes selected data from our consolidated operations : replace_table_token_5_th net sales and revenue โ net sales and revenue in fiscal year 2015 were approximately $ 436.5 million , a 23.7 % decrease from approximately $ 572.2 million in fiscal year 2014. the following table summarizes sales of our consolidated operations for each product and service group for the periods presented ( amounts in thousands ) : replace_table_token_6_th ethanol sales decreased from approximately $ 452.8 million in the prior year to approximately $ 333.2 million in the current year , primarily a result of a $ 0.56 decline in the price per gallon sold . management believes the decline in the selling price results primarily from the historically low crude oil prices experienced in fiscal year 2015 and an oversupply of ethanol . dried distillers grains sales decreased from approximately $ 96.3 million in the prior year to approximately $ 81.1 million in the current year , primarily a result of a $ 20.50 decline in the price per ton sold . management believes the decline in the selling price results primarily from the lower grain prices experienced during fiscal year 2015. non-food grade corn oil sales decreased from approximately $ 17.0 million in the prior year to approximately $ 15.5 million in the current year , primarily a result of a $ 0.06 decline in the price per pound sold . modified distillers grains sales 25 increased from approximately $ 4.8 million in the prior year to approximately $ 6.0 million in the current year , primarily a result of a 19.5 % increase in tons sold .
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teledyne 's adoption of these new provisions , effective january 2 , 2012 , did not have an impact on our financial position or results of operations . note 3. business acquisitions , story_separator_special_tag teledyne technologies incorporated provides enabling technologies for industrial growth markets . we have evolved from a company that was primarily focused on aerospace and defense to one that serves multiple markets that require advanced technology and high reliability . these markets include deepwater oil and gas exploration and production , oceanographic research , air and water quality environmental monitoring , factory automation and medical imaging . our products include monitoring instrumentation for marine and environmental applications , harsh environment interconnects , electronic test and measurement equipment , digital imaging sensors and cameras , aircraft information management systems , and defense electronic and satellite communication subsystems . we also supply engineered systems for defense , space , environmental and energy applications . we differentiate ourselves from many of our direct competitors by having a customer and company sponsored applied research center that augments our product development expertise . strategy/overview our strategy continues to emphasize growth in our core markets of instrumentation , digital imaging , aerospace and defense electronics and engineered systems . our core markets are characterized by high barriers to entry and include specialized products and services not likely to be commoditized . we intend to strengthen and expand our core businesses with targeted acquisitions and through product development . we aggressively pursue operational excellence to continually improve our margins and earnings . at teledyne , operational excellence includes the rapid integration of the businesses we acquire . using complementary technology across our businesses and internal research and development , we seek to create new products to grow our company and expand our addressable markets . we continue to evaluate our businesses to ensure that they are aligned with our strategy . consistent with this strategy , we made five acquisitions in 2012 and three acquisitions in 2011 , as well as one significant divestiture in 2011. our largest acquisition in 2012 , lecroy corporation ( โ lecroy โ ) , broadened our portfolio of analytical instrumentation with the addition of electronic test and measurement solutions . we acquired varisystems inc. ( โ varisystems โ ) to expand our portfolio of rugged interconnect solutions . we acquired blueview technologies , inc. ( โ blueview โ ) principally to increase our instrumentation content on auvs and rovs used in oil and gas and marine survey applications . through the acquisition of a majority interest in the parent company of optech incorporated ( โ optech โ ) , we added 3d imaging capability to our portfolio of visible , x-ray and ultraviolet sensors , cameras , optech 's bathymetric lidar systems used for coastal mapping and shallow water profiling also complement our marine survey sensors and systems . the acquisition of the parent company of pdm neptec limited ( โ pdm neptec โ ) expanded our line of harsh environmental marine connectors . in 2011 , we focused on the expansion of our digital imaging capabilities first with the acquisition of dalsa corporation ( โ dalsa โ ) , followed by the acquisitions of a majority interest in nova sensors , inc. ( `` nova sensors '' ) and a minority interest investment in optech . in 26 april 2011 , we completed the sale of our general aviation piston engine businesses and consequently classified our aerospace engines and components segment as a discontinued operation . given the strength of our commercial businesses , as well as our strategic acquisitions , we were able to achieve record sales and earnings in 2012. in 2012 , sales and net income from continuing operations increased by 9.5 % and 13.9 % , respectively over 2011 results . earnings per share from continuing operations in 2012 increased 13.6 % over 2011. in 2012 , sales totaled $ 2,127.3 million , compared with sales of $ 1,941.9 million in 2011. net income for 2012 , excluding our discontinued operations , was $ 161.8 million or $ 4.33 per diluted share , compared with $ 142.1 million or $ 3.81 per diluted share in 2011. the increase in revenue included incremental sales from acquisitions of $ 180.7 million . our 2012 net income including discontinued operations totaled $ 164.1 million or $ 4.39 per diluted share , compared to $ 255.2 million or $ 6.84 per diluted share in 2011. in addition , each business segment experienced higher operating profit growth except for the aerospace and defense electronics segment . the operating profit decrease for the aerospace and defense electronics segment primarily reflected the impact of lower sales , as well as $ 1.7 million of severance and relocation costs , within certain electronic manufacturing service products businesses . with the recent acquisition of lecroy in 2012 and dalsa in 2011 , as well as growth in our commercial markets , our business mix has continued to change , and for 2012 , teledyne 's sales were approximately 68 % to commercial customers and 32 % to the u.s. government . this has changed from about 56 % commercial and 44 % government in 2010. our international sales also increased to 39 % of total sales in 2012 , compared to 29 % in 2010. we have worked to transform our product portfolio into that of a high technology industrial company that is less dependent on u.s. government business . recent acquisitions the company spent $ 389.2 million , $ 366.7 million and $ 67.9 million on acquisitions in 2012 , 2011 and 2010 , respectively . on august 3 , 2012 , teledyne acquired the stock of lecroy for $ 301.3 million , net of cash acquired . lecroy , headquartered in chestnut ridge , new york is a leading supplier of oscilloscopes , protocol analyzers and signal integrity test solutions . lecroy had sales of $ 178.1 million for its fiscal year ended june 30 , 2011 and is part of the instrumentation segment . story_separator_special_tag our four business segments and their respective percentage contributions to our total sales in 2012 , 2011 and 2010 are summarized in the following table : replace_table_token_5_th 28 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 1.4 % segment operating profit and other segment income 279.8 260.9 7.2 % corporate expense ( 36.7 ) ( 33.7 ) 8.9 % interest and debt expense , net ( 17.8 ) ( 16.2 ) 9.9 % other income , net 2.9 0.6 * income from continuing operations before income taxes 228.2 211.6 7.8 % provision for income taxes ( a ) 65.4 69.5 ( 5.9 ) % net income from continuing operations including noncontrolling interest 162.8 142.1 14.6 % discontinued operations , net of income taxes 2.3 113.1 * net income 165.1 255.2 ( 35.3 ) % less : net income attributable to noncontrolling interest ( 1.0 ) โ * net income attributable to teledyne $ 164.1 $ 255.2 ( 35.7 ) % * not meaningful ( a ) fiscal years 2012 and 2011 include net tax benefits of $ 5.4 million and $ 2.4 million , respectively , primarily related to the remeasurement of uncertain tax positions and an expiration of the statute of limitations in the united states . we reported 2012 sales of $ 2,127.3 million , compared with sales of $ 1,941.9 million for 2011 , an increase of 9.5 % . net income from continuing operations was $ 161.8 million ( $ 4.33 per diluted share ) for 2012 , compared with net income from continuing operations of $ 142.1 million ( $ 3.81 per diluted share ) for 2011 , an increase of 13.9 % . net income for 2012 and 2011 also included net tax credits of $ 5.4 million and $ 2.4 million , respectively . net income attributable to teledyne , including discontinued operations , was $ 164.1 million ( $ 4.39 per diluted share ) for 2012 , compared with $ 255.2 million ( $ 6.84 per diluted share ) for 2011. on april 19 , 2011 , teledyne completed the sale of its piston engines businesses and recorded a gain on the sale of $ 113.8 million . the increase in sales in 2012 , compared with 2011 , reflected substantially higher sales in both the instrumentation and digital imaging segments , partially offset by slightly lower sales in both the engineered systems and aerospace and defense electronics segments . sales in the instrumentation segment reflected $ 80.8 million from the acquisition of lecroy , as well as , higher sales of both marine and environmental instrumentation products . sales of marine products increased by $ 45.6 million or 12.2 % and included incremental sales of $ 8.0 million from the acquisitions of pdm and blueview . the increase in the digital imaging segment reflected $ 66.9 million in incremental revenue from recent acquisitions , primarily optech , nova sensors and dalsa . sales in the aerospace and defense electronics segment reflected lower sales for electronic manufacturing service products partially offset by higher sales of $ 12.4 million from avionics products and electronic relays , as well as greater sales of $ 15.3 million from microwave devices and interconnects . microwave devices and interconnects sales in 2012 included $ 25.0 million in revenue from the february 2012 acquisition of varisystems . the decrease in the engineered systems segment revenue reflected lower sales of space and defense programs as well as nuclear programs , partially offset by higher sales of energy systems and turbine engines . 29 the incremental increase in revenue in 2012 from businesses acquired in 2012 and in 2011 was $ 180.7 million . the increase in segment operating profit and other segment income for 2012 , compared with 2011 , reflected improved results in each operating segment except for the aerospace and defense electronics segment . the increase in operating profit primarily reflected the impact of acquisitions . the increase in operating profit also reflected the impact of higher sales for the instrumentation segment . the decrease in operating profit in the aerospace and defense electronics segment reflected the impact of lower sales , reduced margins , as well as $ 1.7 million of severance and relocation costs , within certain electronic manufacturing service products businesses . operating profit included incremental operating profit from acquisitions of $ 9.4 million , which included acquisition expenses of $ 7.1 million and intangible amortization of $ 5.3 million . lifo income was less than $ 0.1 million in 2012 compared with lifo expense of $ 0.9 million in 2011. the table below presents sales and cost of sales by segment and total company : replace_table_token_6_th consolidated cost of sales in total dollars increased by $ 88.4 million in 2012 , compared with 2011 , and primarily reflected $ 94.2 million in cost of sales from recent acquisitions and organic sales increases , partially offset by sales mix differences . cost of sales from recent acquisitions totaled $ 37.7 million for the instrumentation segment , $ 39.9 million for the digital imaging segment and $ 16.6 million for the aerospace and defense electronics segment . the instrumentation segment cost of sales increase reflected the impact of higher organic sales . the aerospace and defense electronics segment reflected the impact of lower organic sales . cost of sales as a percentage of sales for 2012 was 64.8 % , compared with 66.5 % for 2011. the lower cost of sales percentage reflected the impact of the lecroy and dalsa cost structure which has a lower cost of sales percentage than the overall teledyne cost of sales percentage . excluding the impact of recent acquisitions , cost of sales as a percentage of sales for 2012 would have been 66.7 % . selling , general and administrative expenses , including research and development and bid and proposal expense , in total dollars were higher in 2012 compared with 2011. the increase reflected the impact of higher sales , higher acquired intangible asset amortization of $ 3.7 million and higher research and development costs of $ 28.8
| results of operations 2012 compared with 2011 sales 2012 2011 % change ( in millions ) instrumentation $ 749.4 $ 616.6 21.5 % digital imaging 415.9 349.9 18.9 % aerospace and defense electronics 660.6 670.8 ( 1.5 ) % engineered systems 301.4 304.6 ( 1.1 ) % total sales $ 2,127.3 $ 1,941.9 9.5 % operating profit and other segment income 2012 2011 % change ( in millions ) instrumentation $ 136.2 $ 122.8 10.9 % digital imaging 24.8 16.1 54.0 % aerospace and defense electronics 90.3 93.9 ( 3.8 ) % engineered systems 28.5 28.1 < font
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as a condition to the closing of the merger , on september 11 , 2007 , old nile completed a financing whereby it received gross proceeds of $ 19,974,747 through the sale of 6,957,914 shares of common stock in a private placement to certain qualified investors . issuance costs related to the financing were $ 102,000 . contemporaneously with the financing , story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report . this discussion includes forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under โ risk factors โ in item 1a of this annual report , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a development stage , biopharmaceutical company developing innovative products for the treatment of cardiovascular and renal diseases , with an initial focus on heart failure . we currently have exclusive rights to develop two drug candidates : 28 ยท cenderitide ( formerly cd-np ) , our lead product candidate , is a chimeric natriuretic peptide that we are developing for the treatment of heart failure . to date , we have developed cenderitide for the treatment of patients for up to 90 days following admission for acutely decompensated heart failure , or adhf . we refer to this setting as the โ post-acute โ period . in 2011 , we completed a 58-patient phase 1 clinical trial of cenderitide in the post-acute setting . we conducted this clinical trial in collaboration with medtronic , inc. , delivering cenderitide through continuous intravenous infusion using medtronic 's pump technology . following that phase 1 clinical trial , we had planned to initiate a phase 2 clinical trial of cenderitide , pending availability of capital resources . however , to date we have been unable to raise the capital necessary to conduct the next phase of development of cenderitide . any further development of cenderitide is subject to our ability to either raise additional capital or enter into a strategic transaction in which an acquirer or strategic partner provides the capital necessary to continue development activities . in addition to treating heart failure , we believe cenderitide may be useful in several other cardiovascular and renal indications . ยท cu-np , is a pre-clinical rationally designed natriuretic peptide that consists of amino acid chains identical to those produced by the human body , specifically the ring structure of c-type natriuretic peptide , or cnp , and the n- and c-termini of urodilatin , or uro . all development of cu-np is on hold pending the results of our efforts to pursue strategic alternatives we have no product sales to date and we will not generate any product revenue until we receive approval from the u.s. food and drug administration , or the fda , or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates . developing pharmaceutical products is a lengthy and very expensive process . even if we obtain the capital necessary for us to continue the development of our product candidates , whether through a strategic transaction or otherwise , we do not expect to complete the development of a product candidate for several years , if ever . to date , most of our development expenses have related to our lead product candidate , cenderitide . to the extent we proceed with the clinical development of cenderitide and if we further develop cu-np , our second product candidate , our research and development expenses will continue increasing . accordingly , our success depends not only on the safety and efficacy of our product candidates , but also on our ability to finance the development of the products . our major sources of working capital have been proceeds from public and private sales of our equity and debt securities . research and development , or r & d , expenses consist primarily of salaries and related personnel costs , fees paid to consultants and outside service providers for pre-clinical , clinical , and manufacturing development , legal expenses resulting from intellectual property prosecution , contractual review , and other expenses relating to the design , development , testing , and enhancement of our product candidates . we expense our r & d costs as they are incurred . general and administrative , or g & a , expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , personnel recruiting fees , accounting , legal and other professional fees , business development expenses , rent , business insurance and other corporate expenses . our results include non-cash compensation expense as a result of the issuance of stock , stock options , and warrants . we expense the fair value of stock options and warrants over the vesting period . when more precise pricing data is unavailable , we determine the fair value of stock options using the black-scholes option-pricing model . the terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee . generally , the awards vest based upon time-based or performance-based conditions . performance-based conditions generally include the attainment of goals related to our financial performance and product development . stock-based compensation expense is included in the respective categories of expense in the statements of operations . we expect to record additional non-cash compensation expense in the future , which may be significant . story_separator_special_tag field : page ; sequence : 30 ; value : 2 -- > 30 our total cash resources as of december 31 , 2012 were $ 0.05 million , compared to $ 1.0 million as of december 31 , 2011. as of december 31 , 2012 , we had approximately $ 0.4 million in liabilities , of which , approximately $ 0.1 relates to the non-cash warrant liability , and $ 0.2 million in net working capital deficit . story_separator_special_tag the closing of the private placement also occurred on march 15 , 2013 , and resulted in the sale of notes in the aggregate principal amount of $ 450,000 for an aggregate original issue price of $ 382,500 . 31 the notes , which have a maturity date of march 15 , 2014 , do not bear interest and may be prepaid by us without penalty upon 30 days ' written notice , on the terms set forth in the notes . the notes are secured by a blanket lien on our assets pursuant to a security agreement dated march 15 , 2013. upon a change of control ( as defined in the notes ) in which either ( i ) the outstanding shares of our common stock are exchanged for securities of another corporation , or ( ii ) we issue shares of common stock , with no securities or other consideration paid or payable to holders of our common stock ( e.g. , a merger transaction in which we acquire another corporation in exchange for shares of our common stock ) , then ( a ) the entire unpaid principal under the applicable note shall automatically convert , as of immediately prior to the effective time of the change of control , into shares of our common stock at a conversion price per share equal to the closing price ( as defined in the notes ) on the effective date of the change of control , and ( b ) we shall also issue to each note holder a five-year warrant entitling the holder to purchase , at an exercise price equal to the closing price on the effective date of the change of control , that number of shares of our common stock obtained by dividing ( a ) the sum of the outstanding principal under the applicable note by ( b ) the closing price on the effective date of the change of control . upon a change of control other than as described in the preceding paragraph , we shall pay to each note holder an amount in cash equal to 175 % of the principal amount then outstanding under the applicable note . upon payment of such amount to the note holders , all of the obligations under the notes shall be deemed paid and satisfied in full . april 2012 financing . on march 30 , 2012 , we entered into subscription agreements with certain purchasers pursuant to which we agreed to sell an aggregate of 3,350,000 shares of our common stock to such purchasers for a purchase price of $ 0.40 per share . in addition , for each share purchased , each purchaser also received three-fourths of a five-year warrant to purchase an additional share of common stock at an exercise price of $ 0.50 per share , resulting in the issuance of warrants to purchase an aggregate of 2,512,500 shares of our common stock . the total gross proceeds from the offering were $ 1.34 million , before deducting anticipated selling commissions and expenses of approximately $ 0.2 million . the offer and sale of these securities was registered under our form s-3 shelf registration statement declared effective in march 2010. the closing of the offering occurred april 4 , 2012. in connection with the offering , we engaged roth capital partners , llc , or roth , to serve as placement agent . pursuant to the terms of the placement agent agreement , we agreed to pay roth a cash fee equal to seven percent of the gross proceeds received by us , or approximately $ 93,800 , plus a non-accountable expense allowance of $ 35,000. richard b. brewer , our former executive chairman , joshua a. kazam , our former president and chief executive officer and a director , daron evans , our chief financial officer , and hsiao lieu , m.d. , our former executive vp of clinical development , participated in the offering on the same terms as the unaffiliated purchasers , and collectively purchased 275,000 shares of our common stock and warrants to purchase 206,250 shares of our common stock for an aggregate purchase price of $ 110,000. june 2011 financing . on june 20 , 2011 , we sold in a private placement offering a total of 5,000,000 units of our securities at an offering price of $ 0.50 per unit . each unit contained one share of common stock and 0.50 warrants to purchase one share of common stock at an exercise price of $ 0.60 per share . we may call the warrants for redemption upon 30 days ' notice if the volume weighted average price of the common stock for any 20 consecutive business days is equal to or greater than $ 1.50 per share . the total gross proceeds from the 2011 offering were $ 2.5 million , before deducting selling commissions and expenses , which were approximately $ 0.2 million . the closing of the private placement occurred on june 23 , 2011. pursuant to the purchase agreement , the company agreed to file a registration statement with the securities and exchange commission seeking to register the resale of the shares and warrant shares . the registration statement was filed on july 22 , 2011. in connection with the private placement offering , we engaged riverbank capital securities , inc. ( or โ riverbank โ ) to serve as placement agent , and ladenburg thalmann & co. inc. served as a sub-placement agent . pursuant to the terms of the engagement agreement , we paid the placement agents a cash fee of $ 175,000 and issued warrants to purchase 250,000 shares of common stock , valued at $ 99,100. peter m. kash , a director , and joshua a. kazam , our former president and chief executive officer and a director , are each officers of riverbank . dr. kash was allocated a portion of the warrants issuable to the placement agents .
| results of operations general and administrative expenses . g & a expenses for the years ended december 31 , 2012 and 2011 were approximately $ 1.6 million and $ 2.1 million , respectively . this decrease of approximately $ 0.5 million compared to the same period of 2011 is primarily attributable to a decrease of approximately $ 0.2 million in compensation costs , primarily from reduced stock compensation expense . additionally , there was a reduction in professional fees of approximately $ 0.2 compared to the same period of 2011 from requiring less services from outside consultants due to limited operations . additionally , there was an approximately $ 0.1 million savings compared to the same period in 2011 as a result of no longer being listed on the nasdaq as of may 2011. research and development expenses . r & d expenses for the years ended december 31 , 2012 and 2011 were approximately $ 1.0 million and $ 4.1 million , respectively . this decrease of approximately $ 3.1 million over the same period of 2011 is primarily due to the fact that during 2011 , the company was actively conducting clinical development activities of cenderitide and in 2012 , the company was winding down clinical activities and had almost no development activities for most of the year . this resulted in a decrease of approximately $ 2.4 million in development costs . additionally , we had a reduction of approximately $ 0.5 million in compensation costs , including stock compensation , compared to 2011 due to having no r & d employees for approximately half of 2012 , compared to one employee during all of 2011. there was also a reduction in r & d professional fees of approximately $ 0.2 million compared to 2011 as a result of the decrease in r & d activities . cenderitide ( formerly cd-np ) .
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the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. we make statements in this section that are forward-looking statements within the meaning of the federal securities laws . for a complete discussion of forward-looking statements , see the section in this report entitled โ forward-looking statements . โ certain risks may cause our actual results , performance or achievements to differ materially from those expressed or implied by the following discussion . for a discussion of such risk factors , see the section in this report entitled โ risk factors . โ overview vereit is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the u.s. the company has 4,091 retail , restaurant , office and industrial operating properties with an aggregate 94.4 million square feet , of which 98.8 % was leased as of december 31 , 2017 , with a weighted-average remaining lease term of 9.5 years . prior to the fourth quarter of 2017 , we operated through two business segments , our real estate investment segment and our investment management segment , cole capital , which sponsored and managed non-listed real estate investment trusts . on november 13 , 2017 , we entered into the cole capital purchase and sale agreement to sell substantially all of the cole capital segment . the sale closed on february 1 , 2018. substantially all of the cole capital segment is presented as discontinued operations and the company 's remaining financial results are reported as a single segment for all periods presented . see note 5 โ discontinued operations , for further information on the sale of cole capital . effective january 1 , 2017 , we determined that adjusted funds from operations ( โ affo โ ) , a non-gaap measure , and our real estate portfolio and economic metrics , should exclude the impact of properties owned by the company for the month beginning with the date that ( i ) the properties ' related mortgage loan is in default and ( ii ) management decides to transfer the properties to the lender in connection with settling the mortgage note obligation , and ending with the disposition date ( `` excluded properties '' ) , to better reflect our ongoing operations . excluded properties during the year ended december 31 , 2017 , were two vacant office properties and five industrial properties , two of which were vacant . excluded properties at december 31 , 2017 , included one vacant industrial property , comprised of 307,275 square feet , which secured a mortgage note payable , with debt outstanding of $ 16.2 million . the company did not update data presented for prior periods for this change as it determined the impact on our prior periods was immaterial . our business environment and current outlook current conditions in the global capital markets remain volatile as the world 's economic growth has been affected by geopolitical and economic events . in the united states , the overall economic environment continued to improve in 2017. during 2017 , the u.s. real gross domestic product increased 2.3 % , the unemployment rate decreased 0.6 percentage points to 4.1 % , and core cpi , a measure of inflation which removes food & energy prices and is seasonally adjusted , increased 1.8 % , as compared to the same period a year earlier . economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth , interest rate levels , the cost and availability of credit and the impact of tax and regulatory policies . critical accounting policies and significant accounting estimates our accounting policies have been established to conform with u.s. gaap . the preparation of financial statements in conformity with u.s. gaap requires us to use judgment in the application of accounting policies , including making estimates and assumptions . these judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods . management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition . we continually test and evaluate these estimates and assumptions using our historical knowledge of the business , as well as other factors , to ensure that they are reasonable for reporting purposes . however , actual results may differ from these estimates and assumptions . if our judgment or interpretation of the facts and circumstances relating to the various transactions had been different , it is possible that different accounting policies would have been applied , thus resulting in a different presentation of the financial statements . additionally , other companies may utilize different assumptions or estimates that may impact comparability of our results of operations to those of companies in similar businesses . we believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements , which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in โ note 2 โ summary of significant accounting policies โ to our consolidated financial statements . 33 goodwill impairment we evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable . we adopted asu 2017-04 , intangibles โ goodwill and others ( topic 350 ) : simplifying the test for goodwill impairment ( โ asu 2017-04 โ ) , which simplifies the measurement of goodwill impairment by eliminating step 2 from the goodwill impairment test ( comparing the implied fair value of goodwill with the carrying amount of goodwill ) . story_separator_special_tag disposed of 137 properties , including six properties relinquished by foreclosure or deed-in-lieu of foreclosure transactions , for an aggregate sales price of $ 594.9 million , of which our share was $ 574.4 million , resulting in consolidated proceeds of $ 445.5 million after a mortgage loan assumption and closing costs , including 15 properties disposed of in connection with a nonmonetary exchange . total secured debt decreased by $ 579.9 million , from $ 2.7 billion to $ 2.1 billion . closed 2017 bond offering of $ 600.0 million and repaid all of the outstanding borrowings under our $ 500.0 million credit facility term loan . declared a quarterly dividend of $ 0.1375 per share of common stock for each quarter of 2017 , representing an annualized dividend rate of $ 0.55 per share . entered into a purchase and sale agreement to sell substantially all of cole capital . 35 real estate portfolio metrics in managing our portfolio , we are committed to diversification by property type , tenant , geography and industry . below is a summary of our operating property type diversification and our top ten concentrations as of december 31 , 2017 , based on annualized rental income of $ 1.2 billion , 36 our financial performance is influenced by the timing of acquisitions and dispositions and the operating performance of our real estate properties . the following table shows the property statistics of our operating properties , excluding properties owned through our unconsolidated joint ventures as of december 31 , 2017 , 2016 and 2015 : replace_table_token_2_th ( 1 ) omits the impact , if any , of the excluded properties . ( 2 ) economic occupancy rate equals the sum of square feet leased ( including space subject to month-to-month agreements ) divided by total square feet . ( 3 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's financial services llc or a credit rating of baa3 or higher by moody 's investor service , inc. the ratings may reflect those assigned by standard & poor 's financial services llc or moody 's investor service , inc. to the lease guarantor or the parent company , as applicable . the following table shows the economic metrics of our operating properties , excluding properties owned through our unconsolidated joint ventures , as of december 31 , 2017 , 2016 and 2015 : replace_table_token_3_th ( 1 ) omits the impact , if any , of the excluded properties . ( 2 ) based on annualized rental income of our real estate portfolio as of december 31 , 2017 . ( 3 ) through the end of the next five years as of the respective reporting date . 37 operating performance in addition , management uses the following financial metrics to assess our operating performance ( dollar amounts in thousands , except per share amounts ) . data presented includes both continuing operations , which primarily represent the company 's real estate operations , and discontinued operations , which represent substantially all of cole capital , except as otherwise indicated . replace_table_token_4_th ( 1 ) represents continuing operations as presented on the statement of operations in accordance with gaap . ( 2 ) see โ note 18 โ net income ( loss ) per share/unit โ for calculation of net income ( loss ) per share . ( 3 ) see the โ non-gaap measures โ section below for descriptions of our non-gaap measures and reconciliations to the most comparable u.s. gaap measure . 38 property financing our mortgage notes payable consisted of the following as of december 31 , 2017 , 2016 and 2015 ( dollar amounts in thousands ) : replace_table_token_5_th _ ( 1 ) mortgage notes payable have fixed rates or are fixed by way of interest rate swap arrangements . effective interest rates ranged from 3.1 % to 7.2 % at december 31 , 2017 , 2.00 % to 7.75 % at december 31 , 2016 , and 3.10 % to 10.68 % at december 31 , 2015 . ( 2 ) weighted average interest rate is computed using the interest rate in effect until the anticipated repayment date . should the loan not be repaid at the anticipated repayment date , the applicable interest rate would increase as specified in the respective loan agreement until the extended maturity date . ( 3 ) weighted average years remaining to maturity is computed using the anticipated repayment date as specified in each loan agreement , where applicable . ( 4 ) omits the excluded property and the related outstanding loan amount of $ 16.2 million and interest rate of 9.48 % . in addition , we have financing which is not secured by interests in real property , which is described under โ liquidity and capital resources . โ future lease expirations the following is a summary of lease expirations for the next 10 years and beyond at the operating properties we owned as of december 31 , 2017 ( dollar amounts and square feet in thousands ) : replace_table_token_6_th _ ( 1 ) the company has certain leases comprised of multiple properties . 39 results of operations prior to the fourth quarter of 2017 , the company operated through two business segments , the real estate investment segment and the investment management segment , cole capital . on november 13 , 2017 , the company entered into a purchase and sale agreement to sell substantially all of the cole capital segment . the sale closed on february 1 , 2018. substantially all of the cole capital segment is presented as discontinued operations and the company 's remaining financial results are reported as a single segment for all periods presented . the company 's continuing operations represent primarily those of the real estate investment segment .
| summary of significant accounting policies โ to our consolidated financial statements , acquisition-related expenses consist primarily of internal salaries allocated to acquisition-related activities and costs incurred for deals that were not consummated . 2017 vs 2016 - the increase of $ 2.1 million in acquisition-related expenses for the year ended december 31 , 2017 , as compared to the same period in 2016 was primarily due to an increase in allocated internal salaries resulting from time spent on acquiring commercial properties during the year ended december 31 , 2017 . the company resumed property acquisitions in the fourth quarter of 2016 and acquired 88 properties and three land parcels for an aggregate purchase price of $ 748.8 million during the year ended december 31 , 2017 . 2016 vs 2015 - the company acquired an interest in eight commercial properties for a purchase price of $ 100.2 million during the year ended december 31 , 2016 as compared with the acquisition of 16 properties for an aggregate purchase price of $ 36.3 million during the year ended december 31 , 2015 . the decrease in acquisition related expenses of $ 4.9 million during the year 40 ended december 31 , 2016 was due to a decrease in costs incurred for deals that were not consummated and fewer properties acquired in 2016 . litigation , merger and other non-routine costs , net of insurance recoveries 2017 vs 2016 - the increase of $ 44.1 million during the year ended december 31 , 2017 as compared to the same period in 2016 was due to an increase of $ 25.2 million in legal fees incurred related to the audit committee investigation and related litigation and investigations during the year ended december 31 , 2017 as compared to the same period in 2016 .
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gross margin for the year ended december 31 , 2018 was 18.0 % , an increase from 14.0 % for the year ended december 31 , 2017. we recorded a net loss of $ 5,694,699 in 2018 compared to a net loss of $ 28,347,474 in 2017 , a decrease of net loss of $ 22,652,775 or 79.9 % , largely due to the increased gross profits , the decreased r & d expenses and the receipt of the remaining portion of subsidies this year from hainan provincial government to assist our development of k23 model in 2017 and 2016. over the next 12 months , we plan to continue to market and sell our current products and to develop new products to meet market demand and penetrate domestic and international market . 2019 will be the implementation year for a decline in subsidies for new energy vehicles . the chinese government 's subsidy for new energy vehicles has continued to decline compared to past years . however , as of the date of this report , the new government policy regarding state subsidies for new energy vehicles has not yet been released . the chinese government has not made clear the extent to which new energy vehicle subsidies will decline . the company can not predict in the coming year whether the declining levels of national new energy vehicle subsidies will be made up by the scale effect of production , a reduction of the purchase price of key parts , or tightened control of manufacturing costs . this may also present greater challenges to the jv company 's operations . therefore , changes in government support policies may have a significant adverse impact on the company 's business prospects , operating results , cash flow and profitability in the coming years . to weather the challenging market situation , we intend to continue to strengthen our technical abilities , improve our core competitiveness , and enhance our brand image to broaden our customer base and increase our market share . story_separator_special_tag approximately 8.5 % of our total net revenue and our go-kart business accounted for approximately 3.3 % of our total net revenue . 28 the following table shows the breakdown of our net revenues : replace_table_token_8_th cost of goods sold cost of goods sold for the year ended december 31 , 2018 was $ 92,191,383 , representing an increase of $ 3,729,951 , or 4.2 % , from $ 88,461,432 for the year ended december 31 , 2017 and a decrease of $ 19,578,814 , or 17.5 % , from $ 111,770,197 for the year ended december 31 , 2016. the change was primarily due to the corresponding increase in sales from 2017 and decrease in sales from 2016. please refer to the gross profit section below for product margin analysis . gross profit our margins by product for the past three years are as set forth below : replace_table_token_9_th 29 gross profit for the year ended december 31 , 2018 was $ 20,247,445 , as compared to $ 14,344,189 for the year ended december 31 , 2017 , and $ 17,721,816 for the year ended december 31 , 2016 , representing an increase of $ 5,903,256 or 41.2 % from 2017 and an increase of $ 2,525,629 or 14.3 % from 2016. the increases were primarily attributable to the increased margin in 2018 as compared to that in 2017 and 2016. our gross margin for the year ended december 31 , 2018 , was 18.0 % , compared to 14.0 % for the year ended december 31 , 2017 , and 13.7 % for the year ended december 31 , 2016. the increase in our gross margin as compared to 2017 and 2016 was mainly due to the higher gross margin from off-road vehicle sales of sc autosports , a result of its effective procurement of inventories at discounted prices , as well as increased gross margin from sales of battery packs . research and development research and development expenses , including materials , labor , equipment depreciation , design , testing , inspection , and other related expenses totaled $ 10,084,378 for the year ended december 31 , 2018 , compared to $ 27,628,085 for the year ended december 31 , 2017 , and $ 26,504,650 for the year ended december 31 , 2016 , representing a decrease of $ 17,543,707 , or 63.5 % , from 2017 and a decrease of $ 16,420,272 , or 62.0 % , from 2016. this decrease was primarily due to the completion of r & d works related to the development of ev model k23 at hainan facility this year . for the year ended december 31 , 2018 , 2017 and 2016 , approximately 66.2 % , 94.2 % and 94.0 % of our research and development expenses were spent on the research and development of ev product model at hainan facility , respectively , and the rest was spent on other various ev and off-road vehicles research and development projects . sales and marketing selling and distribution expenses were $ 3,189,022 for the year ended december 31 , 2018 , compared to $ 1,465,007 for the year ended december 31 , 2017 , and $ 1,567,707 for the year ended december 31 , 2016 , representing an increase of $ 1,724,015 , or 117.7 % , from 2017 and an increase of $ 1,621,315 , or 103.4 % , from 2016. this increase was primarily attributable to the increase in product maintenance expenses for ev drive motors and ev controllers , and the increase in shipping costs and sales labor compared to 2017 and 2016. the additional sales and marketing expenses from newly acquired sc autosports also contributed to this increase . story_separator_special_tag other income ( expense ) , net net other income was $ 956,839 for the year ended december 31 , 2018 , compared to net other income of $ 123,925 for the year ended december 31 , 2017 , and net other income of $ 1,627,933 for the year ended december 31 , 2016 , an increase in net other income of $ 832,914 from 2017 and a decrease in net other income of $ 671,094 from 2016. the increase from 2017 was primarily due to the fees earned on technology development services in 2018. the decrease as compared to 2016 was largely due to fewer fees earned on technology development services , which was $ 0.7 million in 2018 as compared to $ 1.4 million in 2016. income taxes in accordance with the relevant chinese tax laws and regulations , our applicable corporate income tax rate is 25 % . however , kandi vehicle is qualified as a high technology company in china and is therefore entitled to use a reduced income tax rate of 15 % . each of our wholly-owned subsidiaries , kandi new energy , yongkangscrou kandi hainan and jinhua an kao , has an applicable chinese corporate income tax rate of 25 % . sc autosports is a dallas texas based company , which has an applicable u.s. corporate income tax rate of 21 % . despite the fact that jinhua ankao was identified as zhejiang national hi-tech enterprise in november 30 , 2018 , with certificate number of cr201833000715 , jinhua ankao was still subject to 25 % of chinese corporate income tax rate as the formal certificate is still pending . once the formal certificate is received , the tax rate will be adjusted to 15 % of corporate income tax rate for jinhua an kao . 32 we have a 50 % ownership interest in the jv company , which has an applicable chinese corporate income tax rate of 25 % . each of the jv company 's subsidiaries has an applicable corporate income tax rate of 25 % . our actual effective income tax rate for 2018 was a tax expense of 374.30 % on a reported income before taxes of $ 2.1 million , compared to an effective income tax rate with a tax benefit of 10.32 % in 2017 on a reported loss before taxes of $ 31.6 million . the increased effective tax rate was due to valuation allowance of hainan 's deferred tax assets because it had three-year accumulative loss in construction period . net income ( loss ) we recorded net loss of $ 5,694,699 for the year ended december 31 , 2018 , compared to net loss of $ 28,347,474 for the year ended december 31 , 2017 , and net loss of $ 6,510,757 for the year ended december 31 , 2016 , a decrease of net loss of $ 22,652,775 from the year ended december 31 , 2017 and a decrease of net loss of $ 816,058 from the year ended december 31 , 2016. the decrease in net loss compare to 2017 was primarily attributable to the increased gross profits , the decreased r & d expenses and the increased government grant we received this year , offset by increased income tax expense . the decrease in net loss compare to 2016 was primarily attributable to the decreased r & d expenses and decreased stock compensation expense , offset by increased income tax expense . if excluding ( i ) the effects of stock award expenses , which were $ 2,930,486 net of a reversal for forfeited stock options of $ 2,644,877 , $ 5,191,307 and $ 14,959,687 for the years ended december 31 , 2018 , 2017 and 2016 , respectively , and ( ii ) the change in the fair value of financial derivatives , which were gains of $ 0 , $ 0 and $ 3,823,590 for the years ended december 31 , 2018 , 2017 and 2016 , respectively , ( iii ) the change in the fair value of contingent consideration which was a gain of $ 3,405,864 , $ 0 and $ 0 for the years ended december 31 , 2018 , 2017 and 2016 , respectively , our net loss ( non-gaap ) was $ 8,814,954 for the year ended december 31 , 2018 , as compared to net loss ( non-gaap ) of $ 23,156,167 for the year ended december 31 , 2017 , a decrease loss of $ 14,341,213 , and compared to net income ( non-gaap ) of $ 4,625,340 for the year ended december 31,2016 , a decrease income of $ 13,440,294. the decrease in net loss ( non-gaap ) compare to 2017 was primarily attributable to the increased gross profits , the decreased r & d expenses and the increased government grant we received this year , offset by increased income tax expense . the decrease in net income ( non-gaap ) compare to 2016 was primarily attributable to the increased share of loss after tax of the jv company offset by decreased r & d expenses . we make reference to certain non-gaap financial measures , i.e. , adjusted net income . management believes that such adjusted financial results are useful for investors in evaluating our operating performance because they present a meaningful measure of corporate performance . see the non-gaap reconciliation table below . any non-gaap measures should not be considered as a substitute for , and should only be read in conjunction with , measures of financial performance prepared in accordance with gaap .
| results of operations comparison of years ended december 31 , 2018 , 2017 and 2016 the following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of operations for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_6_th 27 revenues for the year ended december 31 , 2018 , we had net revenues of $ 112,438,828 compared to net revenues of $ 102,805,621 for the year ended december 31 , 2017 and $ 129,492,013 for the year ended december 31 , 2016 , representing an increase of $ 9,633,207 , or 9.4 % , from 2017 and a decrease of $ 17,053,185 , or 13.2 % , from 2016 , respectively . compared to 2017 , the increase in revenue was primarily due to the increase in sales of off-road vehicles during 2018. compared to 2016 , the decrease in revenue for the year ended december 31 , 2018 , was primarily due to a decrease in ev parts sales , in both average selling price and sales volume . the following table summarizes our revenues by product type for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_7_th ev parts during the year ended december 31 , 2018 , our revenue from the sale of ev parts was $ 99,099,312 , representing an increase of $ 1,743,484 or 1.8 % from $ 97,355,828 for the year ended december 31 , 2017 and a decrease of $ 20,980,000 or 17.5 % from $ 120,079,312 for the year ended december 31 , 2016 , respectively . our revenue for the year ended december 31 , 2018 primarily consisted of the sales of battery packs , body parts , ev drive motors , ev controllers , air conditioning units and other auto parts for use in the ev products manufactured by the jv company , which accounted for 88.1 % of total sales .
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except for the historical information contained herein , the matters discussed this md & a may be deemed to be forwardโlooking statements that involve risks and uncertainties . we make such forwardโlooking statements pursuant to the safe harbor provisions of the private securities litigation reform act of 1995 and other federal securities laws . words such as โ may , โ โ expect , โ โ anticipate , โ โ estimate , โ โ intend , โ and similar expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) are intended to identify forwardโlooking statements . our actual results and the timing of certain events may differ materially from the results discussed , projected , anticipated , or indicated in any forwardโlooking statements . we caution you that forwardโlooking statements are not guarantees of future performance and that our actual results of operations , financial condition and liquidity , and the development of the industry in which we operate may differ materially from the forwardโlooking statements contained in this md & a . in addition , even if our results of operations , financial condition and liquidity , and the development of the industry in which we operate are consistent with the forwardโlooking statements contained in this md & a , they may not be predictive of results or developments in future periods . we caution readers not to place undue reliance on any forwardโlooking statements made by us , which speak only as of the date they are made . we disclaim any obligation , except as specifically required by law and the rules of the sec , to publicly update or revise any such statements to reflect any change in our expectations or in events , conditions or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those set forth in the forwardโlooking statements . overview we are a leader in the field of gene therapy , seeking to develop single treatments with potentially curative results for patients suffering from genetic and other devastating diseases . we are advancing a focused pipeline of innovative gene therapies that have been developed both internally and through partnerships , such as our collaboration with bristol myers-squibb focused on cardiovascular diseases . we have established clinical proof-of-concept in our lead indication , hemophilia b , and achieved preclinical proof-of-concept in huntington 's disease . we believe our validated technology platform and manufacturing capabilities provide us distinct competitive advantages , including the potential to reduce development risk , cost and time to market . we produce our aav-based gene therapies in our own facilities with a proprietary , commercial-scale , gmp-compliant , manufacturing process . we believe our lexington , massachusetts-based facility is one of the world 's leading , most versatile , gene therapy manufacturing facilities . business developments below is a summary of our recent significant business developments : hemophilia b program on october 19 , 2017 , we announced that following multi-disciplinary meetings with the fda and the ema , we plan to expeditiously advance amt-061 , which combines an aav5 vector with the fix-padua mutant , into a pivotal study in mid 2018 for patients with severe and moderately severe hemophilia b. the study is expected to be an open-label , single-dose , multi-center , multi-national trial investigating the efficacy and safety of amt-061 administered to adult patients with severe or moderately severe hemophilia b. we have initiated production of multiple clinical-grade batches of amt-061 in our state-of-the-art lexington , ma manufacturing facility . material is being produced at commercial scale and utilizing current good manufacturing practices ( โ cgmp โ ) . we also announced on october 19 , 2017 , that we have acquired a patent family that broadly covers the fix- 53 padua variant and our use in gene therapy for the treatment of coagulopathies , including hemophilia b. this family includes a patent issued in the u.s. , as well as pending patent applications in europe and canada . huntington program ( amt-130 ) on april 26 , 2017 , we presented new preclinical data on amt-130 amt-130 comprises an aav5 vector carrying a dna cassette encoding an engineered microrna that silences the human huntingtin protein . at the 12th annual chdi huntington 's disease therapeutics conference in malta . data from the study showed widespread and distribution of the aav5 vector throughout the brain and extensive silencing of the human mutant huntingtin gene ( โ htt โ ) in mini pigs , which are among the largest huntington 's disease animal models available for testing . the study demonstrated that a single administration of aav5-mihtt resulted in significant reductions in htt mrna in all regions of the brain transduced by amt-130 , as well as in the cortex . consistent with the reduction in htt mrna , a clear dose-dependent reduction in mutant huntingtin protein levels in the brain was observed , with similar trends in the cerebral spinal fluid . in september 2017 , amt-130 received orphan drug designation from the u.s. food and drug administration . also in september 2017 , we initiated our glp toxicology study in non-human primates with amt-130 . we expect to complete this study and file an ind with the fda by the end of 2018. on october 18 , 2017 , we presented new preclinical data on amt-130 at the european society of gene and cell therapy ( โ esgct โ ) 25th anniversary congress in berlin , germany . data from the study demonstrated that following administration of amt-130 in huntington 's disease mouse models , significant improvements in both motor-coordination and survival were observed , as well as a dose-dependent , sustained reduction in huntingtin protein . manufacturing intellectual property in july 2017 , we were granted a patent from the united states patent and trademark office . the newly issued hermens '627 patent significantly expands our leading intellectual property portfolio related to large-scale , highly reproducible manufacturing of aav in insect cells . story_separator_special_tag accordingly , all future development expenses will be borne by us ( previously , chiesi was reimbursing 50 % of such costs ) ; ยท complete our ind-enabling studies for our proprietary huntington 's disease gene therapy program and initiate clinical studies ; ยท advance multiple research programs related to gene therapy candidates targeting liver-directed , and central nervous system ( โ cns โ ) diseases ; ยท continue to enhance and optimize our technology platform , including our manufacturing capabilities , next-generation viral vectors and promoters , and other enabling technologies ; ยท seek marketing approval for any product candidates that successfully complete clinical trials ; ยท acquire or in-license rights to new therapeutic targets or product candidates ; ยท maintain , expand and protect our intellectual property portfolio , including in-licensing additional intellectual property rights from third parties ; and ยท build-out our clinical , medical and regulatory capabilities in the u.s. see โ results of operations โ below for a discussion of the detailed components and analysis of the amounts above . critical accounting policies and estimates in preparing our consolidated financial statements in accordance with u.s. gaap and pursuant to the rules and regulations promulgated by the securities and exchange commission ( โ sec โ ) we make assumptions , judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets , liabilities , revenue and expenses , and related disclosures . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis , we evaluate our assumptions , judgments and estimates . we also discuss our critical accounting policies and estimates with the audit committee of our board of directors . we believe that the assumptions , judgments and estimates involved in the accounting for the bms collaboration agreement , share-based payments , contingent consideration , valuation of derivative financial instruments , and research and development expenses , to be our critical accounting policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . we are an โ emerging growth company , โ as defined in the jumpstart our business startups act of 2012 , or the jobs act . under the jobs act , emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the jobs act until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards , and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . 56 bms collaboration agreement we evaluated our collaboration agreement with bms and determined that it is a revenue arrangement with multiple components . our substantive deliverables under the collaboration agreement include an exclusive license to our technology in the field of cardiovascular disease , research and development services , and clinical and commercial manufacturing . in accordance with asc 605 , we analyzed the bms agreements in order to determine whether the deliverables within the agreement can be separated or whether they must be accounted for as a single unit of accounting . we concluded that the collaboration agreement consists of three units of accounting , ( i ) technology ( license and target selections ) , knowโhow and manufacturing in the field of gene therapy and development and active contribution to the development through the joint steering committee participations , ( ii ) provision of employees , goods and services for research activities and for specific targets , and ( iii ) clinical and commercial manufacturing . under the terms of the agreements , we received an upfront cash payment from bms of $ 50 million in june 2015. in addition , in june 2015 , bms purchased 1.1 million of our ordinary shares at a price of $ 33.84 per share , resulting in net proceeds of $ 37.6 million . in august 2015 , bms made a second equity investment of $ 37.9 million in 1.3 million of our ordinary shares at a price of $ 29.67 per share . we evaluated the share purchase agreement and the collaboration agreement as one arrangement and determined that the share purchase agreement included four derivative financial instruments , for which the fair value at initial recognition should be part of the total consideration . the total fair value of the derivative financial instruments amounted to $ 10.1 million at issuance . we deferred the recognition of the upfront cash payment and the fair value of the derivative financial instruments as of the signing date as the agreements were assessed together as a single arrangement . these amounts are being recognized as revenue over the period of performance . we estimate the performance period to be nineteen years , commencing on the effective date of may 21 , 2015. the amortization of deferred revenue will be presented as license revenues in the consolidated statements of operations and comprehensive loss on a straightโline basis . additionally , bms was granted two warrants : ยท a warrant allowing bms to purchase a specific number of our ordinary shares such that bms 's ownership will equal 14.9 % immediately after such purchase . the warrant can be exercised on the later of ( i ) the date on which we receive from bms the target designation fees ( as defined in the collaboration agreements ) associated with the first six new targets ( as defined in the collaboration agreements ) ; and ( ii ) the date on which bms designates the sixth new target ; and ยท a warrant allowing bms to purchase a specific number of our ordinary shares such that bms 's ownership will equal 19.9 % immediately after such purchase .
| results of operations the following table presents a comparison of the twelve months ended december 31 , 2017 , 2016 and 2015. replace_table_token_8_th 60 revenue we recognize total collaboration revenues associated with development activities that are reimbursable by chiesi ( up to the july 2017 termination of the collaboration ) and bms under our respective collaboration agreements . we recognize license revenues associated with the amortization of the nonโrefundable upfront payment , target designation fees and research and development milestone payments we have received or might receive from bms . the timing of these cash payments may differ from the recognition of revenue , as revenue is deferred and recognized over the duration of the performance period . we treat other revenue , such as sales milestone payments or service fees , as earned when receivable . our revenue for the years ended december 31 , 2017 , 2016 and 2015 was as follows : replace_table_token_9_th in association with the upfront payments and target designation fees received from bms in the second and third quarters of 2015 , we recognized $ 4.1 million in license revenue during the year ended december 31 , 2017 , compared to $ 3.9 million and $ 2.4 million for the years ended december 31 , 2016 and december 31 , 2015. following the termination of our collaboration with chiesi in july 2017 , we no longer recognize license revenue in association with the upfront fees received in 2013. we recognized $ 0.0 million license revenue during the year ended december 31 , 2017 , compared to $ 1.0 million and $ 1.0 million for the years ended december 31 , 2016 and december 31 , 2015. we recognized our license revenue during the year ended december 31 , 2017 , net of a $ 0.5 million reduction for amounts previously amortized in relation to the $ 2.3 million up-front payments that we were required to repay in accordance with the glybera termination agreement .
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, 2008 ย ย ย ย ย ย 102,008 1,020 1,469,497 ย ย 295 ( 1,384,078 ) 86,734 issuance of common shares under employee stock purchase plan ย ย ย ย ย ย 323 3 1,397 ย ย ย ย 1,400 issuance of stock for cash ย ย ย ย ย ย 8,360 84 59,640 ย ย ย ย 59,724 issuance of common shares from the release of restricted stock units ย ย ย ย ย ย 2,240 22 ( 7,023 ) ย ย ย ย ( 7,001 ) exercise of stock options ย ย ย ย ย ย 94 1 382 ย ย ย ย 383 stock-based compensation ย story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included in this annual report on form 10-k. overview we are a biopharmaceutical company focused on the discovery and development of therapeutic products for diseases such as diabetes . our lead product candidate , afrezza , is an ultra rapid-acting insulin therapy that is in late-stage clinical investigation for the treatment of adults with type 1 or type 2 diabetes for the control of hyperglycemia . 41 we are a development stage enterprise and have incurred significant losses since our inception in 1991. as of december 31 , 2012 , we have incurred a cumulative net loss of $ 2.1 billion and a stockholders ' deficit of $ 110.7 million . to date , we have not generated any product revenues and have funded our operations primarily through the sale of equity securities and convertible debt securities and borrowings under a loan arrangement provided by our principal stockholder . as discussed below in ยliquidity and capital resources , ย if we are unable to obtain additional funding in the future , there will continue to be substantial doubt about our ability to continue as a going concern . we do not expect to record sales of any product prior to regulatory approval and commercialization of afrezza . we currently do not have the required approvals to market any of our product candidates , and we may not receive such approvals . we may not be able to achieve positive cash flow from operations even if we succeed in commercializing any of our product candidates . we expect to make substantial expenditures and to incur additional operating losses for at least the next several years as we : continue the clinical development of afrezza and new inhalation systems for the treatment of diabetes ; seek regulatory approval to sell afrezza in the united states and other markets ; seek development and commercialization collaborations for afrezza ; and develop additional applications of our proprietary technosphere formulation technology for the pulmonary delivery of other drugs . our business is subject to significant risks , including but not limited to the risks inherent in our ongoing clinical trials and the regulatory approval process , our potential inability to enter into sales and marketing collaborations or to commercialize afrezza in a timely manner , the results of our research and development efforts , competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights . research and development expenses our research and development expenses consist mainly of costs associated with the clinical trials of our product candidates that have not yet received regulatory approval for marketing and for which no alternative future use has been identified . this includes the salaries , benefits and stock-based compensation of research and development personnel , raw materials , such as insulin purchases , laboratory supplies and materials , facility costs , costs for consultants and related contract research , licensing fees , and depreciation of equipment . we track research and development costs by the type of cost incurred . we partially offset research and development expenses with the recognition of estimated amounts receivable from the state of connecticut pursuant to a program under which we can exchange qualified research and development income tax credits for cash . our research and development staff conducts our internal research and development activities , which include research , product development , clinical development , manufacturing and related activities . this staff is located in our facilities in valencia , california ; paramus , new jersey ; and danbury , connecticut . we expense research and development costs as we incur them . clinical development timelines , likelihood of success and total costs vary widely . we are focused primarily on advancing afrezza through regulatory filings . at this time , due to the risks inherent in the clinical trial process and given the early stage of development of our product candidates other than afrezza , we are unable to estimate with any certainty the costs that we will incur in the continued development of our product candidates for commercialization . the costs required to complete the development of afrezza will be largely dependent on the cost and efficiency of our clinical trial operations and discussions with the fda regarding its requirements . during the first quarter of 2011 , we implemented a restructuring to streamline operations , reduce operating expenses , extend our cash runway and focus our resources on securing fda approval of the nda for afrezza . in connection with the restructuring , we recorded charges to research and development expenses of approximately $ 4.7 million for employee severance and other related termination benefits . the restructuring 42 resulted in research and development operating cost savings of approximately $ 9.5 million in 2011. these savings were partially offset by increased costs associated with the additional trials required by the fda . general and administrative expenses our general and administrative expenses consist primarily of salaries , benefits and stock-based compensation for administrative , finance , business development , human resources , legal and information systems support personnel . in addition , general and administrative expenses include professional service fees and business insurance costs . story_separator_special_tag as of december 31 , 2012 , there was $ 107,000 and $ 3.7 million of unrecognized expenses related to performance-based options and restricted stock units , respectively , for milestones where achievement was not considered probable . forward contracts in february and october 2012 , we entered into agreements with the mann group whereby we agreed to sell and the mann group agreed to purchase common stock and or warrants . these agreements have been accounted for as forward contracts , having met the definition of derivative instruments in accordance with the provisions of asc 815 derivatives and hedging . we determine the fair value of the forward contract upon its issuance , record fair value adjustments of the forward contract to other income ( expense ) during the reporting period and through the settlement of the forward contract , and reclassify the forward contract to equity upon settlement of the forward contract . the fair value of the forward purchase contract is highly sensitive to the discount applied for lack of marketability and the stock price , and changes in this discount and or the stock price could cause the value of the forward purchase contract to change significantly . accounting for income taxes we must make management judgments when determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . at december 31 , 2012 , we have established a valuation allowance of $ 750.2 million against all of our net deferred tax asset balance , due to uncertainties related to the realizability of our deferred tax assets as a result of our history of operating losses . the valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable . in the event that actual results differ from these estimates or we adjust these estimates in future periods , we may need to change the valuation allowance , which could materially impact our financial position and results of operations . 44 story_separator_special_tag development expenses were offset by $ 0.6 million and $ 0.4 million , respectively , in connection with the program . general and administrative expenses the following table provides a comparison of the general and administrative expense categories for the years ended december 31 , 2010 and 2011 ( dollars in thousands ) : replace_table_token_6_th the increase in general and administrative expenses for the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010 , was primarily due to an increase of $ 2.1 million in legal fees incurred in connection with defending various legal proceedings and other matters . restructuring costs of $ 1.6 million incurred for the february 2011 reduction in force were offset by $ 2.0 million in savings in salary related costs . overall salary and employee related expenses increased in 2011 by $ 0.8 million compared to the prior year as we did not record a bonus accrual for 2010. these increases were offset by the non-recurrence in 2011 of projects conducted in 2010 , including market research studies . stock-based compensation expense increased in 2011 over the prior year due to retention grants awarded in the first quarter of 2011. other income ( expense ) other income for the year ended december 31 , 2011 was $ 1.5 million , which was primarily due to realized gains of $ 1.3 million on the termination of foreign exchange hedging contracts related to our supply agreement with organon . we terminated these contracts during the quarter ended march 31 , 2011. for the year ended december 31 , 2010 , we recorded $ 0.7 million of other expense , as we recognized a $ 0.6 million other-than-temporary impairment loss on our common stock investment due to the length of time and the extent to which the fair value has been less than the amortized cost basis . in addition , we recorded a loss of $ 1.6 million on the execution of quarterly foreign exchange hedging contracts , offset by a reimbursement of $ 1.6 million received in connection with a soil cleanup plan . interest income and expense interest expense for the year ended december 31 , 2011 increased compared to the year ended december 31 , 2010 , due to a full year of interest expense recorded on the convertible notes issued in august 2010 and related amortization of the debt issuance costs . interest expense for the year ended december 31 , 2011 also included interest related to additional amounts borrowed under the loan agreement with our principal stockholder . liquidity and capital resources we have funded our operations primarily through the sale of equity securities and convertible debt securities and borrowings under our loan arrangement with our principal stockholder . in october 2007 , we entered into a $ 350.0 million loan arrangement with our principal stockholder . in february 2009 , as a result of our principal stockholder being licensed as a finance lender under the california finance lenders law , the promissory note underlying the loan arrangement was revised to reflect the lender as the mann group llc , an entity controlled by our principal stockholder . until january 1 , 2013 , interest on outstanding principal amounts accrued at a fixed rate equal to the one-year london interbank offered rate ( libor ) rate as reported by the wall street journal on the date of such advance plus 3 % per annum .
| results of operations years ended december 31 , 2011 and 2012 revenues during the years ended december 31 , 2011 and december 31 , 2012 , we recognized $ 50,000 and $ 35,000 , respectively , in revenue under a license agreement . we do not anticipate sales of any product prior to regulatory approval and commercialization of afrezza . research and development expenses the following table provides a comparison of the research and development expense categories for the years ended december 31 , 2011 and 2012 ( dollars in thousands ) : replace_table_token_3_th the increase in research and development expenses for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , was primarily due to $ 24.9 million of increased clinical trial related expenses in connection with studies 171 and 175 conducted in 2012 and increased clinical distribution costs in support of our clinical trials , offset by the non-recurring $ 16.0 million expense recorded in 2011 related to our termination of the supply agreement with organon and receipt of insulin , decreased salary related expenses of $ 8.6 million due to the february 2011 restructuring as well as the positive effect of our cost cutting measures on operating expenses . in 2012 , clinical trial related expenses increased $ 24.9 million in connection with studies 171 and 175 subsequent to completion of enrollment in the end of september and early october of 2012 , partially offset by $ 2.1 million in salary related cost savings resulting from the february 2011 reduction in force . in 2012 , manufacturing expenses decreased as no insulin purchases were made subsequent to the termination of our supply agreement in 2011. in 2011 , we paid $ 16.0 million in connection with the settlement of the dispute arising from us terminating our supply agreement .
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self-insurance reserves- the story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve various risks and uncertainties . see โ cautionary statement โ on page 1 for a discussion of the uncertainties , risks and assumptions associated with these statements . you should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this annual report on form 10-k. the results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods , and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including but not limited to those listed under โ risk factors โ in item 1a . of this annual report on form 10-k and included elsewhere in this annual report on form 10-k. executive summary we continue to enhance our offerings to the customer , and create meaningful differentiation from our competitors . through sourcing and product development , our buying team produces a differentiated , on-trend assortment with exclusive merchandise and private brands that effectively distorts our assortment to the most relevant categories . we strive to provide compelling everyday values to the customer by sourcing opportunistic buys and using our buying leverage and vendor relationships to secure product at favorable cost . we have taken steps to align our business operations to better respond to customer needs . we have made it easier for customers to shop at dsw with a number of digital enhancements , including a mobile app , as well as the use of paypal as a secure payment option . we have also given our customer the ability to shop our full assortment by integrating inventory and order fulfillment between our brick and mortar and digital channels . financial summary during fiscal 2015 , we generated a 0.8 % increase in comparable sales and a 5.0 % increase in total sales . this increase compares to a comparable sales increase of 1.8 % for fiscal 2014 . in fiscal 2015 , dsw 's merchandise margin rate , defined as gross profit excluding occupancy and distribution and fulfillment expenses ( a non-gaap measure ) decreased as a percentage of net sales from 43.7 % in fiscal 2014 to 42.8 % in fiscal 2015 . reported net income was $ 136.0 million , or $ 1.54 per diluted share , a decrease of 8.9 % over last year 's reported earnings per share of $ 1.69 per diluted share . the earnings decrease was primarily driven by sales challenges in the fall season attributable to unseasonably warm weather . we have continued making investments in our business that are critical to long-term growth . in fiscal 2015 , we invested $ 111.7 million in capital expenditures compared to $ 93.3 million during fiscal 2014 . our capital expenditures during fiscal 2015 were primarily related to opening 40 new stores , store remodels and business infrastructure . we plan to open approximately 30 to 35 stores in fiscal 2016 . as of january 30 , 2016 , we operated 468 dsw stores , dsw.com and shoe departments in 276 stein mart stores and steinmart.com , 102 gordmans stores and gordmans.com , and one frugal fannie 's store . dsw inc. has two reportable segments : the dsw segment , which includes the dsw stores and dsw.com , and the affiliated business group segment . 19 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > we reported a foreign currency gain of $ 3.3 million related to the purchase of $ 100 million cad in the first quarter of 2015. as this was a cash transaction , the gains or losses related to the purchase of the cad were recorded in the consolidated statement of operations . the cad was invested in available-for-sale securities during the second quarter of 2015 and any foreign exchange gains/losses are recorded in other comprehensive income . non-operating income also includes realized capital gains/losses related to our investment portfolio . ( loss ) income from town shoes ( loss ) income from town shoes includes dsw 's portion of the income or loss in town shoes ' operations , plus the interest income on the shareholder note . 22 income taxes fiscal 2015 vs. fiscal 2014- our effective tax rate for fiscal 2015 was 38.1 % compared to 38.6 % for fiscal 2014 . the effective tax rates for fiscal 2015 and fiscal 2014 reflect the impact of federal , state and local , and foreign taxes , as well as tax on the income or loss from town shoes . for all periods presented , a provision for u.s. income tax has not been recorded on undistributed profits of non-u.s. subsidiaries that the company has determined to be indefinitely reinvested outside the u.s. determination of the amount of unrecognized deferred u.s. income tax liability on these unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation . fiscal 2014 vs. fiscal 2013- our effective tax rate for fiscal 2014 was 38.6 % compared to 38.0 % for fiscal 2013. income from discontinued operations fiscal 2015 vs. fiscal 2014- during fiscal 2015 , there was no income from discontinued operations . fiscal 2014 vs. fiscal 2013- during fiscal 2014 , income from discontinued operations , net of tax , is due to the final distribution from the filene 's basement debtor 's estates , partially offset by an adjustment to the guarantee of a filene 's basement lease . during fiscal 2013 , there was no income from discontinued operations . non-gaap financial measures we utilize merchandise margin , defined as gross profit excluding occupancy and distribution and fulfillment expenses , a non-gaap financial measure , to explain our gross profit performance . we also utilize free cash flow , a non-gaap measure , defined as cash flow from operating activities less capital expenditures . story_separator_special_tag currently , portions of the properties are leased to unrelated parties for annual rental income . we expect to spend approximately $ 95 million for capital expenditures in fiscal 2016 , with half going into new stores and store remodels and the other half going into technology investments , including digital investments , and other business projects . our future investments will depend primarily on the number of stores we open and remodel , infrastructure and information technology projects that we undertake and the timing of these expenditures . we plan to open approximately 30 to 35 stores in fiscal 2016 . in fiscal 2015 , we opened 40 new dsw stores , including 9 small format stores . during fiscal 2015 , the average investment required to open a new dsw store was approximately $ 1.4 million , prior to construction and tenant allowances , which averaged $ 0.4 million for fiscal 2015. of this amount , gross inventory typically accounted for $ 0.5 million , fixtures and leasehold improvements typically accounted for $ 0.7 million and new store advertising and other new store expenses typically accounted for $ 0.2 million . financing activities for fiscal 2015 and 2014 , net cash used in financing activities of $ 241.5 million and $ 144.8 million , respectively , was primarily related to the payment of dividends and the repurchase of dsw class a common shares under the company 's share repurchase programs . for fiscal 2013 , net cash used in financing activities of $ 26.4 million was primarily related to the payment of dividends partially offset by proceeds from the exercise of stock options . on november 2 , 2015 , the board of directors approved an additional $ 200 million share repurchase program after the previous $ 150 million authorization was fully utilized . the share repurchase program may be suspended , modified or discontinued at any time , and we have no obligation to repurchase any amount of our common shares under the program . we will determine the amount of shares to repurchase based on generated and expected cash flow and cash usage needs , past and anticipated business performance and available alternative investment opportunities . shares will be repurchased in the open market at times and in amounts based on price and market conditions . as of january 30 , 2016 , we have repurchased a total of 10.2 million class a common shares at a cost of $ 266.5 million , with $ 83.5 million remaining available . our credit facility , letter of credit agreement and other liquidity considerations are described more fully below : $ 100 million secured credit facility . on august 2 , 2013 , we entered into a secured revolving credit agreement ( the `` credit facility '' ) . the credit facility , together with the letter of credit agreement ( defined below ) , amended and restated our prior credit facility , dated june 30 , 2010 . the credit facility has a term of five years that will expire on july 31 , 2018 . on january 11 , 2016 , the company requested , and the lender agreed , to increase the revolving credit commitment from $ 50 million to $ 100 million ( see amendment to the original credit facility effective january 11 , 2016 in the index to exhibits ) . the credit facility may be further increased by up to $ 50 million upon our request subject to lender acceptance , our financial condition and compliance with covenants . the credit facility is secured by a lien on substantially all of our personal property assets and our subsidiaries with certain exclusions and may be used to provide funds for general corporate purposes , to provide for our ongoing working capital requirements , and to make permitted acquisitions . revolving credit loans bear interest under the credit facility at our option under : ( a ) a base rate option at a rate per annum equal to the highest of ( i ) the federal funds open rate ( as defined in the credit facility ) , plus 0.5 % , ( ii ) the lender 's prime rate , and ( iii ) the daily libor rate ( as defined in the credit facility ) plus 1.0 % , plus in each instance an applicable margin based upon our revolving credit availability ; or ( b ) a libor option at a rate equal to the libor rate ( as defined in the credit agreement ) , plus an applicable margin , which is between 1.00 and 1.25 , based upon our revolving credit availability . in addition , the credit facility contains restrictive covenants relating to our management and the operation of our business . these covenants , among other things , limit or restrict our ability to grant liens on our assets , limit our ability to incur additional indebtedness , limit our ability to enter into transactions with affiliates and limit our ability to merge or consolidate with another entity . the credit facility also requires that we meet the minimum cash and investments requirement of $ 125 million , as defined in the credit facility . an additional covenant limits payments for capital expenditures to $ 200 million in any fiscal year . we paid $ 103.9 million in cash for capital expenditures in fiscal 2015 . as of january 30 , 2016 , we had availability under the credit facility of $ 100 million . $ 50 million letter of credit agreement . also on august 2 , 2013 , we entered into a letter of credit agreement ( the โ letter of credit agreement โ ) . the letter of credit agreement provides for the issuance of letters of credit up to $ 50 million , with a term of five years that will expire on august 2 , 2018 .
| results of operations the following table represents selected components of our consolidated results of operations , expressed as percentages of net sales : replace_table_token_7_th fiscal year ended january 30 , 2016 ( fiscal 2015 ) compared to fiscal year ended january 31 , 2015 ( fiscal 2014 ) and fiscal 2014 compared to fiscal year ended february 1 , 2014 ( fiscal 2013 ) net sales- net sales for fiscal 2015 increased by 5.0 % from fiscal 2014 and net sales for fiscal 2014 increased by 5.4 % from fiscal 2013 . the following table summarizes the increase in our net sales : replace_table_token_8_th the following table summarizes our net sales by reportable segment and in total : replace_table_token_9_th 20 the following table summarizes our comparable sales change by reportable segment and in total : replace_table_token_10_th fiscal 2015 vs. fiscal 2014- our increase in total net sales for the dsw segment was the result of an increase in comparable sales and non-comparable sales growth . our comparable sales increase includes a 22 % increase in digitally demanded sales . dsw segment comparable sales decreased in our largest business , women 's footwear , by 2 % , increased in men 's footwear by 2 % , increased in athletic footwear by 13 % , and decreased in accessories by 2 % . our non-comparable sales growth is attributable to stores opened in fiscal 2014 , as well as 37 net new dsw stores in fiscal 2015 . the increase in total net sales for our affiliated business group segment was primarily the result of comparable sales growth and the net addition of eight new shoe departments in fiscal 2015. fiscal 2014 vs. fiscal 2013- our increase in total net sales for the dsw segment was the result of an increase in comparable sales and non-comparable sales growth . the increase in comparable sales was a result of an increase in customer traffic .
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gains and losses on inter-company and other non-functional currency transactions are recorded in other ( expense ) income , net . the company enters into short-term foreign currency forward contracts to offset foreign exchange gains and losses generated by the re-measurement of certain assets and liabilities recorded in non-functional currencies . changes in the fair value of these derivatives , as well as re-measurement gains and losses , are recognized in current earnings in other ( expense ) income , net . as of december 31 , 2019 and 2018 , the fair value of the forward currency contracts and the underlying net gains for the years ended december 31 , 2019 , 2018 and 2017 were immaterial . the company 's foreign currency forward contracts may be exposed to credit risk to the extent that its counterparties are unable to meet the terms of the agreements . the company seeks to minimize counterparty credit ( or repayment ) risk by entering into transactions only with major financial institutions of investment grade credit rating . 59 income story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations , or md & a , should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. see โ risk factors โ elsewhere in this annual report on form 10-k for a discussion of certain risks associated with our business . the following discussion contains forward-looking statements . the forward-looking statements do not include the potential impact of any mergers , acquisitions , divestitures or other events that may be announced after the date hereof . 21 overview we provide solutions for securing , delivering and optimizing content and business applications over the internet . the key factors that influence our financial success are our ability to build on recurring revenue commitments for our security and performance offerings , increase media traffic on our network , effectively managing the prices we charge for our solutions , develop new products and carefully manage our capital spending and other expenses . revenue for most of our solutions , our customers commit to contracts having terms of a year or longer , which allows us to have a consistent and predictable base level of revenue . in addition to a base level of revenue , we are also dependent on media customers where usage of our solutions is more variable . as a result , our revenue is impacted by the amount of media and software download traffic we serve on our network , the rate of adoption of gaming , social media and video platform offerings , the timing and variability of customer-specific one-time events and the impact of seasonal variations on our business . the ability to expand our product portfolio and to effectively manage the prices we charge for our solutions are also key factors impacting our revenue growth . we have observed the following trends related to our revenue in recent years : increased sales of our security solutions have made a significant contribution to revenue growth . we plan to continue to invest in this area with a focus on further enhancing our product portfolio and extending our go-to-market capabilities . we have experienced increases in the amount of traffic delivered for customers that use our solutions for video , gaming and software downloads , contributing to an increase in our revenue in 2019 as compared to 2018. we have increased committed recurring revenue from our solutions by increasing sales of incremental solutions to our existing customers and adding new customers ; however , we have also experienced slower revenue growth in recent quarters particularly in our web performance solutions . we expect the trend of slower revenue growth to continue in 2020 as our commerce customers continue to experience financial pressure and we face more contract renewals with large media and other customers in 2020 as compared to 2019. the prices paid by some of our customers have declined , particularly in the context of contract renewals and large media consolidations , reflecting the impact of competition and volume discounts . our revenue would have been higher absent these price declines . in recent years , revenue from our international operations has been growing at a faster pace than from our u.s. operations , particularly in terms of new customer acquisition and cross-selling of incremental solutions . because we publicly report in u.s. dollars , if the dollar continues to strengthen , our reported revenue results will be negatively impacted . we have experienced variations in certain types of revenue from quarter to quarter . in particular , we typically experience higher revenue in the fourth quarter of each year for some of our solutions as a result of holiday season activity . in addition , we experience quarterly variations in revenue attributable to , among other things , the nature and timing of software and gaming releases by our customers ; whether there are large live sporting or other events that increase the amount of media traffic on our network ; and the frequency and timing of purchases of custom solutions . expenses our level of profitability is also impacted by our expenses , including direct costs to support our revenue such as bandwidth and co-location costs . we have observed the following trends related to our profitability in recent years : our profitability improved in 2019 as compared to 2018 due to higher revenue as well as the effects of cost savings and efficiency initiatives we have undertaken . we expect to continue to undertake efforts intended to improve the efficiency of operations . if we are able to continue our efficiency efforts such that our rate of revenue growth exceeds our expense growth rate , we anticipate overall profitability improvement in 2020 as compared to 2019 . 22 network bandwidth costs represent a significant portion of our cost of revenue . story_separator_special_tag our general and administrative expenses increased in 2018 as compared to 2017 primarily due to the one-time endowment contribution to the akamai foundation , legal and stockholder matter costs related to a settlement charge from our litigation with limelight , amounts paid to professional service providers for advisory services provided in connection with a non-routine stockholder matter and higher stock-based compensation expense , primarily due to performance-based awards that experienced higher achievement in 2018 as compared to 2017. general and administrative expenses for 2019 and 2018 are broken out by category as follows ( in thousands ) : replace_table_token_9_th global functions expense includes payroll , stock-based compensation and other employee-related costs for administrative functions , including finance , purchasing , order entry , human resources , legal , information technology and executive personnel , as well as third-party professional service fees . infrastructure expense includes payroll , stock-based compensation and other employee-related costs for our network infrastructure functions , as well as facility rent expense , depreciation and amortization of facility and it-related assets , software and software-related costs , business insurance and taxes . our network infrastructure function is responsible for network planning , sourcing , architecture evaluation and platform security . other expense includes acquisition-related costs , provision for doubtful accounts , legal settlements , non-routine stockholder matter costs , the endowment of the akamai foundation , transformation costs and the licensing of a patent . during 2020 , we plan to continue to focus our efforts on expanding our operating margins and , in particular , assessing opportunities to reduce third-party spending and increase automation of manual tasks . amortization of acquired intangible assets replace_table_token_10_th the increase in amortization of acquired intangible assets in 2019 as compared to 2018 , as well as 2018 as compared to 2017 , was the result of amortization of assets related to our recent acquisitions . based on acquired intangible assets as of december 31 , 2019 , future amortization is expected to be approximately $ 41.0 million , $ 36.2 million , $ 31.0 million , $ 23.9 million and $ 16.6 million for the years ending december 31 , 2020 , 2021 , 2022 , 2023 and 2024 , respectively . 28 restructuring charge replace_table_token_11_th the restructuring charge in 2019 was primarily the result of management actions to focus on investments with the potential to accelerate revenue growth . the restructuring charge relates to certain headcount reductions and software charges for software not yet placed into service that will not be implemented due to this action . the restructuring charge in 2018 was primarily the result of management actions intended to re-balance investments to focus on long-term growth and scale . the restructuring charge relates to certain headcount reductions and software charges for software not yet placed into service that will not be implemented due to this action . the restructuring charge in 2017 was primarily the result of management actions intended to shift focus to more critical areas of the business and away from products that have not seen expected commercial success . the restructuring was also intended to facilitate cost efficiencies and savings . the restructuring charge relates to certain headcount and facility reductions and certain capitalized internal-use software charges for software not yet placed into service that will not be completed and implemented due to this action . in addition to the actions described above , we have also recognized restructuring charges for redundant employees , facilities and contracts associated with completed acquisitions . we expect to incur additional restructuring charges of $ 4.0 million to $ 7.0 million in 2020 as a result of the action committed to in the fourth quarter of 2019. non-operating income ( expense ) replace_table_token_12_th for the periods presented , interest income primarily consists of interest earned on invested cash balances and marketable securities . the increase to interest income in 2019 as compared to 2018 was primarily the result of increased cash , cash equivalents and marketable securities balances as a result of our august 2019 issuance of $ 1,150.0 million in par value of convertible senior notes due 2027. the increase to interest income in 2018 as compared to 2017 was primarily the result of increased cash , cash equivalents and marketable securities balances as a result of our may 2018 issuance of $ 1,150.0 million in par value of convertible senior notes due 2025. interest expense is related to our debt transactions , which are described in note 11 to the consolidated financial statements included elsewhere in this annual report on form 10-k. the increase to interest expense for 2019 as compared to 2018 was primarily due to the august 2019 issuance of $ 1,150.0 million in par value of convertible senior notes due 2027 , which bear regular interest of 0.375 % , but have an effective interest rate of 3.1 % due to the conversion feature . the increase to interest expense for 2018 as compared to 2017 was primarily due to the may 2018 issuance of $ 1,150.0 million in par value of convertible senior notes due 2025 , which bear regular interest of 0.125 % , but have an effective interest rate of 4.26 % due to the conversion feature . 29 other ( expense ) income , net for the years ended december 31 , 2019 , 2018 and 2017 primarily represents net foreign exchange gains and losses mainly due to foreign currency exchange rate fluctuations on intercompany and other non-functional currency transactions . other ( expense ) income , net may fluctuate in the future based on changes in foreign currency exchange rates or other events . other ( expense ) income , net also includes gains and losses from certain equity investments . provision for income taxes replace_table_token_13_th the increase in the provision for income taxes for 2019 as compared to 2018 was mainly due to an increase in profit before taxes and an increase in the valuation allowance recorded against deferred tax assets related to state credits .
| results of operations the following sets forth , as a percentage of revenue , consolidated statements of income data for the years indicated : replace_table_token_2_th revenue revenue during the periods presented is as follows ( in thousands ) : replace_table_token_3_th the increase in our revenue in 2019 as compared to 2018 was primarily the result of higher media traffic volumes , including from our large internet platform customers , and continued strong growth in sales of our cloud security solutions . cloud security solutions revenue for the year ended december 31 , 2019 was $ 848.7 million , compared to $ 658.7 million for the year ended december 31 , 2018 , which represents a 28.8 % increase . the increase in our revenue in 2018 as compared to 2017 was primarily the result of higher media traffic volumes , increased sales of our new product offerings and continued strong growth in our cloud security solutions . cloud security solutions revenue for the year ended december 31 , 2018 was $ 658.7 million , compared to $ 487.6 million for the year ended december 31 , 2017 , which represents a 35.1 % increase . the increase in web division revenue for 2019 as compared to 2018 was primarily the result of increased sales of both new and existing cloud security solutions to this customer base . the increase in web division revenue in 2018 as compared to 2017 was due to increased purchases of new solutions and upgrades to existing services by this customer base . increased sales of our cloud security solutions to web division customers , in particular our kona site defender , prolexic and managed security solutions , as well as our new bot manager offering were a principal contributor to our overall revenue growth in 2018 .
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this section of this form 10-k generally includes comparisons of certain 2020 financial information to the same information for 2019. year-to-year comparisons of the 2019 financial information to the same information for 2018 that are not included in this form 10-k are contained in โ management 's discussion and analysis of financial condition and results of operations โ in part ii , item 7 of the partnership 's annual report on form 10-k for the fiscal year ended december 31 , 2019 filed with the sec on march 5 , 2020 , which comparative information is incorporated by reference herein . a reference to a โ note โ herein refers to the accompanying notes to consolidated financial statements contained in part iv , item 15 - โ exhibits and financial statement schedules โ of this annual report . overview we are a delaware limited partnership formed in june 2011 by sprague holdings and our general partner . we engage in the purchase , storage , distribution and sale of refined products and natural gas , and provide storage and handling services for a broad range of materials . in october 2013 , we became a publicly traded master limited partnership ( `` mlp '' ) and our common units representing limited partner interests are listed on the new york stock exchange ( `` nyse '' ) under the ticker symbol โ srlp '' . our predecessor was founded in 1870 as the charles h. sprague company in boston , massachusetts ; and , in 1905 , the company opened the penobscot coal and wharf company , a tidewater terminal located in searsport , maine . by world war ii , the company was operating eleven terminals and a fleet of two dozen vessels transporting coal and other products throughout the world . as fuel needs diversified in the united states , the company expanded its product offerings and invested in terminals , tankers , and product handling activities . in 1959 , the company expanded its oil marketing activities via entry into the distillate oil market . in 1970 , the company was sold to royal dutch shell 's asiatic petroleum subsidiary ; and , in 1972 , royal dutch shell sold the company to axel johnson inc. , a member of the axel johnson group of stockholm , sweden . we are one of the largest independent wholesale distributors of refined products in the northeast united states based on aggregate terminal capacity . we own , operate and or control a network of refined products and materials handling terminals and storage facilities predominantly located in the northeast united states from new york to maine and in quebec , canada that have a combined storage tank capacity of approximately 14.6 million barrels for refined products and other liquid materials , as well as approximately 2.0 million square feet of materials handling capacity . we also have access to approximately 43 third-party terminals in the northeast united states through which we sell or distribute refined products pursuant to rack , exchange and throughput agreements . we operate under four business segments : refined products , natural gas , materials handling and other operations . see note 17 - segment reporting to our consolidated financial statements for a presentation of financial results by reportable segment and see part ii , item 7 `` management 's discussion and analysis of financial condition and results of operationsโresults of operations '' for a discussion of financial results by segment . in our refined products segment we purchase a variety of refined products , such as heating oil , diesel fuel , residual fuel oil , kerosene , jet fuel and gasoline ( primarily from refining companies , trading organizations and producers ) , and sell them to our customers . we have wholesale customers who resell the refined products we sell to them and commercial customers who consume the refined products directly . our wholesale customers consist of approximately 1,100 home heating oil retailers and diesel fuel and gasoline resellers . our commercial customers include federal and state agencies , municipalities , regional transit authorities , drill sites , large industrial companies , real estate management companies , hospitals , educational institutions , and asphalt paving companies . in addition , as a result of our acquisition of coen energy in 2017 , our customers include businesses engaged in the development of natural gas resources in pennsylvania and surrounding states . in our natural gas segment we purchase natural gas from natural gas producers and trading companies and sell and distribute natural gas to approximately 15,000 commercial and industrial customer locations across 13 states in the northeast and mid-atlantic united states . 32 table of contents our materials handling segment is generally conducted under multi-year agreements as either fee-based activities or as leasing arrangements when the right to use an identified asset ( such as storage tanks or storage locations ) has been conveyed in the agreement . we offload , store and or prepare for delivery a variety of customer-owned products , including asphalt , clay slurry , salt , gypsum , crude oil , residual fuel oil , coal , petroleum coke , caustic soda , tallow , pulp and heavy equipment . historically , a majority of our materials handling activity has generated qualified income . our other operations segment primarily includes the marketing and distribution of coal conducted in our portland , maine terminal , and commercial trucking activity conducted by our canadian subsidiary . we take title to the products we sell in our refined products and natural gas segments . in order to manage our exposure to commodity price fluctuations , we use derivatives and forward contracts to maintain a position that is substantially balanced between product purchases and product sales . we do not take title to any of the products in our materials handling segment . story_separator_special_tag we define adjusted ebitda as ebitda adjusted for the change in unrealized hedging gains ( losses ) with respect to refined products and natural gas inventory , and natural gas transportation contracts , adjusted for changes in the fair value of contingent consideration , adjusted for the impact of acquisition related expenses , extraordinary gains , and adjusted for the impact of biofuel excise tax credits resulting from retroactive tax legislation changes that occurred in 2018. ebitda and adjusted ebitda are used as supplemental financial measures by external users of our financial statements , such as investors , trade suppliers , research analysts and commercial banks to assess : the financial performance of our assets , operations and return on capital without regard to financing methods , capital structure or historical cost basis ; the ability of our assets to generate sufficient revenue , that when rendered to cash , will be available to pay interest on our indebtedness and make distributions to our equity holders ; repeatable operating performance that is not distorted by non-recurring items or market volatility ; and the viability of acquisitions and capital expenditure projects . ebitda and adjusted ebitda are not prepared in accordance with gaap and should not be considered alternatives to net income ( loss ) or operating income ( loss ) , or any other measure of financial performance presented in accordance with gaap . ebitda and adjusted ebitda exclude some , but not all , items that affect net income ( loss ) and operating income ( loss ) . the gaap measure most directly comparable to ebitda and adjusted ebitda is net income ( loss ) . ebitda and adjusted ebitda should not be considered as alternatives to net income ( loss ) or cash provided by ( used in ) operating activities , or any other measure of financial performance or liquidity presented in accordance with gaap . ebitda and adjusted ebitda are not presentations made in accordance with gaap and have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under gaap . because ebitda and adjusted ebitda exclude some , but not all , items that affect net income ( loss ) and are defined differently by different 34 table of contents companies , our definitions of ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies . we recognize that the usefulness of ebitda and adjusted ebitda as evaluative tools may have certain limitations , including : ebitda and adjusted ebitda do not include interest expense . because we have borrowed money in order to finance our operations , interest expense is a necessary element of our costs and impacts our ability to generate profits and cash flows . therefore , any measure that excludes interest expense may have material limitations ; ebitda and adjusted ebitda do not include depreciation and amortization expense . because capital assets , depreciation and amortization expense is a necessary element of our costs and ability to generate profits , any measure that excludes depreciation and amortization expense may have material limitations ; ebitda and adjusted ebitda do not include provision for income taxes . because the payment of income taxes is a necessary element of our costs , any measure that excludes income tax expense may have material limitations ; ebitda and adjusted ebitda do not reflect capital expenditures or future requirements for capital expenditures or contractual commitments ; ebitda and adjusted ebitda do not reflect changes in , or cash requirements for , working capital needs ; and ebitda and adjusted ebitda do not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss . adjusted gross margin management purchases , stores and sells energy commodities that experience market value fluctuations . to manage the partnership 's underlying performance , including its physical and derivative positions , management utilizes adjusted gross margin . in determining adjusted gross margin , management adjusts its segment results for the impact of unrealized gains and losses with regard to refined products and natural gas inventory , and natural gas transportation contracts , which are not marked to market for the purpose of recording unrealized gains or losses in net income ( loss ) . adjusted gross margin is also used by external users of our consolidated financial statements to assess our economic results of operations and our commodity market value reporting to lenders . we define adjusted gross margin as net sales less cost of products sold ( exclusive of depreciation and amortization ) adjusted for the impact of unrealized gains and losses with respect to refined products and natural gas inventory , and natural gas transportation contracts , which are not marked to market for the purpose of recording unrealized gains or losses in net income . adjusted gross margin has no impact on reported volumes or net sales . adjusted gross margin is used as a supplemental financial measure by management to describe our operations and economic performance to investors , trade suppliers , research analysts and commercial banks to assess : the economic results of our operations ; the market value of our inventory and natural gas transportation contracts for financial reporting to our lenders , as well as for borrowing base purposes ; and repeatable operating performance that is not distorted by non-recurring items or market volatility . adjusted gross margin is not prepared in accordance with gaap and should not be considered as an alternative to net income ( loss ) or operating income ( loss ) or any other measure of financial performance presented in accordance with gaap . we define adjusted unit gross margin as adjusted gross margin divided by units sold , as expressed in gallons for refined products , and in mmbtus for natural gas . for a reconciliation of adjusted gross margin and adjusted ebitda to the gaap measures most directly comparable , see the reconciliation tables included in results of operations .
| analysis of consolidated operating results for the year ended december 31 , 2020 our operating income increased $ 2.3 million , or 3 % , to $ 79.6 million , as compared to $ 77.3 million for the year ended december 31 , 2019. for the years ended december 31 , 2020 and 2019 , our operating income includes unrealized commodity derivative gains and ( losses ) with respect to refined products and natural gas inventory and natural gas transportation contracts of $ ( 10.6 ) million and $ 6.5 million , respectively , which decreased operating income for the year ended december 31 , 2020 by $ 17.1 million . offsetting this decrease to operating income for the year ended december 31 , 2020 , was higher adjusted gross margins , lower operating costs primarily due to cost reduction efforts and a net gain of $ 8.1 million on the sale of the mt . vernon terminal . see `` analysis of operating segments '' and `` liquidity and capital resources '' below for additional details on changes in our operating results . 41 table of contents analysis of operating segments the following tables set forth information regarding our results of operating segments for the periods presented : replace_table_token_5_th replace_table_token_6_th 42 table of contents year ended december 31 , 2020 compared to year ended december 31 , 2019 refined products refined products net sales decreased $ 1.1 billion , or 36 % as compared to 2019 due to a combination of a 28 % decrease in the average sales price and a 11 % reduction in product volume . the reduction in average sales price reflects the substantially lower market price environment in 2020 compared to last year , with the key factors being surplus supply in the early part of the year driven by the key global producers and lower demand due to the impact of the pandemic .
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in addition to our ownership and operation of outpatient physical therapy clinics , we also manage physical therapy facilities for third parties , such as physicians and hospitals , with 38 such third-party facilities under management as of december 31 , 2020. in march 2017 , we acquired a 55 % interest in the initial industrial injury prevention business . on april 30 , 2018 , we made a second acquisition and subsequently combined the two businesses . after the combination , the company owned a 59.45 % interest in the combined business , briotix health , limited partnership ( โ briotix health โ ) . services provided include onsite injury and ergonomic assessments . the majority of these services are contracted with and paid for directly by employers , including a number of fortune 500 companies . other clients include large insurers and their contractors . we perform these services through industrial sports medicine professionals , consisting of both physical therapists and specialized certified athletic trainers ( atcs ) . on april 11 , 2019 , we acquired a third company that is a provider of industrial injury prevention services . this acquired company specializes in delivering injury prevention and care , post offer employment testing , functional capacity evaluations and return-to-work services . it performs these services across a network in 45 states including onsite at eleven client locations . after the acquisition , the business was then combined with briotix health increasing our ownership position in the partnership to approximately 76.0 % . in addition to the above acquired interests in the industrial injury prevention businesses , during 2020 , 2019 and 2018 , we completed the following acquisitions in our physical therapy operations : replace_table_token_4_th * the business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired . * * the four clinics are in four separate partnerships . the company 's interest in the four partnerships range from 10.0 % to 83.8 % , with an overall 65.0 % based on the initial purchase transaction . also during 2019 , we purchased the assets and business of one physical therapy clinic in a separate transaction . the clinic operates as a satellite clinic of one of our existing partnerships . besides the multi-clinic acquisition in 2018 referenced in the table above , we acquired five separate clinic practices through several of our majority owned clinic partnerships . these practices operate as satellites of the respective existing clinic partnerships . we intend to continue to pursue additional acquisition opportunities , develop new clinics and open satellite clinics . impact of covid-19 as previously disclosed in a series of filings with the sec and further described in detail in our quarterly reports on form 10-q for the quarters ended march 31 , 2020 , june 30 , 2020 and september 30 , 2020 filed with the sec on may 21 , 2020 , august 7 , 2020 , and november 6 , 2020 , respectively , our results have been negatively impacted by the effects of the covid-19 pandemic . management has taken a number of steps to reduce costs , make up for operating losses incurred in march and april , and increase profits . we continue to experience somewhat lower physical therapy patient volumes ; however revenues improved significantly in the 2020 fourth quarter , compared to the 2020 second and third quarters . our average physical therapy patient volumes per day per clinic were 26.2 , 18.9 , 25.8 and 27.7 respectively , in the first to fourth quarters of 2020. our industrial injury prevention business has been less affected by the pandemic . 25 in march , with the onset of the covid-19 pandemic , we began to furlough or terminate approximately 40 % of our 5,500 full and part-time workforce . as of december 31 , 2020 approximately 1,200 of the furloughed employees have returned to work at some point during the year . as of the filing of this annual report , we continue to experience lower physical therapy revenues . as stay at home orders and other restrictions have been lifted , we have seen our physical therapy volumes trending upwards . should stay at home orders or other restrictions be reenacted , we could see our patient volume and revenues decline again . we have put preparedness plans in place at our facilities to maintain continuity of operations , while also taking steps to keep employees and patients safe . in line with recommendations to reduce large gatherings and increase social distancing , we have , where practical , transitioned a large number of office-based employees to a remote work environment . in march 2020 , in response to the covid-19 pandemic , the coronavirus aid , relief , and economic security act ( โ cares act โ ) was signed into law . the cares act provides numerous tax provisions and other stimulus measures , including temporary changes regarding the prior and future utilization of net operating losses , temporary changes to the prior and future limitations on interest deductions , temporary suspension of certain payment requirements for the employer portion of social security taxes , technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property , and the creation of certain payroll tax credits associated with the retention of employees . we have received a number of benefits under the cares act including , but not limited to : the cares act allowed for qualified healthcare providers to receive advanced payments under the existing medicare accelerated and advance payments program ( โ maapp funds โ ) during the covid-19 pandemic . under this program , healthcare providers could choose to receive advanced payments for future medicare services provided . story_separator_special_tag in may 2014 , march 2016 , april 2016 , and december 2016 , the financial accounting standards board ( โ fasb โ ) issued accounting standards update ( โ asu โ ) 2014-09 , revenue from contracts with customers , asu 2016-08 , revenue from contracts with customers , principal versus agent considerations , asu 2016-10 , revenue from contracts with customers , identifying performance obligations and licensing , asu 2016-12 , revenue from contracts with customers , narrow scope improvements and practical expedients , and asu 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customer ( collectively the โ standards โ ) , respectively , which supersede most of the current revenue recognition requirements ( โ asc 606 โ ) . the core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . we implemented the new standards beginning january 1 , 2018 using a modified retrospective transition method . the principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur . the most common forms of variable consideration we experience are amounts for services provided that are ultimately not realizable from a customer . there were no changes to revenues or other revenues upon implementation . under the new standards , our estimate for unrealizable amounts will continue to be recognized as a reduction to revenue . the bad debt expense historically reported will not materially change . for asc 606 , there is an implied contract between us and the patient upon each patient visit . separate contractual arrangements exist between us and third party payors ( e.g . insurers , managed care programs , government programs , and workers ' compensation programs which establish the amounts the third parties pay on behalf of the patients for covered services rendered . while these agreements are not considered contracts with the customer , they are used for determining the transaction price for services provided to the patients covered by the third party payors . the payor contracts do not indicate performance obligations for us , but indicate reimbursement rates for patients who are covered by those payors when the services are provided . at that time , we are obligated to provide services for the reimbursement rates stipulated in the payor contracts . the execution of the contract alone does not indicate a performance obligation . for self-paying customers , the performance obligation exists when we provide the services at established rates . the difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue โ contractual allowance . 27 we determine allowances for credit losses based on the specific agings and payor classifications at each clinic . the provision for credit losses is included in clinic operating costs in the statements of net income . patient accounts receivable , which are stated at the historical carrying amount net of contractual allowances , write-offs and allowance for credit losses , includes only those amounts we estimate to be collectible . the following table details the revenue related to the various categories ( in thousands ) . replace_table_token_5_th contractual allowances . contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services . medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in our clinics . we estimate contractual allowances based on our interpretation of the applicable regulations , payor contracts and historical calculations . each month we estimate our contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and apply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic . based on our historical experience , calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectability estimates . however , the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates . payor terms are periodically revised necessitating continual review and assessment of the estimates made by management . our billing systems may not capture the exact change in our contractual allowance reserve estimate from period to period . therefore , in order to assess the accuracy of our revenues and hence our contractual allowance reserves , our management regularly compares our cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis . in the aggregate , the historical difference between net revenues and corresponding cash collections in any given fiscal year has generally reflected a difference within approximately 1.0 % to 1.5 % of net revenues . additionally , analysis of subsequent period 's contractual write-offs on a payor basis reflects a difference within approximately 1.0 % to 1.5 % between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance .
| results of operations fiscal year 2020 compared to fiscal 2019 reported net revenues for 2020 was $ 423.0 million as compared to $ 482.0 million for 2019. see table below for a detail of reported net revenues ( in thousands ) : replace_table_token_9_th for 2020 , our net income attributable to shareholders , in accordance with gaap , was $ 35.2 million as compared to $ 40.0 million for the comparable period of 2019. inclusive of the charge for revaluation of non-controlling interest , net of tax , used to compute diluted earnings per share in accordance with gaap , earnings per share was $ 2.48 per share for 2020 and $ 2.45 per share for 2019. for both 2020 and 2019 , in accordance with current accounting guidance , the revaluation of redeemable non-controlling interest , net of tax , is not included in net income but rather charged directly to retained earnings ; however , the charge for this change is included in the earnings per basic and diluted share calculation . see table below ( in thousands , except per share data ) . replace_table_token_10_th for 2020 , our operating results ( as defined below ) , including relief funds ( defined below ) , was $ 38.4 million , or $ 2.99 per diluted share , as compared to $ 36.0 million , or $ 2.82 per diluted share in 2019. for 2020 , our operating results , excluding relief funds , was $ 30.6 million , or $ 2.39 per diluted share , as compared to $ 36.0 million , or $ 2.82 per diluted share in 2019. operating results , a non-generally accepted accounting principle ( โ gaap โ ) measure , equals net income attributable to our shareholders per the consolidated statements of net income plus charges incurred for closure costs , less gain on the sale of partnership interests and clinics , less allocated non-controlling interests , excludes expenses incurred for the transition to our new chief financial officer , all net of
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the company considers the following factors to be indicators of non-orderly transactions : ( i ) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions , ( ii ) there was a story_separator_special_tag for a description of the sources that have been used to fund our distributions . unregistered sales of equity securities during the three months ended december 31 , 2017 , we issued 3,800 shares of class c common stock to the company 's directors for their services as board members . such issuance was made in reliance on the exemption from registration under rule 4 ( a ) ( 2 ) of the securities act . 45 during the three months ended december 31 , 2017 , we also issued 32 shares of class s common stock in the class s offering for aggregate gross offering proceeds of $ 320. such issuances were made in reliance of an exemption from the registration requirements of the securities act under and in accordance with regulation s of the securities act . distributions information we intend to pay distributions on a monthly basis , and we paid our first distribution on july 11 , 2016. the rate is determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant . our board of directors has not pre-established a percentage range of return for distributions to stockholders . we have not established a minimum distribution level , and our charter does not require that we make distributions to our stockholders . during our offering stage , when we may raise capital more quickly than we acquire income producing assets , and from time to time during our operational state , we may not pay distributions from operations . in these cases , distributions may be paid in whole or in part from the waiver or deferral of fees otherwise due to our advisor or other sources , if so elected by our advisor . historically , the sources of cash used to pay our distributions have been from net rental income received and deferral of management fees . the leases for certain of our real estate acquisitions may provide for rent abatements . these abatements are an inducement for the tenant to enter into or extend the term of its lease . in connection with the acquisition of some properties , we may be able to negotiate a reduced purchase price for the acquired property in an amount that equals the previously agreed-upon rent abatement . during the period of any rent abatement on properties that we acquire , we may be unable to fully fund out distributions from net rental income received and waivers or deferrals of advisor asset management fees , in that event , we may expand the sources of cash used to fund out stockholder distributions to include proceeds from the sale of our common stock , but only during the periods , and up to the amounts , of any rent abatements where we are able to negotiate a reduced purchase price . distributions declared , distributions paid out , cash flows from operations and the source of distribution payments were as follows : replace_table_token_7_th ( 1 ) updated for immaterial corrections . ( 2 ) includes the reclassification of $ 37,554 of distributions received in the fourth quarter of 2016 from our investment in rich uncles reit i as a result of retroactively adopting asu 2016-15 . ( 3 ) during the year ended december 31 , 2016 , $ 35,395 and $ 17,531 of deferred advisor asset management fees relating to the third quarter and fourth quarter 2016 , respectively , were paid . ( 4 ) the distribution paid per share of class s common stock is net of deferred selling commissions . in 2017 and 2016 , we paid all of our dividends in cash . the following presents the federal income tax characterization of the distributions paid : replace_table_token_8_th for the year ended december 31 , 2017 , distributions paid to our stockholders were 15.8 % ordinary income , 0 % capital gain , and 84.2 % return of capital/non-dividend distribution . distributions are paid on a monthly basis 46 distributions to stockholders for the year ended december 31 , 2017 were declared and paid monthly based on daily record dates at rates per share per day as follows : replace_table_token_9_th replace_table_token_10_th ( 1 ) the distribution paid per share of class s common stock is net of deferred selling commissions . going forward , we expect our board of directors to continue to declare cash distributions based on daily record dates and to pay these distributions on a monthly basis , and after the offerings to continue to declare stock distributions based on a single record date as of the end of the month , and to pay these dividends on a monthly basis . cash distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant . our board of directors has not pre-established a percentage rate of return for stock dividends or cash distributions to stockholders . we have not established a minimum dividend or distribution level , and our charter does not require that we make dividends or distributions to our stockholders other than as necessary to meet irs reit qualification standards . our operating performance can not be accurately predicted and may deteriorate in the future due to numerous factors , including those discussed under โ risk factors. story_separator_special_tag the term โ net repurchases โ means the excess of our share repurchases ( capital outflows ) over the proceeds from the sale of our shares ( capital inflows ) for a given period . thus , for any given calendar quarter or month , the maximum amount of repurchases during that quarter or month will be equal to ( 1 ) 5 % or 2 % ( as applicable ) of our most recently determined aggregate nav , plus ( 2 ) proceeds from sales of new shares in the offering ( including purchases pursuant to our dividend reinvestment plan ) since the beginning of a current calendar quarter or month , less ( 3 ) repurchase proceeds paid since the beginning of the current calendar quarter or month . ยท while we currently intend to calculate the foregoing repurchase limitations on a net basis , our board of directors may choose whether the 5 % quarterly limit will be applied to โ gross repurchases , โ meaning that amounts paid to repurchase shares would not be netted against capital inflows . if repurchases for a given quarter are measured on a gross basis rather than on a net basis , the 5 % quarterly limit could limit the number of shares redeemed in a given quarter despite us receiving a net capital inflow for that quarter . ยท in order for our board of directors to change the basis of repurchases from net to gross , or vice versa , we will provide notice to our stockholders in a prospectus supplement to the prospectus for the registered offering or current or periodic report filed with the sec , as well as in a press release or on our website , at least 10 days before the first business day of the quarter for which the new test will apply . the determination to measure repurchases on a gross basis , or vice versa , will only be made for an entire quarter , and not particular months within a quarter . 48 the following table summarizes our repurchase activity under our share repurchase program for our class c common stock for the three months ended december 31 , 2017. as of december 31 , 2017 , we have not repurchased any shares of our class s common stock . replace_table_token_11_th ( 1 ) we generally repurchase shares approximately 5 days following the end of the applicable month in which requests were received and not withdrawn . ( 2 ) because our initial calculation of nav did not occur until january 2018 , the maximum amount that could be repurchased was limited to 5 % of the weighted average outstanding shares of class c common stock in the prior 12 months less the actual shares repurchased during the same 12-month period . the dollar value is as of the last day of the month presented . the dollar value is calculated as ( 1 ) the maximum number of shares that could be repurchased ( 5 % of the weighted average number of shares outstanding during the prior twelve months ( or a shorter period if we had not been selling shares for twelve months ) reduced by the number of shares already repurchased multiplied by ( 2 ) the repurchase price ( which was 97 % of the then-current $ 10.00 per share offering price for shares of class c common stock held by the stockholder for less than a year ( which would be most of the shares through december 31 , 2017 ) , 98 % of the then-current $ 10.00 per share offering price for shares of class c common stock held by the stockholder for more than a year and less than two years , 99 % of the then-current $ 10.00 per share offering price for shares of class c common stock held by the stockholder for more than a two years and less than three years , and 100 % of the then-current $ 10.00 per share offering price for shares of class c common stock held by the stockholder for more than three years ) . 49 procedures for repurchase post-nav calculation qualifying stockholders who desire to have their shares repurchased by us would have to give notice as provided on their personal on-line dashboard at www.richuncles.com . all requests for repurchase must be received by our advisor at least two business days prior to the end of a month . stockholders may also withdraw a previously made request to have stockholder shares repurchased but must do so at least two business days prior to the end of a month . we will repurchase shares on the third business day after the end of a month in which a request for repurchase was received and not withdrawn . as noted above , we may use cash not otherwise dedicated to a particular use to fund repurchases under the share repurchase program . however , we have the discretion to repurchase fewer shares than have been requested to be repurchased in a particular month or quarter , or to repurchase no shares at all , in the event that we lack readily available funds to do so due to market conditions beyond our control , our need to main liquidity for our operations or because we determine that investing in real property or other illiquid investments is a better use of our capital than repurchasing our shares . any determination to repurchase fewer shares than have been requested to be repurchased may be made immediately prior to the applicable date of repurchase . we will disclose any such determination to our current and prospective stockholders . in the event that we repurchase some but not all of the shares submitted for repurchase in a given period , share submitted for repurchase during such period will be repurchased on a pro rata basis .
| cash flow summary the following table summarizes our cash flow activity for the years ended december 31 : replace_table_token_15_th cash flows from operating activities we have a limited operating history . as of december 31 , 2017 , we had only acquired 18 properties and one tenant-in-common real estate investment in which we have an approximate 72.7 % interest and one real estate investment in an affiliated reit in which we have an approximate 4.4 % interest , as described in item 2. properties . therefore , we have limited operations and independent financing . during the year ended december 31 , 2017 , net cash provided by operating activities was $ 3,790,837. we expect that our cash flows from operating activities will increase in future periods as a result of anticipated future acquisitions of real estate and the related operations from such investments as well as from operations for an entire year of the properties that were acquired in 2017. cash flows from investing activities net cash used in investing activities was $ 115,593,935 for the year ended december 31 , 2017 and consisted primarily of the following : ยท $ 100,458,868 for the acquisition of nine real estate investments ; ยท $ 685,160 for improvements to real estate ; ยท $ 3,935,884 for payment of acquisition fees to affiliate ; and ยท $ 10,542,594 investments in unconsolidated entities ( tic investment in a property located in santa clara , ca ) .
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please see the `` cautionary statement '' and `` risk factors '' above for discussions of the uncertainties , risks , and assumptions associated with these statements . our fiscal year-end financial reporting periods are a 52 or 53 week year ending on the saturday closest to march 31 st . fiscal year 2011 had 52 weeks and ended on april 2 , 2011. fiscal year 2010 had 53 weeks , with the extra week occurring in the fourth quarter of the year , and ended on april 3 , 2010 . fiscal year 2009 had 52 weeks and ended on march 28 , 2009 . except as noted , financial results are for continuing operations ; altec lansing , our former aeg segment , was sold effective december 1 , 2009 and is reported as discontinued operations . overview we are a leading worldwide designer , manufacturer , and marketer of lightweight communications headsets , telephone headset systems , and accessories for the business and consumer markets under the plantronics brand . in addition , we manufacture and market , under our clarity brand , specialty telephone products , such as telephones for the hearing impaired , and other related products for people with special communication needs . we ship a broad range of products to approximately 65 countries through a worldwide network of distributors , retailers , wireless carriers , original equipment manufacturers ( โ oems โ ) , and telephony service providers . we have well-developed distribution channels in north america , europe , australia and new zealand , where use of our products is widespread . our distribution channels in other regions of the world are less mature , and , while we primarily serve the contact center markets in those regions , we continue to expand into the office , mobile and entertainment , digital audio , and specialty telephone markets in those regions and additional international locations . on december 1 , 2009 , we sold altec lansing , our aeg business segment . we have classified the aeg operating results , including the loss on sale of aeg , as discontinued operations for all periods presented and we now operate as one segment . consolidated net revenues in fiscal 2011 were $ 683.6 million , which is an increase of 11.4 % from fiscal 2010 net revenues of $ 613.8 million . the year-over-year increase was driven by increased demand for headsets designed for unified communications ( `` uc '' ) together with higher sales volumes of our office and contact center ( `` occ '' ) products as a result of a stronger overall economic environment . we had income from continuing operations , net of tax , of $ 109.2 million in fiscal 2011 as compared to $ 76.5 million in fiscal 2010 , an increase of $ 32.8 million , due primarily to increased net revenues and higher margins due to a stronger overall product mix driven by increased occ net revenues as occ products generally have higher margins along with a full year effect of outsourcing our bluetooth product manufacturing in the second quarter of fiscal 2010 offset in part by an increase in operating expenses as a result of our investment in uc . uc is widely expected to increase the adoption and use of headsets in enterprise applications . headsets help to enable voice to be delivered naturally in the uc environment . as uc is adopted by enterprises to reduce costs and improve collaboration , headsets are expected to be an important part of the uc environment . in the mobile market , particularly for consumer applications , margins are typically lower than for our enterprise applications due to the level of competition and pricing pressures . our strategy for improving the profitability of mobile consumer products is to differentiate our products from our competitors and to provide compelling solutions under our brand with regard to features , design , ease of use and performance . throughout fiscal 2011 , we remained focused on our long-term strategy to invest in uc as a key long-term driver of revenue and profit growth , maintain profitability in our consumer bluetooth products and earn a return on invested capital in excess of the cost of capital . while staying focused on our long-term strategy , we continued to distribute capital to stockholders through repurchases of our common stock , and , subsequent to our fiscal year end , on may 2 , 2011 , our board of directors authorized the repurchase of up to 7,000,000 shares of our outstanding common stock . 28 looking forward into fiscal 2012 , we continue to believe that uc is a key long-term driver of revenue and profit growth . in fiscal 2011 , we introduced new products and generated $ 53 million in revenues from our uc product portfolio . we continue to focus on innovative product development , including the use of software and services as part of our products . our investment also includes growing our sales force and increasing marketing and other support costs as we expand our key strategic partnerships to market uc products . our goal is to be the world leader in audio solutions for the uc market and we feel we are well positioned as we enter fiscal 2012 with a strong uc product portfolio . we intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our financial statements and therefore , this discussion should be read in conjunction with the financial statements and accompanying notes . story_separator_special_tag we anticipate that our consolidated selling , general and administrative expenses will increase slightly in fiscal 2012 in comparison to fiscal 2011 as we continue to invest in support of the growing uc market . 33 gain from litigation settlement replace_table_token_8_th during the fourth quarter of fiscal 2011 , we entered into a binding settlement agreement to dismiss litigation involving the alleged theft of our trade secrets by a competitor in mobile headsets , and in the same quarter , pursuant to the settlement agreement , we received a payment of $ 5.1 million in exchange for a full release and settlement of the claims . restructuring and other related charges replace_table_token_9_th we announced various restructuring activities in fiscal 2009 in an effort to reduce our cost structure in light of the expected impact of the global economic recession on our business and revenues . these actions consisted of reductions in force throughout all of our geographies along with a plan to close our manufacturing operations in our suzhou , china facility due to the decision to outsource the manufacturing of our bluetooth products to a third party supplier in china . we exited the manufacturing portion of the facility in july 2009 at which time the remaining assets were classified as assets held for sale on the consolidated balance sheet . approximately 1,500 employees from functions across the company were notified of their termination under these actions and substantially all of these employees have been terminated as of march 31 , 2011 . as a result of these restructuring actions , we recorded approximately $ 1.9 million and $ 11.0 million of restructuring and other related charges during the years ended march 31 , 2010 and 2009 , respectively , consisting of severance and benefits along with facilities and equipment charges . in addition , during the year ended march 31 , 2010 , we recorded non-cash charges of $ 5.2 million for accelerated depreciation related to the building and equipment associated with manufacturing operations which is included in cost of revenues . there were no charges during the year ended march 31 , 2011 ; however , in the third quarter of fiscal 2011 , we completed the sale of our suzhou facility , which was classified as assets held for sale , resulting in an immaterial net gain which was recorded in restructuring and other related charges . as of march 31 , 2011 , we have recorded a total of $ 17.7 million of costs related to these actions , which includes $ 11.2 million of severance and benefits and $ 6.9 million in non-cash charges related to accelerated depreciation charges , the write-off of facilities and equipment and impairment loss on assets held for sale , offset in part by a $ 0.4 million gain on the final sale of our suzhou facility . all of these costs and the gain on sale were recorded in restructuring and other related charges , with the exception of $ 5.2 million of accelerated depreciation which was recorded in cost of revenues . all the costs related to these actions have been paid as of march 31 , 2011 . operating income replace_table_token_10_th 34 in fiscal 2011 , we reported operating income of $ 140.7 million compared to $ 97.6 million in fiscal 2010 due to increased revenues and higher margins resulting mostly from a favorable product mix consisting of a greater proportion of occ revenues which generally have higher gross margins than other product categories . in addition , we experienced improved bluetooth margins resulting primarily from lower costs as a result of outsourcing our manufacturing facility in china which began in july 2009. in fiscal 2010 , we had an operating income of $ 97.6 million compared to $ 61.5 million in fiscal 2009 due to higher margins on lower revenues as a result of our fiscal 2009 restructuring actions in which we reduced our worldwide workforce and outsourced our bluetooth manufacturing in china along with lower costs as a result of cost savings programs . operating margins may vary based on product mix shifts , product life cycles , and seasonality . we believe our operating income will increase in fiscal 2012 due to growth in revenues driven primarily as a result of capitalizing on the uc opportunity as well as expected continued moderate economic growth . interest and other income ( expense ) , net replace_table_token_11_th interest and other income ( expense ) , net in fiscal 2011 decreased from fiscal 2010 due primarily to greater foreign currency exchange gains in the prior year as a result of a weaker u.s. dollar in fiscal 2010 than in fiscal 2011 in addition to penalties and interest recorded in fiscal 2011 related to the settlement of an indirect tax matter in brazil . in addition , included in the prior year was income from a one-time government stimulus program in mexico . in comparison to fiscal 2009 , interest and other income ( expense ) , net in fiscal 2010 increased due primarily to foreign exchange gains in fiscal 2010 as compared to foreign currency losses in the prior year as a result of the strength of the u.s. dollar , a stimulus grant received from the mexican government and reimbursement from altec lansing for routine expenses incurred on their behalf under the transition service agreement entered into in conjunction with the sale of the aeg business in december 2009. these increases were offset in part by lower interest income as a result of declining interest rates despite higher average cash and investment balances in fiscal 2010 .
| results of operations the following tables set forth , for the periods indicated , the consolidated statements of operations data . the financial information and the ensuing discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto . except as noted , financial results are for continuing operations . altec lansing , our former aeg segment , was sold effective december 1 , 2009. we have classified the aeg operating results as discontinued operations in the consolidated statement of operations for all periods presented . replace_table_token_2_th 29 net revenues replace_table_token_3_th our consolidated net revenues increased in fiscal 2011 as compared to fiscal 2010 driven by growth in occ product revenues as a result of improved global economic conditions and growth in demand for uc . while we experienced foreign exchange fluctuations in our net revenues during the first half of the fiscal year , the overall foreign exchange impact for the entire fiscal year was not material . our consolidated net revenues decreased in fiscal 2010 as compared to fiscal 2009 primarily in our mobile and occ product revenues as a result of global economic weakness due to the global recession especially in the first half of fiscal 2010 in comparison to the prior year . while we experienced foreign exchange fluctuations in our net revenues during the first half of fiscal 2010 , the overall foreign exchange impact for the entire fiscal year was not material . net revenues may vary due to the timing of the introduction of new products , discounts and other incentives and channel mix . in addition , we typically experience seasonality in our quarterly revenues which occurs in the third quarter of our fiscal year . our occ products represent our largest source of revenues while our mobile products represent our largest unit volumes .
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in 2017 , we received proceeds of $ 46.8 million , resulting in net gains of $ 1.8 million . portfolio management continues to own marine assets , consisting primarily of five liquefied gas-carrying vessels ( the `` specialized gas vessels '' ) , previously referred to as the norgas vessels . during the second quarter of 2019 , the prior commercial management agreement with norgas carriers private limited , and related pooling arrangement , was terminated , and we entered into a new agreement with anthony veder group b.v. ( `` veder '' ) to commercially manage these vessels . during this transition , the specialized gas vessels were idle for a significant portion of the second quarter of 2019. however , we realized increased utilization during the second half of 2019 and expect continuing improvement in future operating performance resulting from this new commercial agreement . portfolio management 's total asset base was $ 653.7 million at december 31 , 2019 , compared to $ 606.8 million at december 31 , 2018 , and $ 582.8 million at december 31 , 2017 . the following table shows portfolio management 's segment results for the years ended december 31 ( in millions ) : replace_table_token_14_th 34 the following table sets forth the approximate net book value of portfolio management 's assets as of december 31 ( in millions ) : replace_table_token_15_th ( 1 ) amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets . rrpf affiliates engine portfolio data the following table shows portfolio activity for the rrpf affiliates ' aircraft spare engines for the years ended december 31 : replace_table_token_16_th 35 comparison of reported results comparisons of reported results for 2018 and 2017 are impacted by the sale of marine investments . segment profit in 2019 , segment profit was $ 62.4 million compared to $ 38.7 million in 2018 . the increase reflects stronger results at the rrpf affiliates , partially offset by a lower contribution from the specialized gas vessels . in 2018 , segment profit was $ 38.7 million compared to $ 56.3 million in 2017. segment profit for 2017 included net gains of approximately $ 1.8 million associated with the exit of marine investments . excluding this item , results for the portfolio management segment were $ 15.8 million lower in 2018 compared to 2017 , primarily due to the absence of operating income from the marine assets sold during 2017 , lower residual sharing fees from the managed portfolio , and a lower contribution from the specialized gas vessels . revenues in 2019 , lease revenue was comparable to the same period in 2018. marine operating revenue decreased $ 6.1 million , due to lower revenue from the specialized gas vessels . in 2019 , utilization of the vessels was lower due to idle time associated with the transition to a new commercial manager , as discussed previously . in 2018 , lease revenue decreased $ 2.8 million , primarily due to the impact of the sales of assets in 2017. marine operating revenue decreased $ 10.7 million , largely due to lower revenue from the specialized gas vessels and the absence of revenue from the marine assets that were sold in 2017. the revenue from the specialized gas vessels declined due to continued pressure on charter rates and lower utilization , resulting from weak demand and oversupply of vessels in the market . expenses in 2019 , marine operating expense increased $ 2.1 million . this increase was driven by the write-off of residual net assets as part of the wind-up of activities under the prior commercial management pooling agreement , partially offset by lower expenses from the specialized gas vessels . 36 in 2018 , marine operating expense decreased $ 8.0 million , primarily due to the absence of the marine assets that were sold in 2017 , as well as lower expenses from the specialized gas vessels , which included higher dry-docking costs in the prior year . other income ( expense ) in 2019 , net loss on asset dispositions increased $ 1.3 million , largely due to higher impairment losses for certain offshore supply vessels , partially offset by higher residual sharing fees from the managed portfolio . in 2018 , net gain ( loss ) on asset dispositions decreased $ 11.1 million . net gains of approximately $ 1.8 million were recorded in 2017 associated with the planned exit of marine investments . excluding this item , net gain ( loss ) on asset dispositions decreased $ 9.3 million due to lower residual sharing fees from the managed portfolio , as well as well as higher impairment losses for certain offshore supply vessels . in 2019 , income from our share of affiliates ' earnings increased $ 34.0 million . the increase was due to more engines on lease and increased residual realization at the rrpf affiliates . in 2018 , income from our share of affiliates ' earnings increased $ 2.1 million , primarily from earnings at the rrpf affiliates due to higher operating income , driven by engines added to the fleet in 2018 , partially offset by lower net disposition gains on engines sold . investment volume portfolio management did not make any investments in 2019. investment volume of $ 14.1 million in 2018 and $ 36.6 million in 2017 consisted primarily of equity investments in the rrpf affiliates . asc segment summary asc generated strong operating results in 2019 , driven by increased operational efficiency and favorable operating conditions . asc deployed 11 vessels , carrying 27.0 million net tons of freight in 2019 compared to 11 vessels carrying 26.2 million net tons in 2018 and 12 vessels carrying 27.8 million net tons in 2017. in 2019 , one of asc 's vessels was heavily damaged by fire during winter maintenance . as a result , the vessel was story_separator_special_tag in 2017 , we received proceeds of $ 46.8 million , resulting in net gains of $ 1.8 million . portfolio management continues to own marine assets , consisting primarily of five liquefied gas-carrying vessels ( the `` specialized gas vessels '' ) , previously referred to as the norgas vessels . during the second quarter of 2019 , the prior commercial management agreement with norgas carriers private limited , and related pooling arrangement , was terminated , and we entered into a new agreement with anthony veder group b.v. ( `` veder '' ) to commercially manage these vessels . during this transition , the specialized gas vessels were idle for a significant portion of the second quarter of 2019. however , we realized increased utilization during the second half of 2019 and expect continuing improvement in future operating performance resulting from this new commercial agreement . portfolio management 's total asset base was $ 653.7 million at december 31 , 2019 , compared to $ 606.8 million at december 31 , 2018 , and $ 582.8 million at december 31 , 2017 . the following table shows portfolio management 's segment results for the years ended december 31 ( in millions ) : replace_table_token_14_th 34 the following table sets forth the approximate net book value of portfolio management 's assets as of december 31 ( in millions ) : replace_table_token_15_th ( 1 ) amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets . rrpf affiliates engine portfolio data the following table shows portfolio activity for the rrpf affiliates ' aircraft spare engines for the years ended december 31 : replace_table_token_16_th 35 comparison of reported results comparisons of reported results for 2018 and 2017 are impacted by the sale of marine investments . segment profit in 2019 , segment profit was $ 62.4 million compared to $ 38.7 million in 2018 . the increase reflects stronger results at the rrpf affiliates , partially offset by a lower contribution from the specialized gas vessels . in 2018 , segment profit was $ 38.7 million compared to $ 56.3 million in 2017. segment profit for 2017 included net gains of approximately $ 1.8 million associated with the exit of marine investments . excluding this item , results for the portfolio management segment were $ 15.8 million lower in 2018 compared to 2017 , primarily due to the absence of operating income from the marine assets sold during 2017 , lower residual sharing fees from the managed portfolio , and a lower contribution from the specialized gas vessels . revenues in 2019 , lease revenue was comparable to the same period in 2018. marine operating revenue decreased $ 6.1 million , due to lower revenue from the specialized gas vessels . in 2019 , utilization of the vessels was lower due to idle time associated with the transition to a new commercial manager , as discussed previously . in 2018 , lease revenue decreased $ 2.8 million , primarily due to the impact of the sales of assets in 2017. marine operating revenue decreased $ 10.7 million , largely due to lower revenue from the specialized gas vessels and the absence of revenue from the marine assets that were sold in 2017. the revenue from the specialized gas vessels declined due to continued pressure on charter rates and lower utilization , resulting from weak demand and oversupply of vessels in the market . expenses in 2019 , marine operating expense increased $ 2.1 million . this increase was driven by the write-off of residual net assets as part of the wind-up of activities under the prior commercial management pooling agreement , partially offset by lower expenses from the specialized gas vessels . 36 in 2018 , marine operating expense decreased $ 8.0 million , primarily due to the absence of the marine assets that were sold in 2017 , as well as lower expenses from the specialized gas vessels , which included higher dry-docking costs in the prior year . other income ( expense ) in 2019 , net loss on asset dispositions increased $ 1.3 million , largely due to higher impairment losses for certain offshore supply vessels , partially offset by higher residual sharing fees from the managed portfolio . in 2018 , net gain ( loss ) on asset dispositions decreased $ 11.1 million . net gains of approximately $ 1.8 million were recorded in 2017 associated with the planned exit of marine investments . excluding this item , net gain ( loss ) on asset dispositions decreased $ 9.3 million due to lower residual sharing fees from the managed portfolio , as well as well as higher impairment losses for certain offshore supply vessels . in 2019 , income from our share of affiliates ' earnings increased $ 34.0 million . the increase was due to more engines on lease and increased residual realization at the rrpf affiliates . in 2018 , income from our share of affiliates ' earnings increased $ 2.1 million , primarily from earnings at the rrpf affiliates due to higher operating income , driven by engines added to the fleet in 2018 , partially offset by lower net disposition gains on engines sold . investment volume portfolio management did not make any investments in 2019. investment volume of $ 14.1 million in 2018 and $ 36.6 million in 2017 consisted primarily of equity investments in the rrpf affiliates . asc segment summary asc generated strong operating results in 2019 , driven by increased operational efficiency and favorable operating conditions . asc deployed 11 vessels , carrying 27.0 million net tons of freight in 2019 compared to 11 vessels carrying 26.2 million net tons in 2018 and 12 vessels carrying 27.8 million net tons in 2017. in 2019 , one of asc 's vessels was heavily damaged by fire during winter maintenance . as a result , the vessel was
| segment summary rail international , composed primarily of gatx rail europe ( `` gre '' ) , produced solid operating results in 2019. strong replacement demand and increasing new railcar production backlogs drove record utilization and strong lease rates at gre . railcar utilization for gre was 99.3 % at the end of 2019 , compared to 98.8 % at the end of 2018 , and 96.8 % at the end of 2017 . utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet . in addition , our operations in india ( `` gri '' ) benefited from more cars on lease as it continued to significantly expand its fleet . in 2018 , gre recorded $ 9.5 million of expenses attributable to the closure of a railcar maintenance facility in germany . gri continued to focus on investment opportunities , diversification of its fleet , and developing relationships with customers , suppliers and the indian railways . in 2019 , gri added 1,626 railcars , compared to 1,001 in 2018 and 275 in 2017. gri expects continued fleet growth and diversification in 2020. rail russia focused on managing its existing fleet and maintaining strong relationships with its customer base . in 2019 , rail russia added 26 railcars , compared to 184 in 2018 and zero in 2017. the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_12_th 31 the following table shows fleet activity for gre railcars for the years ended december 31 : replace_table_token_13_th \ foreign currency rail international 's reported financial results are impacted by fluctuations in the exchange rates of the u.s. dollar versus foreign currencies in which it conducts business , primarily the euro .
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this asu is effective for all entities for fiscal story_separator_special_tag forward-looking statements please note that in this annual report on form 10-k we may use words such as โ appears , โ โ anticipates , โ โ believes , โ โ plans , โ โ expects , โ โ intends , โ โ future , โ and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are made based on our expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties . we caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements . potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements in this annual report on form 10-k include , but are not limited to , the overall level of consumer demand on our products ; general economic conditions and other factors affecting consumer confidence , preferences , and behavior ; disruption and volatility in the global currency , capital and credit markets ; the financial strength of the company 's customers ; the company 's ability to implement its business strategy ; the ability of the company to execute and integrate acquisitions ; changes in governmental regulation , legislation or public opinion relating to the manufacture and sale of bullets and ammunition by our sierra segment , and the possession and use of firearms and ammunition by our customers ; the company 's exposure to product liability or product warranty claims and other loss contingencies ; stability of the company 's manufacturing facilities and suppliers ; the company 's ability to protect patents , trademarks and other intellectual property rights ; any breaches of , or interruptions in , our information systems ; fluctuations in the price , availability and quality of raw materials and contracted products as well as foreign currency fluctuations ; our ability to utilize our net operating loss carryforwards ; changes in tax laws and liabilities , tariffs , legal , regulatory , political and economic risks ; and the company 's ability to maintain a quarterly dividend . more information on potential factors that could affect the company 's financial results can be found under item 1a.โrisk factors of this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based upon information available to the company as of the date of this annual report on form 10-k , and speak only as the date hereof . we assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this annual report on form 10-k. story_separator_special_tag future reversal of existing taxable temporary differences , 2 ) taxable income in carryback years if carryback is permitted , 3 ) future taxable income from future operations , and 4 ) tax planning strategies . the degree and subjectivity and judgment increases as the source of future taxable income becomes more inherently subjective . our assumptions , judgments and estimates relative to the realizability of a deferred tax asset take into account predictions of the amount and category of expected future taxable income . actual operating results and the underlying amount and category of income in future years could cause our current assumptions , judgments and estimates of recoverable net deferred taxes to be inaccurate . changes in any of the assumptions , judgments and estimates mentioned above related to the realizability of deferred tax assets , could materially affect our financial position and results of operations . ยท we make ongoing estimates of potential excess , close-out or slow-moving inventory . we evaluate our inventory on hand considering our sales forecasts and historical experience to identify excess , close-out or slow-moving inventory and make provisions as necessary to properly reflect inventory value at the lower of cost or net realizable value . 29 ยท we assess the recoverability of our one reporting unit 's carrying value of goodwill by making a qualitative or quantitative assessment . if we begin with a qualitative assessment and are able to support the conclusion that it is not more-likely-than-not that the fair value of the company is less than its carrying value , we are not required to perform the two-step impairment test . otherwise , using the two-step approach is required . in the first step of the goodwill impairment test , we compare an estimate of the fair value of the applicable reporting unit to its carrying value , including goodwill . if the fair value of the company exceeds its carrying value , the goodwill is not impaired and no further review is required . however , if the fair value of the reporting unit is less than its carrying value , we perform the second step of the goodwill impairment test to determine the amount of the impairment charge , if any . the second step involves a hypothetical allocation of the fair value of the company to its net tangible and intangible assets ( excluding goodwill ) as if the business unit were newly acquired , which results in an implied fair value of goodwill . the amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of goodwill . the annual impairment tests are based on an evaluation of estimated future discounted cash flows . the estimated discounted cash flows are based on the best information available to us at the time , including supportable assumptions and projections we believe are reasonable . our discounted cash flow estimates use discount rates that correspond to a weighted-average cost of capital consistent with a market-participant view . the discount rates are consistent with those used for investment decisions and take into account our operating plans and strategies . story_separator_special_tag gross profit consolidated gross profit increased $ 20,152 or 37.5 % , to $ 73,962 during the year ended december 31 , 2018 , compared to consolidated gross profit of $ 53,810 during the year ended december 31 , 2017. consolidated gross margin was 34.9 % during the year ended december 31 , 2018 , compared to a consolidated gross margin of 31.5 % during the year ended december 31 , 2017. consolidated gross margin during the year ended december 31 , 2018 , increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution . gross margin also benefited from the inclusion of sierra ; however , this benefit was partially offset by a decrease in gross margin of 0.5 % due to the sale of inventory that was recorded at its fair value in purchase accounting . consolidated gross margin during the year ended december 31 , 2017 was also negatively impacted by 1.2 % due to the sale of inventory that was recorded at its preliminary fair value in purchase accounting . selling , general and administrative consolidated selling , general , and administrative expenses increased $ 8,856 , or 15.7 % , to $ 65,151 during the year ended december 31 , 2018 , compared to consolidated selling , general and administrative expenses of $ 56,295 during the year ended december 31 , 2017. the increase in selling , general and administrative expenses was partially attributable to the inclusion of sierra of $ 4,504 in incremental selling , general , and administrative expenses . the remaining increase being attributable to the company 's investment in the brand related activities of sales , marketing , research and development , and fulfillment in supporting its strategic initiatives around new product introduction and increasing brand equity . stock compensation also increased $ 1,471 during the year ended december 31 , 2018 compared to the prior year . restructuring charges consolidated restructuring expense decreased $ 23 , or 14.4 % , to $ 137 during the year ended december 31 , 2018 , compared to consolidated restructuring expense of $ 160 during the year ended december 31 , 2017. restructuring expenses incurred during the year ended december 31 , 2018 , related to costs associated with the formal closure and liquidation of the company 's black diamond equipment manufacturing operations in zhuhai , china . merger and integration costs consolidated merger and integration expense decreased to $ 0 during the year ended december 31 , 2018 compared to consolidated merger and integration expense of $ 82 during the year ended december 31 , 2017 , which consisted of expenses related to the integration of sierra . transaction costs consolidated transaction expense decreased to $ 503 during the year ended december 31 , 2018 , compared to consolidated transaction costs of $ 2,088 during the year ended december 31 , 2017 , which consisted of expenses related to the company 's acquisition of sierra . interest expense , net consolidated interest expense , net increased $ 51 , or 4.0 % , to $ 1,339 during the year ended december 31 , 2018 , compared to consolidated interest expense , net , of $ 1,288 during the year ended december 31 , 2017. interest expense recognized during the year ended december 31 , 2018 was primarily attributable to the write-off of previously capitalized origination costs of $ 279 associated with our previous credit facility , which was replaced with the new credit agreement with jpmorgan chase bank , n.a. , and interest expense associated with the average outstanding debt amounts during the year ended december 31 , 2018. interest expense recognized during the year ended december 31 , 2017 was primarily attributable to the company 's 5 % senior subordinated notes which were repaid during the year ended december 31 , 2017 . 32 other , net consolidated other , net , decreased $ 702 , or 204.7 % , to expense of $ 359 during the year ended december 31 , 2018 , compared to consolidated other , net income of $ 343 during the year ended december 31 , 2017. the decrease in other , net , was primarily attributable to a decrease in remeasurement gains recognized on the company 's foreign denominated accounts receivable and accounts payable and losses related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity . this decrease was partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts . income taxes consolidated income tax benefit decreased $ 4,259 , or 83.7 % , to a benefit of $ 828 during the year ended december 31 , 2018 , compared to a consolidated income tax benefit of $ 5,087 during the same period in 2017. due to the tax cuts and jobs act ( โ tax act โ ) enacted in december 2017 , the profit before tax benefit recorded during the year ended december 31 , 2018 was expensed at the federal statutory rate of 21 % compared to 35 % in 2017. our effective income tax rate was a benefit of 12.8 % for the year ended december 31 , 2018 , compared to 88.3 % for the same period in 2017. the primary reasons for the effective income tax rate changes are due to differing levels of income ( loss ) before income tax and discrete charges recorded during the respective periods . the tax benefit recorded for the year ended december 31 , 2018 included charges associated to the usage of previous net operating losses ( โ nol โ ) as well as charges for discrete items associated with a tax windfall deduction from the vesting of restricted stock units and the exercises of stock options . factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur .
| overview headquartered in salt lake city , utah , clarus corporation ( which may be referred to as the โ company , โ โ clarus , โ โ we , โ โ our โ or โ us โ ) , a company focused on the outdoor and consumer industries , is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns . the company has substantial net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value . clarus ' primary business is as a leading developer , manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb , ski , mountain , sport and skincare markets . the company 's products are principally sold under the black diamondยฎ , sierraยฎ , piepsยฎ and skinourishmentยฎ brand names through specialty and online retailers , distributors and original equipment manufacturers throughout the u.s. and internationally . through our black diamond , pieps , and skinourishment brands , we offer a broad range of products including : high performance activity-based apparel ( such as shells , insulation , midlayers , pants and logowear ) ; rock-climbing footwear and equipment ( such as carabiners , protection devices , harnesses , belay devices , helmets , and ice-climbing gear ) ; technical backpacks and high-end day packs ; trekking poles ; headlamps and lanterns ; gloves and mittens ; and skincare and other sport-enhancing products . we also offer advanced skis , ski poles , ski skins , and snow safety products , including avalanche airbag systems , avalanche transceivers , shovels , and probes . through our sierra brand , we manufacture a wide range of high-performance bullets and ammunition for both rifles and pistols that are used for precision target shooting , hunting and military and law enforcement purposes .
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the company 's results of operations are dependent primarily on net interest income , which is the difference between the interest income earned on the company 's interest-earning assets , such as loans and investments , and the interest expense on its interest-bearing liabilities , such as deposits and borrowings . the company also generates non-interest income such as income from loan sales , reverse mortgage loan originations , loan servicing , merchant check card services , deposit account services , the sale of alternative investments , trust and asset management services and other fees . the company 's operating expenses primarily consist of compensation and employee benefits , occupancy and equipment , federal deposit insurance , data processing , marketing , and other general and administrative expenses . the company 's results of operations are also significantly affected by competition , general economic conditions including levels of unemployment and real estate values as well as changes in market interest rates , government policies and actions of regulatory agencies . strategy the company operates as a consumer-oriented bank , with a strong focus on its local community . the bank is the oldest and largest community-based financial institution headquartered in ocean county , new jersey . the bank competes with larger and out-of-market financial service providers through its local focus and the delivery of superior service . the bank also competes with smaller in-market financial service providers by offering a broad array of products . the company 's strategy has been to consistently grow profitability while limiting credit and interest rate risk exposure . to accomplish these objectives , the bank has sought to ( 1 ) grow commercial loans receivable through the offering of commercial lending services to local businesses ; ( 2 ) grow core deposits ( defined as all deposits other than time deposits ) through product offerings appealing to a broadened customer base and de novo branch expansion ; and ( 3 ) increase non-interest income by expanding the menu of fee-based products and services . with industry consolidation eliminating most locally-headquartered competitors , concurrent with the conversion , the company perceived an opportunity to fill a void for locally-delivered commercial loan and deposit services . as such , the bank assembled an experienced team of business banking professionals responsible for offering commercial loan and deposit services and merchant check card services to local businesses . as a result of this initiative , commercial loans represented 31.9 % of the bank 's total loans at december 31 , 2011 as compared to 19.9 % at december 31 , 2006 and only 3.6 % at december 31 , 1997. despite the bank 's focus , commercial loan balances declined by $ 5.2 million , or 1.0 % , in 2011 , due to tepid loan demand in the weak economy and prepayments of certain loan relationships . commercial loan products entail a higher degree of credit risk than is involved in one-to-four family residential mortgage lending activity . as a consequence , management continues to employ a well-defined credit policy focusing on quality underwriting and close management and board monitoring . the bank seeks to increase core deposit market share in its primary market area by expanding the branch network and improving market penetration . over the past sixteen years through december 31 , 2011 , the bank has opened sixteen branch offices , twelve in ocean county and four in monmouth county . the bank is continually evaluating additional office sites within its existing market area . the bank opened its twenty-fourth branch office in late 2011. the branch is located within a senior housing development , harrogate , in lakewood , new jersey and maintains limited hours for residents and employees of the retirement community . the bank currently plans to open an additional branch office in jackson , new jersey in late 2012 or early 2013. core account development has benefited from bank efforts to attract business deposits in conjunction with its commercial 41 lending operations and from an expanded mix of retail core account products . additionally , marketing and incentive plans have focused on core account growth . as a result of these efforts the bank 's core deposit ratio has grown to 84.2 % at december 31 , 2011 as compared to 60.5 % at december 31 , 2006 and only 33.0 % at december 31 , 1997. core deposits are generally considered a less expensive and more stable funding source than certificates of deposit . management continues to diversify the bank 's product line in order to enhance non-interest income . the bank offers alternative investment products ( annuities , mutual funds and life insurance ) for sale through its retail branch network . the products are non-proprietary , sold through a third party vendor , and provide the bank with fee income opportunities . in early 2005 , the alternative investment program was expanded to add licensed bank employees which allows the bank to capture more of the revenue associated with the sale of investment products . the bank offers trust and asset management services and has also expanded the non-interest income received from business relationships by offering fee based products , including merchant services . as a result of these initiatives , income from fees and service charges has increased to $ 11.4 million for the year ended december 31 , 2011 as compared to $ 10.5 million for the year ended december 31 , 2006 and only $ 1.4 million for the year ended december 31 , 1997. the bank also offers reverse mortgage loans which are sold into the secondary market . the gain on sale from selling reverse mortgages is included in the net gain on sales of loans available for sale . in addition to the objectives described above , in 2011 the company determined to more actively manage its capital position to improve return on equity . in the fourth quarter of 2011 , the company announced its intention to repurchase up to 942,306 shares , or 5 % , of its outstanding common stock . story_separator_special_tag impairment of the msr is assessed on the fair value of those rights with any impairment recognized as a component of loan servicing fee income . the fair value of msr is sensitive to changes in assumptions . fluctuations in prepayment speed assumptions have the most significant impact on the fair value of msr . in the event that loan prepayments continue to increase due to increased loan refinancing , the fair value of msr would likely decline . in the event that loan prepayment activities decrease due to a decline in loan refinancing , the fair value of msr would likely increase . additionally , due to the economic downturn , default rates and servicing costs may increase in future periods which would result in a decline in the fair value of msr . any measurement of msr is limited by the existing conditions and assumptions utilized at a particular point in time , and would not necessarily be appropriate if applied at a different point in time . impairment of securities on a quarterly basis the company evaluates whether any securities are other-than-temporarily impaired . in making this determination , the company considers the extent and duration of the impairment , the nature and financial health of the issuer , the ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value and other factors relevant to specific securities , such as the credit risk of the issuer and whether a guarantee or insurance applies to the security . if a security is determined to be other-than-temporarily impaired , the impairment is charged to income during the period the impairment is found to exist , resulting in a reduction to earnings for that period . during 2011 , the company recognized an other-than-temporary impairment loss on equity securities of $ 148,000. as of december 31 , 2011 , the company concluded that any remaining unrealized losses in the securities available for sale portfolios were temporary in nature because they were primarily related to market interest rates , market illiquidity and wider credit spreads for these types of securities . additionally , the company does not intend to sell the securities and it is more likely than not that the company will not be required to sell the securities before recovery of their amortized cost . future events that could materially change this conclusion and require an impairment loss to be charged to operations include a change in the credit quality of the issuers or a determination that a market recovery in the foreseeable future is unlikely . analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them . the following table sets forth certain information relating to the company for each of the years ended december 31 , 2011 , 2010 and 2009. the yields and costs are derived by dividing income or expense by the average balance of assets or liabilities , respectively , for the periods shown except where noted otherwise . average balances are derived from average daily balances . the yields and costs include fees which are considered adjustments to yields . 45 replace_table_token_22_th ( 1 ) amounts are recorded at average amortized cost . ( 2 ) amount is net of deferred loan fees , undisbursed loan funds , discounts and premiums and estimated loan loss allowances and includes loans held for sale and non-performing loans . ( 3 ) net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income divided by average interest-earning assets . rate volume analysis the following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the company 's interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( iii ) the net change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . 46 replace_table_token_23_th comparison of financial condition at december 31 , 2011 and december 31 , 2010 total assets at december 31 , 2011 were $ 2.302 billion , an increase of $ 50.8 million , or 2.3 % , compared to $ 2.251 billion at december 31 , 2010. cash and due from banks increased by $ 46.1 million , to $ 77.5 million at december 31 , 2011 , as compared to $ 31.5 million at december 31 , 2010. investment securities available for sale increased $ 73.4 million , or 79.8 % , to $ 165.3 million at december 31 , 2011 , as compared to $ 91.9 million at december 31 , 2010 , due to purchases of government agency securities . the increases in cash and due from banks and investment securities available for sale were attributable to the reduction in loans and the increase in deposits as described below . loans receivable , net decreased by $ 97.8 million , or 5.9 % , to a balance of $ 1.563 billion at december 31 , 2011 , as compared to a balance of $ 1.661 billion at december 31 , 2010 , primarily due to weak demand , prepayments resulting from the low interest rate environment , and sales of newly originated 30-year fixed-rate one-to-four family loans .
| summary interest-earning assets , both loans and securities , are generally priced against longer-term indices , while interest-bearing liabilities , primarily deposits and borrowings , are generally priced against shorter-term indices . in 2011 , the company 's net interest margin has contracted as compared to prior year periods . due to the low interest rate environment , high loan refinance volume has caused yields on loans and mortgage-backed securities to trend downward . at the same time , the company 's asset mix has shifted as higher-yielding loans have decreased due to weak demand , prepayments and the sale of newly originated 30-year fixed-rate one-to-four family loans , while lower-yielding interest-earning deposits and securities have increased . management expects the low interest rate environment to continue beyond 2012 , resulting in further pressure on the net interest margin . in addition to the interest rate environment , the company is dependent upon national and local economic conditions . the overall economy remains weak with continued high unemployment coupled with concern surrounding the housing market . these conditions have had an adverse impact on the company 's results of operations . highlights of the company 's financial results for the year ended december 31 , 2011 were as follows : total assets increased to $ 2.302 billion at december 31 , 2011 , from $ 2.251 billion at december 31 , 2010. loans receivable , net decreased $ 97.8 million , or 5.9 % , at december 31 , 2011 , as compared to december 31 , 2010 primarily due to weak demand , prepayments resulting from the low interest rate environment and the sale of newly originated 30-year fixed-rate one-to-four family loans .
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each share of tier common stock issued and outstanding immediately prior to the merger , was converted into 2.98 newly issued , pre-reverse split shares of the company 's common stock with fractional shares being settled in cash . in the merger , former tier common stockholders received approximately 166 million pre-reverse split shares of common stock of the company . the merger has been accounted for as a business story_separator_special_tag the following discussion and analysis should be read in conjunction with the selected financial data and the consolidated financial statements and notes . overview of 2019 performance and company and industry trends our strategy is to create value for our stockholders through ownership of the premier urban office portfolio in the sunbelt markets of the united states , with a particular focus on georgia , texas , north carolina , arizona , and florida . this strategy is based on a disciplined approach to capital allocation that includes value-add acquisitions , selective development projects , and timely dispositions of non-core assets . this strategy is also based on a simple , flexible , and low-leveraged balance sheet that allows us to pursue compelling growth opportunities at the most advantageous points in the cycle . to implement this strategy , we leverage our strong local operating platforms within each of our major markets . consistent with our strategy , on june 14 , 2019 , we merged with tier reit , inc. ( โ tier โ ) in a stock-for-stock transaction ( the `` merger '' ) . as a result , we acquired an interest in nine operating office properties containing 5.8 million square feet of space , two office properties under development that are expected to add 620,000 square feet of space upon completion , and land parcels on which up to 2.5 million square feet of additional space may be developed . strategically , we believe that the merger created an unmatched portfolio of trophy office assets balanced across the premier sunbelt markets . in addition , we believe that the merger has enhanced our position in our existing markets of austin and charlotte , provided a strategic entry into dallas , and balanced our exposure in atlanta . the merger is also expected to enhance growth and to provide value-add opportunities as a result of tier 's active and attractive development portfolio and land bank . as a part of this transaction , we issued $ 650 million in senior unsecured debt at a weighted average interest rate of 3.88 % , which effectively replaced the majority of the tier debt assumed in the merger . in addition to the merger , we engaged in a number of transactions during 2019 that both individually and collectively advanced our strategy . on march 1 , 2019 , we entered into a series of agreements and executed related transactions with norfolk southern railway company ( `` ns '' ) in which we sold land to ns , executed agreements to provide development and consulting services for ns 's corporate headquarters that is being constructed on that land , and purchased a 370,000 square foot office building in midtown atlanta from ns ( `` 1200 peachtree '' ) that is subject to a three-year market rate lease covering the entire building . these transactions are not only accretive to earnings over the period of construction of ns 's new headquarters , but the addition of 1200 peachtree at an attractive price in the growing midtown atlanta submarket provides an excellent opportunity to re-lease the space at attractive rates when ns moves to its new headquarters . in june 2019 , we entered into a 561,000 square foot lease with truist financial corporation ( `` truist '' ) at hearst tower that enhanced the value of the building with a 15-year lease to a high credit tenant covering 58 % of the building . included in the lease was an option for truist to purchase the building for $ 455.5 million . in late 2019 , truist notified us of their intent to exercise this option , and we expect to close on the sale of hearst tower at the end of the first quarter of 2020. in october 2019 , we purchased our partner 's interest in terminus office holdings ( `` toh '' ) in a transaction that values terminus 100 and terminus 200 at $ 503 million . at 83 % leased and at a purchase price below replacement cost , we believe that this purchase provides an opportunity to create value through the lease-up of vacant space in one of the most highly amenitized office properties in buckhead atlanta . as noted above , in the merger , we added two active development projects to our development pipeline : domain 10 and domain 12 in austin . domain 12 is 100 % leased and on track to deliver in the first half of 2020. with the execution of an expansion with amazon in the third quarter of 2019 , we increased the percent leased of domain 10 from 63 % upon acquisition to 98 % . domain 10 is scheduled to deliver in late 2020. we continued to make progress on our existing development projects that include 120 west trinity in decatur , georgia , 10000 avalon in atlanta , and 300 colorado in austin . these projects are on track to deliver in 2020 and early 2021 and the office portion of these properties is a combined 77 % pre-leased . we commenced development of 100 mill , a 287,000 square foot office property in tempe , arizona . this project has estimated construction costs of $ 153 million , is scheduled for delivery in early 2022 , and is 44 % pre-leased . in the first quarter of 2019 , dimensional place , a 281,000 square foot office building in charlotte commenced operations . we continue to look for additional development opportunities with our robust land bank . in 2019 , we leased or renewed 3.1 million square feet of office space . story_separator_special_tag the preparation of financial statements in accordance with gaap requires the use of certain estimates , a change in which could materially affect revenues , expenses , assets , or liabilities . some of our accounting policies are considered to be critical accounting policies , which are ones that are both important to the portrayal of our financial condition , results of operations , and cash flows , and ones that also require significant judgment or complex estimation processes . our critical accounting policies are as follows : 25 development cost capitalization we are involved in all stages of real estate ownership , including development . prior to the point at which a project becomes probable of being developed ( defined as more likely than not ) , we expense predevelopment costs . after we determine a project is probable , all subsequently incurred predevelopment costs , as well as interest and real estate taxes on qualifying assets and certain internal personnel and associated costs directly related to the project under development , are capitalized in accordance with accounting rules . if we abandon development of a project that had earlier been deemed probable , we charge all previously capitalized costs to expense . if this occurs , our predevelopment expenses could rise significantly . the determination of whether a project is probable requires judgment . if we determine that a project is probable , interest , general and administrative , and other expenses could be materially different than if we determine the project is not probable . during the predevelopment period of a probable project and the period in which a project is under construction , we capitalize all direct and indirect costs associated with planning , developing , and constructing the project . determination of what costs constitute direct and indirect project costs requires us , in some cases , to exercise judgment . if we determine certain costs to be direct or indirect project costs , amounts recorded in projects under development on the balance sheet and amounts recorded in general and administrative and other expenses on the statements of operations could be materially different than if we determine these costs are not directly or indirectly associated with the project . once a certain project is constructed and deemed substantially complete and ready for occupancy , carrying costs , such as real estate taxes , interest , internal personnel costs , and associated costs , are expensed as incurred . determination of when construction of a project is substantially complete and held available for occupancy requires judgment . we consider projects and or project phases to be both substantially complete and held for occupancy at the earlier of the date on which the project or phase reached economic occupancy of 90 % or one year after its initial occupancy . our judgment of the date the project is substantially complete has a direct impact on our operating expenses and net income for the period . acquisitions we evaluate all real estate acquisitions to determine if the transactions qualify as an acquisition of assets or of a business within the framework of asu 2017-01 and guidance in asc 805 , `` business combinations '' . generally , the acquisition of operating properties will not meet the definition of a business . in cases where we acquire a pool of properties of varying property types in different markets , we must determine whether the acquisition qualifies as an asset acquisition or an acquisition of a business . in making this determination , we first must evaluate whether substantially all of the assets are concentrated in a single identifiable asset or group of similar identifiable assets . for purposes of this review , we separate the assets acquired based on their unique and different risk characteristics , which may be by property type , geographic concentration , or other factors . if we determine that substantially all of the fair value is concentrated in a single identifiable asset or group of similar assets , generally 90 % of total fair value of assets acquired , we account for the acquisition as an acquisition of assets . if we determine that there is no single or group of assets that make up substantially all of the fair value of assets acquired , we then evaluate whether the acquired set of assets include an input and substantial process which create an output as outlined in asc 805. if we determine that an input and substantial process creating an output are present , we account for the acquisition as an acquisition of a business . otherwise , we account for the acquisition as an acquisition of assets . we use considerable judgment in determining whether the acquisition of a pool of assets is an acquisition of assets or of a business . because acquisition costs are expensed for an acquisition of a business and capitalized for an acquisition of assets , results of operations could be materially different based on these determinations . for acquisitions that are accounted for as an acquisition of an asset , we record the acquired tangible and intangible assets and assumed liabilities based on each asset and liability 's relative fair value at the acquisition date to the total purchase price plus capitalized acquisition costs . for acquisitions that are accounted for as an acquisition of a business , we record the acquired tangible and intangible assets and assumed liabilities at fair value at the acquisition date . fair value is based on estimated cash flow projections that utilize available market information and discount and or capitalization rates as appropriate . estimates of future cash flows are based on a number of factors including historical operating results , known and anticipated trends , and market and economic conditions .
| results of operations for the year ended december 31 , 2019 general our financial results for the year ended december 31 , 2019 have been significantly affected by the merger , the transactions with ns , and various acquisitions , dispositions , and developments during the 2019 and 2018. net income available to common stockholders for the year ended 2019 and 2018 was $ 150.4 million and $ 79.2 million , respectively . we detail below material changes in the components of net income available to common stockholders for the year ended 2019 compared to 2018. see `` item 7. management 's discussion and analysis of financial condition and results of operations - results of operations '' from our 2018 annual report on form 10-k for a comparison of 2018 to 2017 financial results . rental property revenues and rental property operating expenses the following results include the performance of our same property portfolios . our same property portfolios include office properties that have been fully operational in each of the comparable reporting periods . a fully operational property is one that has achieved 90 % economic occupancy for each of the periods presented or has been substantially complete and owned by us for each of the periods presented . same property amounts for the 2019 versus 2018 comparison are from properties that were owned as of january 1 , 2018 through december 31 , 2019 . we use net operating income ( `` noi '' ) , a non-gaap financial measure , to measure the operating performance of our properties . noi is also widely used by industry analysts and investors to evaluate performance . noi , which is rental property revenues less rental property operating expenses , excludes certain components from net income in order to provide results that are more closely related to a property 's results of operations .
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in 2016 , we used $ 18,000 for patent application costs compared to none in 2017. financing activities โ for the year ended february 28 , 2017 , we used $ 143,000 of cash in our financing activities as compared to using $ 155,000 for the year ended february 29 , 2016. in 2017 and 2016 , we used $ 143,000 and $ 158,000 , respectively , for the repayments of notes payable . in 2016 , we received $ 3,000 for the exercise of stock options . net increase in cash โ for the year ended february 28 , 2017 , our cash balance increased by $ 169,000 as compared to a decrease of $ 174,000 for the year ended february 29 , 2016. during the year ended february 28 , 2017 , our operations provided $ 1,029,000 of cash , we used $ 717,000 in our investing activities and used $ 143,000 in our financing activities . bank credit facilities : we currently have a revolving credit line of $ 750,000 and a $ 250,000 equipment purchase facility , both of which are with a bank . the revolving credit line is collateralized by all of the assets of the company , except for the land and buildings . the line of credit is payable on demand and must be retired for a 30 day period once annually . as of february 28 , 2017 , there were no outstanding borrowings under the line of credit . we had outstanding borrowings under a note payable of $ 1,176,000 at february 28 , 2017. the note is payable over seven years and accrues interest at 4.15 % . the note payable is secured by a mortgage on our land and buildings . 8 story_separator_special_tag 10pt cambria , serif ; margin : 0 '' > interest expense decreased to $ 52,000 for the year ended february 28 , 2017 as compared to $ 58,000 for the year ended february 29 , 2016. interest and dividend income : interest and dividend income increased to $ 71,000 for the year ended february 28 , 2017 as compared to $ 55,000 for the year ended february 29 , 2016. our present investment policy is to invest excess cash in highly liquid mutual funds . our holdings are rated at or above investment grade . other income : during the year ended february 28 , 2017 , we received a payout of $ 200,000 in life insurance proceeds from the death of a former employee . income tax ( benefit ) expense : we recorded an income tax benefit of $ 19,000 for the year ended february 28 , 2017 as compared to an expense of $ 195,000 for the year ended february 29 , 2016. the details of the current year 's tax benefit are explained in note 12 in our financial statements . 11 net income : for the year ended february 28 , 2017 , we had net income of $ 96,000 as compared to $ 548,000 for the year ended february 29 , 2016. the decrease in our net income is due to a decrease in our revenues and gross profit which was partially offset by a decrease in operating expenses . in addition , in the current year period , we received a payout of $ 200,000 in life insurance proceeds from the death of a former employee . for the years ended february 28 , 2017 and february 29 , 2016 , we do not believe that our sales revenue or net income has been adversely affected by the impact of inflation or changing prices . other comprehensive income ( loss ) net unrealized income ( loss ) on marketable securities : as of february 28 , 2017 , certain of our marketable securities were in an unrealized gain position . unrealized gains ( losses ) are principally due to changes in the fair value of our investments held as available-for-sale . because we have the ability and intent to hold the securities until maturity , or for the foreseeable future as classified as available-for-sale , we do not deem the gain or decline to be other-than-temporary . for the year ended february 28 , 2017 , the unrealized gain on our available-for-sale marketable securities was $ 112,000 compared to a loss of $ 70,140 for the year ended february 29 , 2016. off - balance sheet arrangements we do not have any off - balance sheet arrangements as of february 28 , 2017. critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure on contingent assets and liabilities at the date of the financial statements . actual results may differ from these estimates under different assumptions and conditions . critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and may potentially result in materially different results under different assumptions and conditions . as of february 28 , 2017 , management believes there are no critical accounting policies applicable to the company that are reflective of significant judgments and or uncertainties . stock-based compensation the computation of the expense associated with stock-based compensation requires the use of a valuation model . asc 718 is a complex accounting standard , the application of which requires significant judgment and the use of estimates , particularly surrounding black-scholes assumptions such as stock price volatility , expected option lives , and expected option forfeiture rates , to value equity-based compensation . we currently use a black-scholes option pricing model to calculate the fair value of stock options . we story_separator_special_tag in 2016 , we used $ 18,000 for patent application costs compared to none in 2017. financing activities โ for the year ended february 28 , 2017 , we used $ 143,000 of cash in our financing activities as compared to using $ 155,000 for the year ended february 29 , 2016. in 2017 and 2016 , we used $ 143,000 and $ 158,000 , respectively , for the repayments of notes payable . in 2016 , we received $ 3,000 for the exercise of stock options . net increase in cash โ for the year ended february 28 , 2017 , our cash balance increased by $ 169,000 as compared to a decrease of $ 174,000 for the year ended february 29 , 2016. during the year ended february 28 , 2017 , our operations provided $ 1,029,000 of cash , we used $ 717,000 in our investing activities and used $ 143,000 in our financing activities . bank credit facilities : we currently have a revolving credit line of $ 750,000 and a $ 250,000 equipment purchase facility , both of which are with a bank . the revolving credit line is collateralized by all of the assets of the company , except for the land and buildings . the line of credit is payable on demand and must be retired for a 30 day period once annually . as of february 28 , 2017 , there were no outstanding borrowings under the line of credit . we had outstanding borrowings under a note payable of $ 1,176,000 at february 28 , 2017. the note is payable over seven years and accrues interest at 4.15 % . the note payable is secured by a mortgage on our land and buildings . 8 story_separator_special_tag 10pt cambria , serif ; margin : 0 '' > interest expense decreased to $ 52,000 for the year ended february 28 , 2017 as compared to $ 58,000 for the year ended february 29 , 2016. interest and dividend income : interest and dividend income increased to $ 71,000 for the year ended february 28 , 2017 as compared to $ 55,000 for the year ended february 29 , 2016. our present investment policy is to invest excess cash in highly liquid mutual funds . our holdings are rated at or above investment grade . other income : during the year ended february 28 , 2017 , we received a payout of $ 200,000 in life insurance proceeds from the death of a former employee . income tax ( benefit ) expense : we recorded an income tax benefit of $ 19,000 for the year ended february 28 , 2017 as compared to an expense of $ 195,000 for the year ended february 29 , 2016. the details of the current year 's tax benefit are explained in note 12 in our financial statements . 11 net income : for the year ended february 28 , 2017 , we had net income of $ 96,000 as compared to $ 548,000 for the year ended february 29 , 2016. the decrease in our net income is due to a decrease in our revenues and gross profit which was partially offset by a decrease in operating expenses . in addition , in the current year period , we received a payout of $ 200,000 in life insurance proceeds from the death of a former employee . for the years ended february 28 , 2017 and february 29 , 2016 , we do not believe that our sales revenue or net income has been adversely affected by the impact of inflation or changing prices . other comprehensive income ( loss ) net unrealized income ( loss ) on marketable securities : as of february 28 , 2017 , certain of our marketable securities were in an unrealized gain position . unrealized gains ( losses ) are principally due to changes in the fair value of our investments held as available-for-sale . because we have the ability and intent to hold the securities until maturity , or for the foreseeable future as classified as available-for-sale , we do not deem the gain or decline to be other-than-temporary . for the year ended february 28 , 2017 , the unrealized gain on our available-for-sale marketable securities was $ 112,000 compared to a loss of $ 70,140 for the year ended february 29 , 2016. off - balance sheet arrangements we do not have any off - balance sheet arrangements as of february 28 , 2017. critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure on contingent assets and liabilities at the date of the financial statements . actual results may differ from these estimates under different assumptions and conditions . critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and may potentially result in materially different results under different assumptions and conditions . as of february 28 , 2017 , management believes there are no critical accounting policies applicable to the company that are reflective of significant judgments and or uncertainties . stock-based compensation the computation of the expense associated with stock-based compensation requires the use of a valuation model . asc 718 is a complex accounting standard , the application of which requires significant judgment and the use of estimates , particularly surrounding black-scholes assumptions such as stock price volatility , expected option lives , and expected option forfeiture rates , to value equity-based compensation . we currently use a black-scholes option pricing model to calculate the fair value of stock options . we
| results of operations ultrasonic spraying systems segment : sales : replace_table_token_1_th for the year ended february 28 , 2017 , our sales decreased $ 2,104,000 to $ 9,635,000 as compared to $ 11,739,000 for the year ended february 29 , 2016 , a decrease of 18 % . during the year ended february 28 , 2017 , we experienced decreases in sales of our widetrack glass coating units , nozzles and ultrasonic generators , pcb fluxing units , servo pcb fluxing units and stent coating units . these decreases were partially offset by an increase in sales of our xyz platform units and spray brazing units . for the year ended february 28 , 2017 , sales of our widetrack glass coating units decreased $ 1,615,000 when compared to the prior fiscal year . the decrease in sales of these units was primarily driven by lower demand from individual customers . for the year ended february 28 , 2017 , sales of our xyz platform units increased $ 509,000 when compared to the prior fiscal year . gross profit : our gross profit decreased $ 1,139,000 or 21 % , to $ 4,404,000 for the year ended february 28 , 2017 from $ 5,543,000 for the year ended february 29 , 2016. our gross profit margin percentage was 46 % for the year ended february 28 , 2017 compared to 47 % for the year ended february 29 , 2016. the decrease in the current year 's gross profit is primarily due to the decrease in sales of our higher gross profit margin widetrack glass coating units , stent coating units and nozzles and ultrasonic generators . in addition , our fixed overhead costs remained constant during the current fiscal year .
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we report revenues in our financial results in two categories of services : professional employer services ( โ peo โ ) and staffing . with our peo clients , we enter into a co-employment arrangement in which we become the administrative employer while the client maintains physical care , custody and control of their workforce . our peo services are billed as a percentage of client payroll , with the gross amount invoiced including direct payroll costs , employer payroll-related taxes , workers ' compensation coverage ( if provided ) and a service fee . peo customers are invoiced following the end of each payroll processing cycle , with payment generally due on the invoice date . revenues for peo services exclude direct payroll billings because we are not the primary obligor for those payments . we generate staffing services revenues primarily from short-term staffing , contract staffing , on-site management and direct placement services . for staffing services other than direct placement , invoiced amounts include direct payroll , employer payroll-related taxes , workers ' compensation coverage and a service fee . staffing customers are invoiced weekly and typically have payment terms of 30 days . direct placement services are billed at agreed fees at the time of a successful placement . our business is concentrated in california , and we expect to continue to derive a majority of our revenues from this market in the future . revenues generated in our california operations accounted for 79 % of our total net revenues in 2018 , 79 % in 2017 and 78 % in 2016. consequently , any weakness in economic conditions or changes in the regulatory or insurance environment in california could have a material adverse effect on our financial results . our cost of revenues for peo services includes employer payroll-related taxes and workers ' compensation costs . our cost of revenues for staffing services includes direct payroll costs , employer payroll-related taxes , employee benefits , and workers ' compensation costs . direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages . payroll taxes and employee benefits consist of the employer 's portion of social security and medicare taxes , federal and state unemployment taxes and staffing services employee reimbursements for materials , supplies and other expenses , which are paid by our customer . workers ' compensation costs consist primarily of the costs associated with our workers ' compensation program , including claims reserves , claims administration fees , legal fees , medical cost containment ( โ mcc โ ) expense , state administrative agency fees , third-party broker commissions , risk manager payroll , premiums for excess insurance and the fronted insurance program , and costs associated with operating our two wholly owned insurance companies , aice and ecole . selling , general and administrative expenses represent both branch office and corporate-level operating expenses . branch operating expenses consist primarily of branch office staff payroll and personnel related costs , advertising , rent , office supplies , professional and legal fees and branch incentive compensation . corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs , professional and legal fees , travel , occupancy costs , information systems costs , and executive and corporate staff incentive compensation . - 21 - depreciation and amortization represent depreciation of property and equipment , leasehold improvements and capitalized software costs . property , equipment and software are depreciated using t he straight-line method over their estimated useful lives , which range from 3 to 39 years . leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life . critical accounting policies and estimates we have identified the following accounting estimate as critical to our business and the understanding of our results of operations . for a detailed discussion of the application of this and other accounting policies , see โ note 1 - summary of operations and significant accounting policies โ to the consolidated financial statements incorporated into item 8 of part ii of this report . the preparation of this annual report on form 10-k requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . management bases its 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 . workers ' compensation reserves we recognize our liability for the ultimate payment of incurred claims and claims adjustment expenses by establishing a reserve which represents our estimates of future amounts necessary to pay claims and related expenses with respect to workplace injuries that have occurred . when a claim involving a probable loss is reported , our independent third-party administrator for workers ' compensation claims ( โ tpa โ ) establishes a case reserve for the estimated amount of ultimate loss . the estimate reflects a judgment based on established case reserving practices and the experience and knowledge of the tpa regarding the nature and expected amount of the claim , as well as the estimated expenses of settling the claim , including legal and other fees and expenses of claims administration . the adequacy of such case reserves in part depends on the professional judgment of the tpa to properly and comprehensively evaluate the economic consequences of each claim . our reserves include an additional component for potential future increases in the cost to finally resolve open injury claims and claims incurred in prior periods but not reported ( together , `` ibnr '' ) based on actuarial estimates provided by the company 's independent actuary . story_separator_special_tag additional risk factors affecting our business are discussed in item 1a of part i of this report . we disclaim any obligation to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future events or developments . - 23 - results of operations the following table sets forth the percentages of total revenues represented by selected items in the company 's consolidated statements of operations for the years ended december 31 , 2018 , 2017 and 2016 , included in item 15 of this report . references to the notes to consolidated financial statements appearing below are to the notes to the company 's consolidated financial statements incorporated into item 8 of part ii of this report . replace_table_token_5_th we report peo revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients ' employees . however , management believes that gross billing amounts and wages are useful in understanding the volume of our business activity and serve as an important performance metric in managing our operations , including the preparation of internal operating forecasts and establishing executive compensation performance goals . we therefore present for purposes of analysis gross billing and wage information for the years ended december 31 , 2018 , 2017 and 2016. replace_table_token_6_th because safety incentives represent consideration payable to peo customers , safety incentive costs are netted against peo revenue in our consolidated statements of operations . management considers safety incentives to be an integral part of our workers ' compensation program because they encourage client companies to maintain safe-work practices and minimize workplace injuries . we therefore present below for purposes of analysis non-gaap gross workers ' compensation expense , which represents workers ' compensation costs including safety incentive costs . we believe this non-gaap measure is useful in evaluating the total costs of our workers ' compensation program . - 24 - replace_table_token_7_th in monitoring and evaluating the performance of our operations , management also reviews the following ratios , which represent selected amounts as a percentage of gross billings . management believes these ratios are useful in understanding the efficiency and profitability of our service offerings . replace_table_token_8_th the presentation of revenues on a net basis and the relative contributions of staffing and professional employer services revenues can create volatility in our gross margin percentage . a relative increase in professional employer services revenue will result in a higher gross margin percentage . improvement in gross margin percentage occurs because incremental client services revenue dollars are reported as revenue net of all related direct payroll and safety incentive costs . years ended december 31 , 2018 and 2017 net income for 2018 was $ 38.1 million compared to net income of $ 25.2 million for 2017. diluted income per share for 2018 was $ 4.98 compared to diluted income per share of $ 3.33 for 2017. revenues for 2018 totaled $ 940.7 million , an increase of $ 20.3 million or 2.2 % over 2017 , which reflects an increase in the company 's professional employer service fee revenue of $ 35.4 million or 4.7 % and a decrease in staffing services revenue of $ 15.1 million or 9.3 % . our growth in professional employer service revenues was attributable to both new and existing customers . due to continued strength in our referral channels , business from new customers during 2018 exceeded business lost from former customers . gross billings for peo services to continuing customers increased 5.7 % , compared to 2017. this growth was primarily the result of increases in employee headcount and wage inflation . peo revenue is presented net of safety incentives of $ 33.4 million and $ 32.9 million in 2018 and 2017 , respectively , and other customer incentives of $ 9.8 million in 2018. the decrease in staffing services revenue was due primarily to tight labor market conditions during the 2018 period . gross margin for 2018 totaled $ 186.7 million or 19.8 % of revenue compared to $ 158.5 million or 17.2 % of revenue for 2017. the increase in gross margin as a percentage of revenues is primarily due to decreases in payroll taxes and workers ' compensation expense as a percentage of revenues direct payroll costs for 2018 totaled $ 111.4 million or 11.8 % of revenue compared to $ 122.5 million or 13.3 % of revenue for 2017. the decrease in direct payroll costs percentage was primarily due to the increase in professional employer services and the decrease of staffing services within the mix of our customer base compared to 2017. payroll taxes and benefits for 2018 totaled $ 407 million or 43.3 % of revenue compared to $ 404.7 million or 44.0 % of revenue for 2017. the decrease in payroll taxes and benefits as a percentage of revenues is primarily due to lower effective payroll tax rates and the relative increase in peo services within the mix of our customer base compared to 2017 . - 25 - workers ' compensat ion expense for 2018 totaled $ 235.6 million or 25.1 % of revenue compared to $ 234.7 million or 25.5 % of revenue for 2017 . the decrease in workers ' compensation expense as a percentage of revenue was p rimarily due to a favorable adjustment of $ 3.8 million in 201 8 compared to a n un favorable adjustment of $ 5.2 million in 201 7 related to claims incurred in prior periods . selling , general and administrative ( โ sg & a โ ) expenses for 2018 totaled $ 145.5 million or 15.5 % of revenue compared to $ 123.1 million or 13.4 % of revenue for 2017. the increase was primarily attributable to increases in employee-related expenses and litigation costs . other income , net for 2018 totaled $ 7.8 million compared to other income of $ 4.4 million for 2017. the change was attributable to an increase in investment income of $ 4.4 million in 2018. our effective income tax rate for 2018 was 15.0 % compared to 26.8
| fluctuations in quarterly operating results we have historically experienced significant fluctuations in our quarterly operating results , including losses in the first quarter of each year , and expect such fluctuations to continue in the future . our operating results may fluctuate due to a number of factors such as seasonality , wage limits on statutory payroll taxes , claims experience for workers ' compensation , demand for our services , and competition . payroll taxes , as a component of cost of revenues , generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and social security taxes are exceeded on a per employee basis . our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers ' businesses in the agriculture , food processing and forest products-related industries . in addition , revenues in the fourth quarter may be reduced by many customers ' practice of operating on holiday-shortened schedules . workers ' compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims . in addition , adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the company 's estimated workers ' compensation expense . liquidity and capital resources the company 's cash balance of $ 140.7 million , which includes cash , cash equivalents , and restricted cash , increased $ 20.5 million for the twelve months ended december 31 , 2018 , compared to a decrease of $ 221.1 million for the comparable period of 2017. the increase in cash at december 31 , 2018 as compared to december 31 , 2017 was primarily due to decreased purchases of restricted investments .
| 2,748 |
overview we are a leading manufacturer , marketer , and distributor of high-quality , branded snacking products in the united states . we produce a broad offering of salty snacks , including potato chips , pretzels , cheese snacks , veggie snacks , pork skins , pub/party mixes , and other snacks . our iconic portfolio of authentic , craft , and โ better for you โ brands , which includes utzยฎ , on the borderยฎ , zapp'sยฎ , golden flakeยฎ , good healthยฎ , boulder canyonยฎ , hawaiianยฎ brand , and tortiyahs ! ยฎ , among others , enjoys strong household penetration in the united states , where our products can be found in approximately 49 % of u.s. households . we operate 14 manufacturing facilities with a broad range of capabilities , and our products are distributed nationally to grocery , mass merchant , club , convenience , drug and other retailers through direct shipments , distributors , and more than 1,600 direct-store-delivery ( โ dsd โ ) routes . our company was founded in 1921 in hanover , pennsylvania , and benefits from 100 years of brand awareness and heritage in the salty snack industry . we have historically expanded our geographic reach and product portfolio organically and through acquisitions . based on 2020 retail sales , we are second-largest producer of branded salty snacks in our core geographies , where we have acquired strong regional brands and distribution capabilities in recent years . 40 business combination on august 28 , 2020 , cch domesticated into a delaware corporation and changed its name to `` utz brands , inc. '' ( the โ domestication โ ) and consummated the acquisition of certain limited liability company units of ubh , the parent of utz quality foods , llc ( โ uqf โ ) , as a result of a new issuance by ubh and purchases from ubh 's existing equity holders pursuant to a business combination agreement , dated as of june 5 , 2020 ( the โ business combination agreement โ ) among cch , ubh and series u of um partners , llc ( โ series u โ ) and series r of um partners , llc ( โ series r โ and together with series u , the โ continuing members โ ) , following the approval at the extraordinary general meeting of the shareholders of cch held on august 27 , 2020. ubi was determined to be the accounting acquirer and ubh was determined to be the accounting acquiree , in accordance with asc 810 , as the company is considered to be the primary beneficiary of ubh after the business combination . under the asc 805 , business combinations , acquisition method of accounting , purchase price allocation of assets acquired and liabilities assumed of ubh are presented based on their estimated fair values as of the closing of the business combination . as a result of the business combination , ubi 's financial statement presentation distinguishes ubh as the โ predecessor โ for periods prior to the closing of the business combination . ubi , which includes consolidation of ubh subsequent to the business combination , is the โ successor โ for periods after the closing of the business combination . as a result of the application of the acquisition method of accounting in the successor period , the financial statements for the successor period are presented on a full step-up basis as a result of the business combination , and are therefore not comparable to the financial statements of the predecessor period that are not presented on the same full step-up basis due to the business combination . key developments and trends our management team monitors a number of developments and trends that could impact our revenue and profitability objectives . long-term demographics , consumer trends , and demand โ we participate in the attractive and growing $ 28 billion u.s. salty snacks category , within the broader $ 97 billion market for u.s. snack foods . the salty snacks category has grown retail sales at an approximately 5.6 % compound annual growth rate ( โ cagr โ ) over the last four years , including the increased in-home consumption of salty snacks due to covid-19 during 2020. during fiscal 2020 , snacking occasions are on the rise as consumers increasingly seek out convenient , delicious snacks for both on-the-go and at-home lifestyles . according to data from the hartman group , the consumer goods forum , and iri , approximately 50 % of u.s. eating occasions are snacks , with 95 % of the u.s. population snacking daily and the average american snacking 2.6 times per day based upon the latest available iri data . additionally , the salty snacks category has historically benefited from favorable competitive dynamics , including low private label penetration and category leaders competing primarily through marketing and innovation . we expect these consumer and category trends to continue to drive strong retail sales growth for salty snacks . as a staple food product with resilient consumer demand and a predominantly domestic supply chain , the salty snack category is well positioned to navigate periods of economic disruption or other unforeseen global events . the u.s. salty snack category has demonstrated strong performance through economic downturns historically , growing at a 4 % cagr from 2007 to 2010 during the last recession . more recently , the u.s. salty snack category demonstrated strong performance during the novel coronavirus ( โ covid-19 โ ) pandemic which began in march 2020 in the u.s. for the 52 weeks ended december 27 , 2020 , u.s. retail sales for salty snacks based on iri data increased by 9.1 % versus the comparable prior year period while our retail sales increased by 15.1 % in the same period . competition โ the salty snack industry is highly competitive and includes many diverse participants . our products primarily compete with other salty snacks but also compete more broadly for certain eating occasions with other snack foods . story_separator_special_tag we acquired kitchen cooked to expand our distribution and production capacity in illinois and the surrounding area . the acquisition closed on december 30 , 2019 when we made a cash payment of $ 6.9 million and recorded $ 2.0 million in deferred payment obligations for the acquisition of the outstanding shares of kitchen cooked as well as certain real estate supporting its operations . 42 on october 21 , 2019 , we closed on our acquisition of kennedy endeavors , llc ( โ kennedy โ ) from conagra brands inc. kennedy consists of tim 's cascade snacks and snyder of berlin , which are snack food manufacturers . we acquired this business to expand our national footprint and our dsd snacks business as well as capture significant synergies . the acquisition provided us with the second largest dsd network for branded salty snacks in the pacific northwest , a leased , regional production facility outside of seattle , washington , and increased scale with retailers in the western united states . we also acquired regional dsd routes and a production facility in berlin , pa , which are highly complementary with our existing business in that region . our consolidated statements of operations and comprehensive income include the operations of this business from october 21 , 2019 through december 29 in 2019 and for all of fiscal year 2020. on november 2 , 2020 , we completed the acquisition of certain assets from conagra brands , inc. related to the h.k . anderson business , a leading brand of peanut butter-filled pretzels for approximately $ 8 million . the transaction enables us to jump-start our entry into the growing filled pretzel segment , leveraging the synergies of our salty snack platform . on november 11 , 2020 the company caused its subsidiaries , uqf and heron , to enter into a stock purchase agreement ( the `` truco acquisition '' ) among uqf , heron , truco holdco inc. ( โ truco โ ) and truco holdings llc ( `` truco seller '' ) . on december 14 , 2020 , pursuant to the stock purchase agreement , the company caused its subsidiary , heron , to purchase and acquire from truco holdings llc all of the issued and outstanding shares of common stock of truco ( the โ truco acquisition โ ) . upon completion of the truco acquisition , truco became a wholly owned subsidiary of heron . at the closing of the truco acquisition , the company paid the aggregate cash purchase price of approximately $ 404.0 million to truco holdings llc , including payments of approximately $ 5.8 million for cash on hand at truco at the closing of the truco acquisition , less estimated working capital adjustments , subject to customary post-closing adjustments . in addition , on december 14 , 2020 , uqf purchased and acquired from otb acquisition , llc certain intellectual property ( โ otb ip โ ) assets ( โ ip purchase โ ) pursuant to an asset purchase agreement , dated november 11 , 2020 , among uqf , truco seller and otb acquisition , llc . the ip purchase was determined to be an asset acquisition under the provisions of asc subtopic 805-50. the ip purchase is accounted for separately from the truco acquisition , as truco and the otb ip were acquired from two different selling parties that were not under common control and are two separate transactions . the otb ip was initially recognized and measured by the company based on its purchase price of $ 79.0 million since it was acquired in asset purchase and is treated as an indefinite lived intangible assets . commodity trends we regularly monitor worldwide supply and commodity costs so we can cost-effectively secure ingredients , packaging and fuel required for production . a number of external factors such as weather conditions , commodity market conditions , and the effects of governmental , agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products . we address commodity costs primarily through the use of buying-forward , which locks in pricing for key materials between three and 18 months in advance . other methods include hedging , net pricing adjustments to cover longer term cost inflation , and manufacturing and overhead cost control . our hedging techniques , such as forward contracts , limit the impact of fluctuations in the cost of our principal raw materialsอพ however , we may not be able to fully hedge against commodity cost changes , where there is a limited ability to hedge , and our hedging strategies may not protect us from increases in specific raw material costs . toward the end of 2020 , we began to experience an increase in pricing in certain commodities that we expect to continue into 2021. due to competitive or market conditions , planned trade or promotional incentives , or other factors , our pricing actions may also lag commodity cost changes . while the costs of our principal raw materials fluctuate , we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources . independent operator conversions our dsd distribution is executed via company-owned routes operated by rsps , and third-party routes managed by ios . we have used the io and rsp models for more than a decade . in fiscal year 2017 , we embarked on a multi-year strategy to convert all company owned rsp routes to the io model . the mix between ios and rsp was approximately 79 % and 21 % , respectively as of january 3 , 2021 versus a 77 % and 23 % ratio for ios and rsps respectively as of december 30 , 2019. we took a brief pause in 2020 due to covid-19 and our erp implementation . we anticipate completing substantially all remaining conversions by the second quarter of fiscal year 2022. the conversion process involves selling distribution rights to a defined route to an io .
| results of operations overview the following tables present selected financial data for the successor period from august 29 , 2020 through january 3 , 2021 , the predecessor period from december 30 , 2019 through august 28 , 2020 , as combined for the year ended january 3 , 2021 and the years ended december 29 , 2019 and december 30 , 2018. we have prepared our discussion of the results of operations by comparing the results of the combined successor period from august 29 , 2020 through january 3 , 2021 and the predecessor period from december 30 , 2019 through august 28 , 2020 and the years ended december 29 , 2019 and december 30 , 2018. we believe this approach provides the most meaningful basis of comparison and is more useful in identifying current business trends for the periods presented . the combined results of operations included in our discussion below are not considered to be prepared in accordance with u.s. gaap and have not been prepared as pro forma results under applicable regulations , may not reflect the actual results we would have achieved had the business combination occurred at the beginning of fiscal 2019 , and should not be viewed as a substitute for the results of operations of the predecessor and successor periods presented in accordance with u.s. gaap .
| 2,749 |
this includes certain pricing models , discounted cash story_separator_special_tag business overview unifirst corporation , together with its subsidiaries , hereunder referred to as โ we โ , โ our โ , the โ company โ , or โ unifirst โ , is one of the largest providers of workplace uniforms and protective work wear clothing in the united states . we design , manufacture , personalize , rent , clean , deliver , and sell a wide range of uniforms and protective clothing , including shirts , pants , jackets , coveralls , lab coats , smocks , aprons and specialized protective wear , such as flame resistant and high visibility garments . we also rent and sell industrial wiping products , floor mats , facility service products and other non-garment items , and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies as well as provide certain safety training , to a variety of manufacturers , retailers and service companies . we serve businesses of all sizes in numerous industry categories . typical customers include automobile service centers and dealers , delivery services , food and general merchandise retailers , food processors and service operations , light manufacturers , maintenance facilities , restaurants , service companies , soft and durable goods wholesalers , transportation companies , healthcare providers , and others who require employee clothing for image , identification , protection or utility purposes . we also provide our customers with restroom and cleaning supplies , including air fresheners , paper products , gloves , masks , hand soaps and sanitizers . at certain specialized facilities , we also decontaminate and clean work clothes and other items that may have been exposed to radioactive materials and service special cleanroom protective wear and facilities . typical customers for these specialized services include government agencies , research and development laboratories , high technology companies and utilities operating nuclear reactors . headquartered in wilmington , massachusetts , unifirst corporation ( nyse : unf ) is a north american leader in the supply and servicing of uniform and workwear programs , as well as the delivery of facility service programs . together with its subsidiaries , the company also provides first aid and safety products , and manages specialized garment programs for the cleanroom and nuclear industries . unifirst manufactures its own branded workwear , protective clothing , and floorcare products ; and with 260 service locations , over 300,000 customer locations , and 14,000 employee team partners , the company outfits more than 2 million workers each business day . for more information , contact unifirst at 800.455.7654 or visit unifirst.com . u.s. gaap establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to shareholders . operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker , or decision-making group , in making decisions on how to allocate resources and assess performance . our chief operating decision-maker is our chief executive officer . we have six operating segments based on the information reviewed by our chief executive officer : u.s. rental and cleaning , canadian rental and cleaning , manufacturing ( โ mfg โ ) , specialty garments rental and cleaning ( โ specialty garments โ ) , first aid and corporate . the u.s. rental and cleaning and canadian rental and cleaning operating segments have been combined to form the u.s. and canadian rental and cleaning reporting segment . refer to note 15 , โ segment reporting โ , of our consolidated financial statements for our disclosure of segment information . the u.s. and canadian rental and cleaning reporting segment purchases , rents , cleans , delivers and sells , uniforms and protective clothing and non-garment items in the united states and canada . the operations of the u.s. and canadian rental and cleaning reporting segment are referred to by us as our โ industrial laundry operations ' and we refer to the locations related to this reporting segment as our โ industrial laundries ' . the mfg operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the u.s. and canadian rental and cleaning reporting segment . the amounts reflected as revenues of mfg are primarily generated when goods are shipped from our manufacturing facilities , or subcontract manufacturers , to our other locations . these intercompany revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost . products are carried in inventory and subsequently placed in service and amortized at this transfer price . on a consolidated basis , intercompany mfg revenues and mfg income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost . income before income taxes from mfg , net of the intercompany mfg elimination , offsets the merchandise amortization costs incurred by the u.s. and canadian rental and cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on inventories purchased from mfg at the transfer price which is above our manufacturing cost . the corporate operating segment consists of costs associated with our distribution center , sales and marketing , information systems , engineering , materials management , manufacturing planning , finance , budgeting , human resources , other general 19 and administrative costs and interest expense . the revenues generated from the corporate operating segment represent certain direct sales made directly from our distribution center . the products sold by this operating segment are the same products rented and sold by the u.s. and canadian rental and cleaning reporting segment . story_separator_special_tag we use the first-in , first-out method to value our inventories , which primarily consist of finished goods . rental merchandise in service is being amortized on a straight-line basis over the estimated service lives of the merchandise , which range from six to thirty-six months . in establishing estimated lives for merchandise in service , our management considers historical experience and the intended use of the merchandise . material differences may result in the amount and timing of operating profit for any period if we make significant changes to our estimates . goodwill , intangibles and other long-lived assets in accordance with u.s. gaap , we do not amortize goodwill . instead , we test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value . our evaluation considers changes in the operating environment , competitive information , market trends , operating performance and cash flow modeling . we completed our annual goodwill impairment test as of the first day of the fourth quarter in fiscal 2020 and the last day of the fourth quarter of each fiscal year in fiscal 2019 and 2018. there have been no impairments of goodwill or other intangible assets in fiscal 2020 , 2019 and 2018. we can not predict future economic conditions and their impact on the company or the future net realizable value of our stock . a decline in our market capitalization and or deterioration in general economic conditions could negatively and materially impact our assumptions and assessment of the fair value of our business . if general economic conditions or our financial performance deteriorate , we may be required to record a goodwill impairment charge in the future which could have a material impact on our financial condition and results of operations . property , plant and equipment , and definite-lived intangible assets are depreciated or amortized over their useful lives . useful lives are based on our estimates of the period that the assets will generate economic benefits . long-lived assets are evaluated for impairment whenever events or circumstances indicate an asset may be impaired . there were no material impairments of long-lived assets in fiscal 2020 , 2019 , and 2018. insurance we self-insure for certain obligations related to healthcare , workers ' compensation , vehicles and general liability programs . we also purchase stop-loss insurance policies for workers ' compensation , vehicles and general liability programs to protect ourselves from catastrophic losses . judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred but have not been reported . our estimates consider historical claim experience and other factors . our liabilities are based on our estimates , and , while we believe that our accruals are adequate , the ultimate liability may be significantly different from the amounts recorded . in certain cases where partial insurance coverage exists , we must estimate the portion of the liability that will be covered by existing insurance policies to arrive at our net expected liability . receivables for insurance recoveries are recorded as assets , on an undiscounted basis . changes in our claim experience , our ability to settle claims or other estimates and judgments we use could have a material impact on the amount and timing of expense for any given period . environmental and other contingencies we are subject to legal proceedings and claims arising from the conduct of our business operations , including environmental matters , personal injury , customer contract matters and employment claims . u.s. gaap requires that a liability for 21 contingencies be recorded when it is probable that a liability has occurred , and the amount of the liability can be reasonably estimated . significant judgment is required to determine the existence of a liability , as well as the amount to be recorded . we regularly consult with our attorneys and outside consultants , in our consideration of the relevant facts and circumstances , before recording a contingent liability . we record accruals for environmental and other contingencies based on enacted laws , regulatory orders or decrees , our estimates of costs , insurance proceeds , participation by other parties , the timing of payments , and the input of our attorneys and outside consultants . the estimated liability for environmental contingencies has been discounted as of august 29 , 2020 using risk-free interest rates ranging from 0.7 % to 1.5 % over periods ranging from ten to thirty years . the estimated current costs , net of legal settlements with insurance carriers , have been adjusted for the estimated impact of inflation at 3.0 % per year . changes in enacted laws , regulatory orders or decrees , our estimates of costs , risk-free interest rates , insurance proceeds , participation by other parties , the timing of payments , the input of our attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities . refer to note 11 , โ commitments and contingencies โ , of our consolidated financial statements for additional discussion and analysis . asset retirement obligations under u.s. gaap , asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition , construction , development and or the normal operation of a long-lived asset . current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made . the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset . we have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry facilities in accordance with u.s. gaap .
| results of operations the following table presents certain selected financial data , including the percentage of revenues represented by each item , for fiscal years 2020 , 2019 and 2018. replace_table_token_2_th ( 1 ) exclusive of depreciation on our property , plant and equipment and amortization of our intangible assets . revenues and income ( loss ) from operations by reporting segment for fiscal 2020 , 2019 , and 2018 are presented in the following table . refer to note 15 , โ segment reporting โ , of our consolidated financial statements for a discussion of our reporting segments . replace_table_token_3_th 25 general we derive our revenues through the design , manufacture , personalization , rental , cleaning , delivering , and selling of a wide range of uniforms and protective clothing , including shirts , pants , jackets , coveralls , lab coats , smocks and aprons and specialized protective wear , such as flame resistant and high visibility garments . we also rent industrial wiping products , floor mats , facility service products , other non-garment items , and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies , to a variety of manufacturers , retailers and service companies . cost of revenues include the amortization of rental merchandise in service and merchandise costs related to direct sales as well as labor and other production , service and delivery costs , and distribution costs associated with operating our core laundry operations , specialty garments facilities , and first aid locations . selling and administrative costs include costs related to our sales and marketing functions as well as general and administrative costs associated with our corporate offices , non-operating environmental sites and operating locations including information systems , engineering , materials management , manufacturing planning , finance , budgeting , and human resources . we have a substantial number of plants and conduct a significant portion of our business in energy producing regions in the u.s. and canada .
| 2,750 |
these forward looking statements may include projections of , or guidance on , the corporation 's future financial performance , expected levels of future expenses , anticipated growth strategies , descriptions of new business initiatives and anticipated trends in the corporation 's business or financial results . forward-looking statements are neither historical facts , nor assurance of future performance . instead , they are based on current beliefs , expectations and assumptions regarding the future of the corporation 's business , future plans and strategies , projections , anticipated events and trends , the economy and other future conditions . because forward-looking statements relate to the future , they are subject to inherent uncertainties , risks and changes in circumstances that are difficult to predict and many of which are outside of the corporation 's control , and actual results and financial condition may differ materially from those indicated in the forward-looking statements . therefore , you should not unduly rely on any of these forward-looking statements . any forward-looking statement is based only on information currently available and speaks only as of the date when made . the corporation undertakes no obligation , other than as required by law , to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . many factors could affect future financial results including , without limitation : the impact of adverse conditions in the economy and financial markets on the performance of the corporation 's loan and lease portfolio and demand for the corporation 's products and services ; increases in non-performing assets , which may require the corporation to increase the allowance for credit losses , charge off loans and leases and incur elevated collection and carrying costs related to such non-performing assets ; investment securities gains and losses , including other-than-temporary declines in the value of securities which may result in charges to earnings ; the effects of market interest rates , and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities , on net interest margin and net interest income ; the planned phasing out of libor as a benchmark reference rate ; the effects of changes in interest rates on demand for the corporation 's products and services ; the effects of changes in interest rates or disruptions in liquidity markets on the corporation 's sources of funding ; the effects of the extensive level of regulation and supervision to which the corporation and fulton bank , n.a . ( `` fulton bank '' or `` the bank '' ) are subject ; the effects of the significant amounts of time and expense associated with regulatory compliance and risk management ; the potential for negative consequences from regulatory violations , investigations and examinations , or failure to comply with the bsa , the patriot act and related aml requirements , including potential supervisory actions , the assessment of fines and penalties , the imposition of sanctions and the need to undertake remedial actions ; the continuing impact of the dodd-frank act on the corporation 's business and results of operations ; the effects of , and uncertainty surrounding , new legislation , changes in regulation and government policy , which could result in significant changes in banking and financial services regulation ; the effects of actions by the federal government , including those of the federal reserve board and other government agencies , that impact money supply and market interest rates ; the effects of changes in u.s. federal , state or local tax laws ; the effects of negative publicity on the corporation 's reputation ; the effects of adverse outcomes in litigation and governmental or administrative proceedings ; the potential to incur losses in connection with repurchase and indemnification payments related to sold loans ; the corporation 's ability to achieve its growth plans ; completed and potential acquisitions may affect costs and the corporation may not be able to successfully integrate the acquired business or realize the anticipated benefits from such acquisitions ; the effects of competition on deposit rates and growth , loan rates and growth and net interest margin ; 33 the corporation 's ability to manage the level of non-interest expenses , including salaries and employee benefits expenses , operating risk losses and goodwill impairment ; the effects of changes in accounting policies , standards , and interpretations on the corporation 's reporting of its financial condition and results of operations ; the impact of operational risks , including the risk of human error , inadequate or failed internal processes and systems , computer and telecommunications systems failures , faulty or incomplete data and an inadequate risk management framework ; the impact of failures of third parties upon which the corporation relies to perform in accordance with contractual arrangements ; the failure or circumvention of the corporation 's system of internal controls ; the loss of , or failure to safeguard , confidential or proprietary information ; the corporation 's failure to identify and to address cyber-security risks , including data breaches and cyber-attacks ; the corporation 's ability to keep pace with technological changes ; the corporation 's ability to attract and retain talented personnel ; capital and liquidity strategies , including the corporation 's ability to comply with applicable capital and liquidity requirements , and the corporation 's ability to generate capital internally or raise capital on favorable terms ; the corporation 's reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions ; and the effects of any downgrade in the corporation 's or fulton bank 's credit ratings on their borrowing costs or access to capital markets . overview the corporation is a financial holding company , which , through its wholly owned banking subsidiary , provides a full range of retail and commercial financial services in pennsylvania , delaware , maryland , new jersey and virginia . story_separator_special_tag income taxes - income tax expense for 2019 resulted in an effective tax rate ( `` etr '' ) of 14.3 % , as compared to 10.5 % for 2018 . the increase in the etr was primarily a result of higher income before income taxes and from realizing a one-time tax benefit associated with legislative changes enacted in new jersey in the third quarter of 2018. the etr is generally lower than the federal statutory rate of 21 % due to tax-exempt interest income earned on loans , investments in tax-free municipal securities and investments in community development projects that generate tax credits under various federal programs . 35 critical accounting policies the following is a summary of those accounting policies that the corporation considers to be most important to the presentation of its financial condition and results of operations , because they require management 's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain . see additional information regarding these critical accounting policies in `` note 1 - summary of significant accounting policies , '' in the notes to the consolidated financial statements in item 8 . `` financial statements and supplementary data . '' allowance for credit losses - the allowance for credit losses consists of the allowance for loan and lease losses and the reserve for unfunded lending commitments . the allowance for loan and lease losses represents management 's estimate of incurred losses in the portfolio as of the balance sheet date and is recorded as a reduction to loans and or leases . the reserve for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan and lease commitments and letters of credit and is recorded in other liabilities on the consolidated balance sheet . the corporation 's allowance for loan and lease losses includes : 1 ) specific allowances allocated to loans and leases evaluated for impairment under the financial accounting standards board 's accounting standards codification ( `` asc '' ) section 310-10-35 ; and 2 ) allowances calculated for pools of loans and leases evaluated for impairment under asc subtopic 450-20. management 's estimate of incurred losses in the loan and lease portfolio is based on a methodology that includes the following critical judgments : identification of potential problem loans and leases in a timely manner . for commercial loans , commercial mortgages and construction loans to commercial borrowers , an internal risk rating process is used . the corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans . the migration of loans through the various internal risk rating categories is a significant component of the allowance for credit losses methodology for these loans , which bases the probability of default on this migration . assigning risk ratings involves judgment . the corporation 's loan review officers provide an independent assessment of risk rating accuracy . ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff , or if specific loan review assessments identify a deterioration or an improvement in the loan . the corporation does not assign internal risk ratings for residential mortgages , home equity loans , consumer loans , lease receivables , and construction loans to individuals secured by residential real estate , as these portfolios consist of a larger number of loans with smaller balances . instead , these portfolios are evaluated for risk through the monitoring of delinquency status . proper collateral valuation of impaired loans and leases evaluated for impairment under asc section 310-10-35. substantially all of the corporation 's impaired loans and leases to borrowers with total outstanding loan and lease balances greater than or equal to $ 1.0 million are measured based on the estimated fair value of each loan and lease 's collateral . collateral could be in the form of real estate , in the case of impaired commercial mortgages and construction loans , or business assets , such as accounts receivable or inventory , in the case of commercial loans . commercial loans may also be secured by real property . for loans secured by real estate , estimated fair values are determined primarily through appraisals performed by state certified third-party appraisers , discounted to arrive at expected net sale proceeds . for collateral-dependent loans , estimated real estate fair values are also net of estimated selling costs . when a real estate-secured loan becomes impaired , a decision is made regarding whether an updated appraisal of the real estate is necessary . this decision is based on various considerations , including : the age of the most recent appraisal ; the loan-to-value ratio based on the original appraisal ; the condition of the property ; the corporation 's experience and knowledge of the real estate market ; the purpose of the loan ; market factors ; payment status ; the strength of any guarantors ; and the existence and age of other indications of value such as broker price opinions , among others . the corporation generally obtains updated appraisals performed by state certified third-party appraisers for impaired loans secured predominately by real estate every 12 months . when updated appraisals are not obtained for loans evaluated for impairment under fasb asc section 310-10-35 that are secured by real estate , fair values are estimated based on the original appraisal values , as long as the original appraisal indicated an acceptable loan-to-value position and , in the opinion of the corporation 's internal credit administration staff , there has not been a significant deterioration in the collateral value since the original appraisal was performed . proper measurement of allowance needs for pools of loans and leases under fasb asc subtopic 450-20. for loan and lease loss allocation purposes , loans and leases are segmented into pools with similar characteristics .
| results of operations net interest income net interest income is the most significant component of the corporation 's net income . the corporation manages the risk associated with changes in interest rates through the techniques described within item 7a , `` quantitative and qualitative disclosures about market risk . '' the following table provides a comparative average balance sheet and net interest income analysis for 2019 compared to 2018 and 2017 . interest income and yields are presented on an fte basis , using a 21 % federal tax rate for 2019 and 2018 and 35 % for 2017 , as well as statutory interest expense disallowances . the discussion following this table is based on these tax-equivalent amounts . replace_table_token_6_th ( 1 ) includes dividends earned on equity securities . ( 2 ) average balances include non-performing loans and leases . ( 3 ) average balances include amortized historical cost for available for sale securities ; the related unrealized holding gains ( losses ) are included in other assets . 39 the following table summarizes the changes in fte interest income and interest expense resulting from changes in average balances ( volumes ) and changes in rates : replace_table_token_7_th note : changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component . comparison of 2019 to 2018 the federal open market committee ( `` fomc '' ) increased the target federal funds rate ( `` fed funds rate '' ) by 25 basis points in each of march , june , september and december of 2018. during 2019 , the fomc decreased the fed funds rate by 25 basis points in each of august , september and october .
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the purchase price , which represents the consideration transferred to synta stockholders in the reverse merger is calculated based on the number of shares of common stock of the combined company that synta stockholders will own as of the closing of the merger , which consists of the following : number of shares of the combined company to be owned by synta stockholders ( 1 ) 4,032,734 multiplied by the fair value of synta common stock ( 2 ) $ 9.48 โ โ โ โ โ purchase price ( in thousands ) $ 38,236 โ โ โ โ โ ( 1 ) represents the number of shares of common stock of the combined company that synta stockholders owned as of the closing of the merger pursuant to the merger agreement , including restricted stock awards and common stock underlying outstanding restricted stock units attributed to pre-combination services rendered by certain synta employees and directors . this amount is calculated as 3,937,309 shares of synta common stock outstanding as of july 22 , 2016 , including unvested restricted common stock , plus 95,425 shares of synta common stock issuable pursuant to restricted stock units , net of tax withholdings , that vested immediately upon closing of the merger . the number of shares of common stock synta issued to madrigal stockholders was 7,253,655 , calculated pursuant to the terms of the merger agreement based on synta 's common stock outstanding as of july 22 , 2016 . ( 2 ) the fair value of synta common stock used in determining the purchase price was $ 9.48 , which was derived from the $ 0.2709 per share closing price of synta common stock on july 21 , 2016 , the current price at the time of the closing , adjusted for the 1-for-35 reverse stock split . under the acquisition method of accounting , the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of synta based on their estimated fair values as of the merger closing date . the excess of the purchase price over the fair value of assets acquired and liabilities assumed , if any , is allocated to goodwill . the allocation of the purchase price to the acquired assets and liabilities assumed of synta based on the fair values as of july 22 , 2016 is as follows , f-15 madrigal pharmaceuticals , inc. notes to consolidated financial statements ( continued ) 3. reverse merger ( continued ) including measurement period adjustments since the fair values presented in the company 's form 10-q for the quarter ended september 30 , 2016 ( in thousands ) : replace_table_token_11_th the company 's measurement period adjustments were complete as of december 31 , 2016. as a result of the measurement period adjustments recorded above , there was no gain or losses on the disposed tangible or intangible assets . convertible promissory notes-related parties immediately prior to the consummation of the merger , the september 14 , 2011 , september 16 , 2011 and march 1 , 2016 ( amended and restated april 13 , 2016 ) convertible note issuances outstanding totaling $ 47.6 million on july 22 , including accrued but unpaid interest , were converted into 7.1 million shares of common stock on a post-split basis of the company pursuant to their respective amended and restated story_separator_special_tag the risk factors in part i , item 1a of this annual report on form 10-k , the audited financial statements and accompanying notes , included elsewhere in this annual report on form 10-k , and this management 's discussion and analysis of financial condition and results of operations should be read together . in addition to historical information , this discussion and analysis contains forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period . the term `` private madrigal '' refers to madrigal pharmaceuticals , inc. prior to the consummation of the merger described herein . the term `` synta '' refers to synta pharmaceuticals corp. prior to the consummation of the merger described herein . unless otherwise indicated , references to the terms `` madrigal , '' the `` company , '' `` we , '' `` our '' and `` us '' refer to private madrigal prior to the consummation of the merger described herein and madrigal pharmaceuticals , inc. ( formerly known as synta pharmaceuticals corp. ) upon the consummation of the merger described herein . overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates for the treatment of cardiovascular , metabolic and liver diseases . our lead product candidate , mgl-3196 , is a proprietary , liver-directed , selective thyroid hormone receptor-ร , or thr-ร , agonist that can potentially be used to treat a number of disease states with high unmet medical need . we are developing mgl-3196 for non-alcoholic steatohepatitis , or nash and we have initiated a phase 2 clinical trial in this indication . we are also developing mgl-3196 for dyslipidemia , particularly genetic dyslipidemias such as familial hypercholesterolemia , or fh , including both homozygous and heterozygous forms of the disease . we have initiated a phase 2 clinical trial in heterozygous fh , or hefh , patients and we are planning to conduct a proof-of-concept clinical trial in homozygous fh , or hofh , patients . mgl-3196 is a once-daily oral pill that has been studied in four completed phase 1 trials in a total of 129 subjects . story_separator_special_tag the probability of success for each product candidate is affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . accordingly , we may never succeed in achieving marketing approval for any of our product candidates completion dates and costs for our clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict . as a result , we can not estimate with any degree of certainty the costs we will incur in connection with the development of our product candidates at this point in time . we expect that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs , results of ongoing and future clinical trials , our ability to enter into collaborative agreements with respect to programs or potential product candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and stock-based compensation expense for employees , management costs , costs associated with obtaining and maintaining our patent portfolio , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . we expect that our general and administrative expenses may increase in the future as we expand our operating activities , maintain and expand our patent portfolio and incur additional costs associated with being a public company and maintaining compliance with exchange listing and sec requirements . we expect these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued research and development expenses . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . research and development costs research and development costs are expensed as incurred . research and development costs are comprised of costs incurred in performing research and development activities , including internal costs ( including stock-based compensation ) , costs for consultants , and other costs associated with the company 's preclinical and clinical programs . in particular , madrigal has conducted safety studies in animals , optimized and implemented the api manufacturing , and conducted phase 1 & 2 clinical trials , all of which are considered research and development expenditures . 49 stock-based compensation we recognize stock-based compensation expense based on the grant date fair value of stock options granted to employees , officers and directors . we use the black-scholes option pricing model to determine the grant date fair value as our management believes it is the most appropriate valuation method for its option grants . the black-scholes model requires inputs for risk-free interest rate , dividend yield , volatility and expected lives of the options . certain of the employee stock options granted by us are structured to qualify as incentive stock options , or isos . under current tax regulations , we do not receive a tax deduction for the issuance , exercise or disposition of isos if the employee meets certain holding requirements . if the employee does not meet the holding requirements , a disqualifying disposition occurs , at which time we may receive a tax deduction . we do not record tax benefits related to isos unless and until a disqualifying disposition is reported . in the event of a disqualifying disposition , the entire tax benefit is recorded as a reduction of income tax expense . we have not recognized any income tax benefit for its share-based compensation arrangements due to the fact that we do not believe it is more likely than not it will realize the related deferred tax assets . story_separator_special_tag style= '' font-family : times ; '' width= '' 12pt '' > december 31 , 2016 2015 net cash used in operating activities $ ( 17,607 ) $ ( 3,142 ) net cash provided by investing activities 21,992 ย net cash provided by financing activities 14,454 3,300 โ โ โ โ โ โ โ โ net increase in cash and cash equivalents $ 18,839 $ 158 โ โ โ โ โ โ โ โ net cash used in operating activities was $ 17.6 million for the year ended december 31 , 2016 compared to $ 3.1 million for the year ended december 31 , 2015. the use of cash in operating activities for the year ended december 31 , 2016 reflected a net loss of $ 26.4 million from our operations , including costs related to the merger , and changes in our operating assets and liabilities , partially offset by $ 1.2 million of interest expense related to our related party convertible notes and $ 8.7 million of stock-based compensation expense . the use of cash in operating activities for the year ended
| results of operations comparison years ended december 31 , 2016 and 2015 the following table provides comparative results of operations for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_3_th research and development expense our research and development expenses were $ 15.9 million for the year ended december 31 , 2016 compared to $ 2.4 million for the year ended december 31 , 2015. research and development expenses increased in 2016 primarily due to increased expenses for our clinical and preclinical development programs for mgl-3196 . expense related to stock based compensation increased by $ 5.4 million , of which $ 4.8 million related to private madrigal 's change in control bonus plan recognized at the merger . with the exception of the expense related to private madrigal 's change in control bonus plan , we expect our research and development expenses to increase over time as we advance our clinical and preclinical development . general and administrative expense our general and administrative expenses were $ 9.3 million for the year ended december 31 , 2016 compared to $ 0.8 million for the year ended december 31 , 2015. the increase in general and administrative expenses for the year ended december 31 , 2016 was primarily due to approximately $ 2.1 million in costs associated with the merger and the increased operating expenses of maintaining a public company . expense related to stock based compensation increased by $ 2.5 million , of which $ .6 million was related to private madrigal 's change in control bonus plan . with the exception of the merger-related expenses , we believe that our general and administrative expenses may increase over time as we advance our clinical and preclinical development programs for mgl-3196 and continue 50 operating as a public company , both of which will likely result in an increase in our headcount , consulting services , and certain overhead needed to support those efforts .
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management 's report was not subject to attestation by the company 's independent registered public accounting firm pursuant to certain rules of the securities and exchange commission that exempt smaller reporting companies , including the company , from such requirement . item 9b . other information none . 51 part iii with the exception of certain information relating to the executive officers of the company , which is provided in part i hereof , the information relating to securities authorized for issuance under equity compensation plans and the information relating to the company 's code of ethics , each of which is included below , all information required by part iii ( items 10 , 11 , 12 , 13 and 14 of form 10-k ) is incorporated by reference to the sections entitled ย election of directorsย , ย security ownership of certain beneficial owners and managementย , ยsection 16 ( a ) beneficial ownership reporting complianceย , ย executive compensationย , ย certain relationships and related transactions , and director independenceย and ย ratification of independent registered public accounting firmย to be contained in the company 's definitive proxy statement in connection with the company 's annual meeting of shareholders to be held on may 5 , 2015 , to be filed with the sec within 120 days of the company 's fiscal year end . equity compensation plan information the following table sets forth , as of story_separator_special_tag the following is management 's discussion and analysis of the financial condition and results of operations of atlantic american corporation ( ยatlantic americanย or the ยparentย ) and its subsidiaries ( collectively with the parent , the ยcompanyย ) for the years ended december 31 , 2014 and 2013. this discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein . atlantic american is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries : american southern insurance company and american safety insurance company ( together known as ยamerican southernย ) in the property and casualty insurance industry , and bankers fidelity life insurance company and bankers fidelity assurance company ( together known as ยbankers fidelityย ) in the life and health insurance industry . each operating company is managed separately , offers different products and is evaluated on its individual performance . critical accounting policies the accounting and reporting policies of the company are in accordance with accounting principles generally accepted in the united states of america ( ยgaapย ) and , in management 's belief , conform to general practices within the insurance industry . the following is an explanation of the company 's accounting policies and the resultant estimates considered most significant by management . these accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management 's estimates determined using these policies . atlantic american does not expect that changes in the estimates determined using these policies will have a material effect on the company 's financial condition or liquidity , although changes could have a material effect on its consolidated results of operations . unpaid loss and loss adjustment expenses comprised 31 % of the company 's total liabilities at december 31 , 2014. this liability includes estimates for : 1 ) unpaid losses on claims reported prior to december 31 , 2014 , 2 ) future development on those reported claims , 3 ) unpaid ultimate losses on claims incurred prior to december 31 , 2014 but not yet reported and 4 ) unpaid loss adjustment expenses for reported and unreported claims incurred prior to december 31 , 2014. quantification of loss estimates for each of these components involves a significant 16 degree of judgment and estimates may vary , materially , from period to period . estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the company . development on reported claims , estimates of unpaid ultimate losses on claims incurred prior to december 31 , 2014 but not yet reported , and estimates of unpaid loss adjustment expenses are developed based on the company 's historical experience , using actuarial methods to assist in the analysis . the company 's actuaries develop ranges of estimated development on reported and unreported claims as well as loss adjustment expenses using various methods , including the paid-loss development method , the reported-loss development method , the paid bornhuetter-ferguson method and the reported bornhuetter-ferguson method . any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the business environment and the company 's administrative policies . further , external factors , such as legislative changes , medical cost inflation , and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses . the company 's approach is to select an estimate of ultimate losses based on comparing results of a variety of reserving methods , as opposed to total reliance on any single method . unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business , and when current results differ from the original assumptions used to develop such estimates , the amount of the company 's recorded liability for unpaid loss and loss adjustment expenses is adjusted . in the event the company 's actual reported losses in any period are materially in excess of the previously estimated amounts , such losses , to the extent reinsurance coverage does not exist , could have a material adverse effect on the company 's results of operations . future policy benefits comprised 33 % of the company 's total liabilities at december 31 , 2014. these liabilities relate primarily to life insurance products and are based upon assumed future investment yields , mortality rates , and withdrawal rates after giving effect to possible risks of adverse deviation . the assumed mortality and withdrawal rates are based upon the company 's experience . story_separator_special_tag valuation allowances are recognized to reduce the deferred tax asset to the amount that is deemed more likely than not to be realized . in assessing the likelihood of realization , management considers estimates of future taxable income and tax planning strategies . refer to note 1 of ยnotes to consolidated financial statementsย for details regarding the company 's significant accounting policies . overall corporate results replace_table_token_10_th 18 management also considers and evaluates performance by analyzing the non-gaap measure , operating income , and believes it is a useful metric for investors , potential investors , securities analysts and others because it isolates the ยcoreย results of the company before considering certain items that are either beyond the control of management ( such as taxes , which are subject to timing , regulatory and rate changes depending on the timing of the associated revenues and expenses ) or are not expected to regularly impact the company 's operational results ( such as any realized investment and other gains , which are not a part of the company 's primary operations and are , to an extent , subject to discretion in terms of timing of realization ) . a reconciliation of net income to operating income is as follows : replace_table_token_11_th ( 1 ) gain from the purchase of $ 7.5 million of the company 's junior subordinated deferrable interest debentures ( ยjunior subordinated debenturesย ) . see note 6 of notes to consolidated financial statements . on a consolidated basis , the company had net income of $ 4.4 million , or $ 0.19 per diluted share , in 2014 , compared to net income of $ 11.0 million , or $ 0.48 per diluted share , in 2013. the decrease in net income during 2014 was primarily due to a decrease in realized investment gains . in 2014 , realized investments gains decreased by $ 7.2 million as the company sold several higher yielding , longer-term investments in 2013 in order to shorten the average maturity of its investment portfolio . operating income was $ 2.6 million in 2014 compared to $ 2.5 million in 2013. the slight increase in operating income during 2014 was primarily attributable to increased profitability in the property and casualty operations as well as lower interest expense due to both the expiration in march 2013 of an interest rate collar and the decrease in august 2014 of the outstanding balance of the company 's junior subordinated debentures . partially offsetting the increase in operating income were increases in agency and underwriting related expenses , including increased hiring to support worksite product and distribution initiatives as well as the amortization of unearned compensation from stock awards . further , investment income also decreased due not only to the sale of the higher yielding , longer-term investments in 2013 discussed previously but also the reinvestment of such proceeds at lower interest rates . total revenue was $ 166.3 million in 2014 as compared to $ 165.4 million in 2013. premium revenue increased to $ 153.5 million in 2014 from $ 145.6 million in 2013. the increase in premium revenue was primarily attributable to an increase in commercial automobile earned premiums in the property and casualty operations resulting from a significant state contract which incepted in 2013. also included in total revenue were net realized investment gains of $ 1.6 million in 2014 compared to net realized investment gains of $ 8.7 million in 2013. the magnitude of realized investment gains and losses in any year is a function of the timing of trades of investments relative to the markets themselves as well as the recognition of any other than temporary impairments on investments . total expenses were $ 161.4 million in 2014 as compared to $ 154.2 million in 2013. as a percentage of premiums , insurance benefits and losses incurred and commissions and underwriting expenses were 95.8 % and 96.8 % in 2014 and 2013 , respectively . a more detailed analysis of the operating companies and other corporate activities follows . 19 story_separator_special_tag million , respectively . to the extent reserve redundancies vary between years , there is an incremental impact on the results of operations of american southern and the company . the indicated redundancy in 2014 was $ 2.3 million less than that in 2013. after considering the impact on contingent commissions and other related accruals , the $ 2.3 million decrease in the redundancy resulted in a decrease in income from operations before tax of approximately $ 1.4 million in 2014 as compared to 2013. management believes that such differences will continue in future periods but is unable to determine if or when incremental redundancies will increase or decrease , until the underlying losses are ultimately settled . contingent commissions , if contractually applicable , are ultimately payable to agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts , and are periodically evaluated and accrued as earned . approximately 57 % of american southern 's earned premium provides for contractual commission arrangements which compensate the company 's agents in relation to the loss ratios of the business they write . by structuring its business in this manner , american southern provides its agents with an economic incentive to place profitable business with american southern . in periods in which loss reserves reflect 21 favorable development from prior years ' reserves , there is generally a highly correlated increase in commission expense also related to the prior year business . accordingly , favorable loss development from prior years , while anticipated to continue in future periods , is not an indicator of significant additional profitability in the current year .
| underwriting results american southern the following table summarizes , for the periods indicated , american southern 's premiums , losses , expenses and underwriting ratios : replace_table_token_12_th gross written premiums at american southern decreased $ 2.2 million , or 3.7 % , during 2014 as compared to 2013. the decrease in gross written premiums was primarily attributable to a decrease of $ 11.0 million in commercial automobile written premiums resulting from the cancellation of an agency in 2014 due to unfavorable loss experience . partially offsetting the decrease in gross written premiums in 2014 were increases in commercial automobile and property business from new and existing programs . in an effort to increase gross written premiums , diversify its business and offset the decrease in business writings from cancelled agencies , american southern continually evaluates new underwriting programs . in both 2014 and 2013 , american southern 's five principal states in terms of written premiums were alabama , florida , georgia , south carolina , and texas , which accounted for approximately 70 % and 67 % of total written premiums for 2014 and 2013 , respectively . ceded premiums decreased $ 1.7 million , or 22.6 % , during 2014 as compared to 2013. american southern 's ceded premiums are determined as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease . however , the change in ceded premiums was disproportionate to the increase in earned premiums due to the execution of a separate reinsurance agreement to specifically reinsure the commercial automobile business in a state contract awarded to american southern in 2013. otherwise , the decrease in ceded premiums during 2014 was primarily attributable to the decline in commercial automobile earned premiums from the agency cancellation discussed previously .
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the housing loans are measured using the level 3 inputs within the fair value hierarchy because they are story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual report . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections entitled โ special note regarding forward-looking statements โ and โ item 1a . risk factors. โ we assume no obligation to update any of these forward-looking statements . executive summary we are a leading global provider of product development and software engineering solutions offering specialized technological consulting to many of the world 's leading organizations . our clients depend on us to solve their complex technical challenges and rely on our expertise in core engineering , advanced technology , digital engagement and intelligent enterprise development . we are continuously venturing into new industries to expand our core industry client base in software and technology , financial services , media and entertainment , travel and consumer , retail and distribution and life sciences and healthcare . our teams of developers , architects , strategists , engineers , designers , and product experts have the capabilities and skill sets to deliver business results . our global delivery model and centralized support functions , combined with the benefits of scale from the shared use of fixed-cost resources , enhance our productivity levels and enable us to better manage the efficiency of our global operations . as a result , we have created a delivery base whereby our applications , tools , methodologies and infrastructure allow us to seamlessly deliver services and solutions from our delivery centers to global clients across all geographies , further strengthening our relationships with them . leveraging our roots in software engineering , along with our vertical expertise and strong strategic partnerships , we have become a recognized brand in software development and end-to-end digital transformation services for our clients . we are confident that our strategy of combining our traditional technology and engineering advantage with proven capabilities in digital transformation , design , and emerging consultancy should enable us to navigate considerable market , geo-political and economic uncertainties . overview of 2017 and financial highlights the following table presents a summary of our results of operations for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_7_th the key highlights of our consolidated results for 2017 were as follows : we recorded revenues of $ 1.45 billion , or a 25.0 % increase from $ 1.16 billion last year . income from operations grew 29.4 % to $ 172.9 million from $ 133.7 million in 2016. expressed as a percentage of revenues , income from operations was 11.9 % compared to 11.5 % last year . the slight increase was primarily driven by improvements in utilization . our effective tax rate was 58.3 % compared to 21.5 % last year . this increase is principally due to the provisional $ 74.6 million charge related to u.s. tax reform in 2017 . 26 net income decreased 26.7 % to $ 72.8 million compared to $ 99.3 million in 2016 . expressed as a percentage of revenues , net income decreased 3.6 % compared to last year , which was largely driven by the higher effective tax rate in 2017 . diluted earnings per share decreased 29.4 % to $ 1.32 for the year ended december 31 , 2017 from $ 1.87 in 2016 . cash provided by operations increased $ 30.5 million , or 18.5 % , to $ 195.4 million during 2017 . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . critical accounting policies we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) , which require us to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of assets and liabilities , ( ii ) disclosure of contingent assets and liabilities at the end of each reporting period and ( iii ) the reported amounts of revenues and expenses during each reporting period . we evaluate these estimates and assumptions based on historical experience , knowledge and assessment of current business and other conditions , and expectations regarding the future based on available information and reasonable assumptions , which together form a basis for making judgments about matters not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . when reviewing our audited consolidated financial statements , you should consider ( i ) our selection of critical accounting policies , ( ii ) the judgment and other uncertainties affecting the application of such policies and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . we consider the policies discussed below to be critical to an understanding of our consolidated financial statements as their application places significant demands on the judgment of our management . an accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the consolidated financial statements . we believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our consolidated financial statements . story_separator_special_tag if we determine that it is not more likely than not that the fair value of our reporting unit is less than its carrying value , we are not required to perform any additional tests in assessing goodwill for impairment . however , if we conclude otherwise or elect not to perform the qualitative assessment , we perform a second step consisting of a quantitative assessment of goodwill impairment . this quantitative assessment requires us to estimate impairment by comparing the fair value of a reporting unit with its carrying amount . an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . historically , a significant portion of the purchase consideration related to our acquisitions was allocated to customer relationships . in valuing customer relationships , we typically utilize the multi-period excess earnings method , a form of the income approach . the principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only . we amortize our intangible assets that have finite lives on a straight-line basis or , if reliably determinable , the pattern in which the economic benefit of the asset is expected to be consumed utilizing expected discounted future cash flows . amortization is recorded over the estimated useful lives that predominantly range from five to ten years . we do not have any intangible assets with indefinite useful lives . we review our intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . if the carrying value of an asset exceeds its undiscounted cash flows , we will write down the carrying value of the intangible asset to its fair value in the period identified . in assessing fair value , we must make assumptions regarding estimated future cash flows and discount rates . if these estimates or related assumptions change in the future , we may be required to record impairment charges . if the estimate of an intangible asset 's remaining useful life is changed , we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . 28 accounting for income taxes โ we estimate our income taxes based on the various jurisdictions where we conduct business and we use estimates in determining our provision for income taxes . we estimate separately our deferred tax assets , related valuation allowances , current tax liabilities and deferred tax liabilities . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the u.s. internal revenue service or other taxing jurisdictions . the provision for income taxes includes federal , state , local and foreign taxes . deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the consolidated financial statement carrying amounts and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed . changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of change . we evaluate the realizability of deferred tax assets and recognize a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized . the realization of deferred tax assets is primarily dependent on future earnings . any reduction in estimated forecasted results may require that we record valuation allowances against deferred tax assets . once a valuation allowance has been established , it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized . a pattern of sustained profitability will generally be considered as sufficient positive evidence to reverse a valuation allowance . if the allowance is reversed in a future period , the income tax provision will be correspondingly reduced . accordingly , the increase and decrease of valuation allowances could have a significant negative or positive impact on future earnings . on december 22 , 2017 , the united states enacted the tax cuts and jobs act ( โ u.s . tax act โ ) . the u.s. tax act significantly changes u.s. corporate income tax laws including a reduction of the u.s. corporate income tax rate from 35.0 % to 21.0 % effective january 1 , 2018 and the creation of a territorial tax system with a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to u.s. income tax . in addition , the tax act creates new taxes on certain foreign-sourced earnings and certain related party payments , which are referred to as the global intangible low-taxed income tax and the base erosion anti-abuse tax , respectively . due to the timing of the enactment and the complexity involved in applying the provisions of the u.s. tax act , we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of december 31 , 2017 . as we collect and prepare necessary data and interpret the u.s. tax act and any additional guidance issued by the u.s treasury department , the irs , and other standard-setting bodies , and further refine our calculations , we may make adjustments to the provisional amounts recorded . we will complete our analysis over a one-year measurement period ending in the second half of 2018. any adjustments during this measurement period will be included in the provision for income taxes in the reporting period when such adjustments are determined .
| results of operations the following table sets forth a summary of our consolidated results of operations for the periods indicated . this information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . replace_table_token_12_th ( 1 ) included $ 20,868 , $ 16,619 and $ 13,695 of stock-based compensation expense for the years ended december 31 , 2017 , 2016 and 2015 , respectively ; ( 2 ) included $ 31,539 , $ 32,625 and $ 32,138 of stock-based compensation expense for the years ended december 31 , 2017 , 2016 and 2015 , respectively . 31 revenues our revenues are derived primarily from providing software development services to our clients . revenues include revenue from services as well as license revenues , reimbursable expenses and other revenues . during the year ended december 31 , 2017 , our revenues were $ 1.45 billion , growing 25.0 % over last year . total revenues in 2017 and 2016 included $ 17.1 million and $ 12.5 million of reimbursable expenses and other revenues , respectively , which increased 36.9 % in 2017 as compared to 2016 , but remained relatively flat as a percentage of total revenues . growth in revenue is attributable to both the expansion of existing business with current clients and deeper penetration into verticals where we have an established and increasing presence . during 2016 , our revenues grew 26.9 % over 2015 , from $ 914.1 million to $ 1.16 billion . total revenues in 2016 and 2015 included $ 12.5 million and $ 9.5 million of reimbursable expenses and other revenues , respectively , which increased by 31.6 % in 2016 as compared to 2015 , but remained relatively flat as a percentage of total revenues .
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f-13 net 1 ueps technologies , inc. notes to the consolidated financial statements for the years ended june 30 , 2017 , 2016 and 2015 ( all amounts stated in thousands of united states dollars , unless otherwise stated ) 2. significant accounting policies ( continued ) sales taxes revenue story_separator_special_tag and results of operations the following discussion and analysis should be read in conjunction with item 6ยยselected financial dataย and item 8ยยfinancial statements and supplementary data.ย in addition to historical consolidated financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . see item 1aย ยrisk factorsย and ยforward looking statements.ย overview we are a leading provider of payment solutions , transaction processing services and financial technology across multiple industries and in a number of emerging and developed economies . we have developed and market a comprehensive transaction processing solution that encompasses our smart card-based alternative payment system for the unbanked and under-banked populations of developing economies and for mobile transaction channels . our market-leading system can enable the billions of people globally who generally have limited or no access to a bank account to enter affordably into electronic transactions with each other , government agencies , employers , merchants and other financial service providers . our ueps , and ueps/emv derivative discussed below , uses biometrically secure smart cards that operate in real-time but offline , unlike traditional payment systems offered by major banking institutions that require immediate access through a communications network to a centralized computer . this offline capability means that users of our system can conduct transactions at any time with other card holders in even the most remote areas so long as a smart card reader , which is often portable and battery powered , is available . our off-line systems also offer the highest level of availability and affordability by removing any elements that are costly and are prone to outages . our latest version of the ueps technology has been certified by emv , which facilitates our traditionally proprietary ueps system to interoperate with the global emv standard and allows card holders to transact at any emv-enabled point of sale terminal or atm . the ueps/emv technology has been deployed on an extensive scale in south africa through the issuance of mastercard-branded ueps/emv cards to our social welfare grant customers . in addition to effecting purchases , cash-backs and any form of payment , our system can be used for banking , healthcare management , international money transfers , voting and identification . we also provide secure financial technology solutions and services , by offering transaction processing , financial and clinical risk management solutions to various industries . we have extensive expertise in secure online transaction processing , cryptography , mobile telephony , integrated circuit card ( chip/smart card ) technologies , and the design and provision of financial and value-added services to our cardholder base . our technology is widely used in south africa today , where we distribute pension and welfare payments , using our ueps/emv technology , to over ten million recipient cardholders across the entire country , process debit and credit card payment transactions on behalf of a wide range of retailers through our easypay system , process value-added services such as bill payments and prepaid airtime and electricity for the major bill issuers and local councils in south africa , and provide mobile telephone top-up transactions for all of the south african mobile carriers . we are the largest provider of third-party and associated payroll payments in south africa through our fihrst service . we provide financial inclusion services such as microloans , insurance , mobile transacting and prepaid utilities to our cardholder base . in addition , through ksnet , we are one of the top three value-added network , or van , processors in south korea , and we offer card processing , payment gateway and banking value-added services in that country . we also offer issuing and acquiring capabilities through transact24 in hong kong . our masterpayment subsidiary in germany provides value added payment services to online retailers across europe . our xeohealth service provides funders and providers of healthcare in united states with an on-line real-time management system for healthcare transactions . our net1 solutions business unit is responsible for the worldwide technical development and commercialization of our array of web and mobile applications and payment technologies , such as mvc , chip and gsm licensing and vtu , and has deployed solutions in many countries , including south africa , namibia , nigeria , malawi , cameroon , the philippines , india and colombia . sources of revenue we generate our revenues by charging transaction fees to government agencies , merchants , financial service providers , utility providers , bill issuers , employers , healthcare providers and cardholders ; by providing loans and insurance products and by selling hardware , licensing software and providing related technology services . 39 we have structured our business and our business development efforts around four related but separate approaches to deploying our technology . in our most basic approach , we act as a supplier , selling our equipment , software , and related technology to a customer . the revenue and costs associated with this approach are reflected in our financial inclusion and applied technologies segment . we have found that we have greater revenue and profit opportunities , however , by acting as a service provider instead of a supplier . in this approach we own and operate the ueps ourselves , charging one-time and on-going fees for the use of the system either on a fixed or ad valorem basis . this is the case in south africa , where we distribute welfare grants on behalf of the south african government on a fixed fee basis , but charge a fee on an ad valorem basis for goods and services purchased using our smart card . story_separator_special_tag the constitutional court also ordered the minister and sassa to file reports with the constitutional court every three months , commencing on june 19 , 2017 , setting out how they plan to ensure the payment of social grants after the end of the 12-month contract extension period , what steps they have taken in that regard , what further steps they will take , and when they will take each future step , so as to ensure that the payment of all social grants is made when they fall due after the expiry of the 12-month period . the reports filed by the minister and sassa must include , but is not limited to , the applicable time-frames for the various deliverables which form part of the plan , whether the time-frames have been complied with , and if not , why that is the case and what will be done to remedy the situation . the minister and sassa are also required to immediately report to the constitutional court and explain the reason for and consequences of any material changes to the circumstances included in the reports previously submitted to the constitutional court . the constitutional court order also invited parties involved in the constitutional court proceedings to provide the name and consent of independent legal practitioners and technical experts , together with the auditor-general , to oversee the implementation of the payment of social welfare grants during the period to march 31 , 2018 , as well as oversee sassa 's conduct to appoint a new service provider from april 1 , 2018 , or to perform the grant distribution service in-house . the constitutional court appointed a panel of ten such nominated experts on june 6 , 2017. it is our understanding that the expert panel is obtaining information from a number of sources . accordingly , we have received a request for information from the expert panel and have provided a comprehensive response . progress of financial inclusion initiatives in south africa in june 2015 , we began the rollout of epe , our business-to-consumer , or b2c , offering in south africa . at july 31 , 2017 , we had more than 2.0 million active epe accounts , compared to 1.95 million at april 28 , 2017. epe is a fully transactional , low cost account created to serve the needs of south africa 's unbanked and under-banked population , most of whom are social grant recipients . the epe account offers customers a comprehensive suite of financial and various financial inclusion services , such as prepaid products , in an economical , convenient and secure solution . epe provides account holders with a ueps-emv debit mastercard , mobile and internet banking services , atm and pos services , as well as loans , insurance and other financial products and value-added services . however , sassa and a nonยprofit organization continue to challenge the ability of beneficiaries to freely transact with the grants that they receive as described under ยitem 3ยlegal proceedings.ย in order for us to address the sizeable opportunity for epe and related financial inclusion services in south africa , in fiscal 2016 , we started to expand our brick-and-mortar financial services branch infrastructure , which supplements our nationwide distribution , with a ueps/emv-enabled atm network , and hired a dedicated sales force . at july 31 , 2017 , we had 149 branches ( july 31 , 2016 : 140 ) , 980 atms ( july 31 , 2016 : 904 ) , and 1,822 ( july 31 , 2016 : 2,200 ) dedicated employees . we reduced our employee headcount throughout fiscal 2017 as a result of the slowdown of the branch expansion during the year and the stabilization and improvement in the efficiency of the branch operations . however , the reduction in employee headcount during the fiscal year did not result in a lower overall employment charge in 2017 relative to 2016 because , on average , we had more employees during fiscal 2017 compared with fiscal 2016 in addition to higher rates per employee due to annual salary increases . during the 13 months since july 1 , 2016 we sold approximately 250,000 new policies related to our simple , low-cost life insurance products , in addition to the free basic life insurance policy provided with every epe account opened . we experienced higher year-over-year growth in the demand for our loans , which are among the most affordable available to our customers . tougher economic conditions in south africa , aggravated by rising food prices as a result of widespread drought conditions and a weakening currency , has had an impact on the number of clients who qualify for our loan products . 41 the graph below presents the growth of the number of epe cards and smart life policies : separation agreement with former chief executive officer in may 2017 , we entered into a separation and release of claims agreement , or separation agreement , with one of co-founders , chief executive officer and director , mr. serge c.p . belamant . the separation agreement provided for certain payments to mr. s.c.p . belamant , including an aggregate $ 8.0 million severance and cooperative resignation payment and the repurchase for 1,269,751 shares of our common stock ( including the repurchase of 252,286 shares underlying mr. s.c.p . belamant 's in-the-money stock options ) for an aggregate repurchase of $ 13.7 million . we also entered into a consulting agreement with mr. s.c.p . belamant , under which he would provide consulting services to us for a period of up to two years following his departure . on july 31 , 2017 , we provided mr. s.c.p . belamant a written termination notice . we will not be making any termination payments to mr. s.c.p . belamant beyond the 90-day notice period .
| results of operations by operating segment the composition of revenue and the contributions of our business activities to operating income are illustrated below replace_table_token_14_th 53 replace_table_token_15_th south african transaction processing in zar , the increase in segment revenue and operating income was primarily due to higher epe transaction revenue as a result of increased usage of our atms , more low-margin transaction fees generated from card holders using the south african national payment system , increased inter-segment transaction processing activities , and a modest increase in the number of social welfare grants distributed . operating income margin in our south african transaction processing segment for fiscal 2016 and 2015 was 24 % and 22 % , respectively , and has increased primarily due a modest increase in the margin on transaction fees generated from cardholders using the south african national payment system and to an increase in the number of beneficiaries paid in fiscal 2016. international transaction-based activities revenue from our international transaction processing segment increased primarily due to higher transaction volume at ksnet during fiscal 2016 and the inclusion of the contribution from transact24 and masterpayment . operating income during fiscal 2016 was lower due to an increase in depreciation expense and ongoing zazoo start-up costs in the united kingdom and india , but was partially offset by an increase in revenue contribution from ksnet and a positive contribution from transact24 , masterpayment and xeohealth . operating income and operating income margin in our international transaction processing segment for fiscal 2015 , were positively impacted by a refund of approximately $ 1.7 million that had been paid several years ago in connection with industry-wide litigation . operating income margin for fiscal 2016 and 2015 , was 14 % and 16 % , respectively .
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as of december 31 , 2010 , an amount of $ 54,559 due to isg in respect of demand loans is reflected on the company 's consolidated balance sheets as loans payable โ related parties and an amount of $ 3,403due to isg in respect to the unpaid accrued interest is reflect on the company ` s consolidated balance sheets as accounts payable โ related parties . b. transactions with mr. clifford winsor and companies controlled by him ยท mr. clifford winsor is the step father of ms. jacqueline danforth , the ceo and a director of the company . mr. clifford winsor controls ultimate resort destinations inc. and ultimate destinations inc. ยท during fiscal 2010 , the company did not receive any further cash advances from mr. clifford winsor and did not make any cash payments against his outstanding bills . as of december 31 , 2010 , mr. clifford winsor is owed $ 26,206 . ยท during fiscal 2010 , ultimate resort destinations inc. provided demand loans totaling $ 13,000 to the company for working capital bearing interest at a rate of 8 % per annum . the accrued interest expense for the year ended december 31 , 2010 on the principal amount of the loans totaled $ 228 . as of december 31 , 2010 , an amount of $ 13,000 due to ultimate resort destinations inc. in respect of demand loans is reflected on the company 's consolidated balance sheets as loans payable โ related parties , and an amount of $ 228 due to ultimate resort destinations inc. in respect to the unpaid accrued interest is reflect on the company ` s consolidated balance sheets as accounts payable โ related parties . f-19 fact corporation notes to consolidated financial statements fiscal years ended december 31 , 2010 and 2009 ( stated in us dollars ) note 12 โ related party transactions ( continued ) c. transactions with directors and officers ยท ms. jacqueline danforth is ceo and director of the company . she provides consulting services to the company and its subsidiaries . in 2010 , ms. danforth provided services to the company for the invoiced amount of $ 101,244 ( 2009 - $ 101,244 ) . ms. danforth was paid an amount totaling $ 25,051 ( 2009 - $ 45,742 ) in consideration for her services in fiscal 2010 and an amount of $ 76,193 ( 2009 โ $ 55,102 ) was accrued . as of december 31 , 2010 , the company owes ms. danforth $ 539,427 , which has been accumulated from 2001 to 2010 . ยท on august 25 , 2010 , the board of directors of fact products inc. , a subsidiary of the company , appointed bryan hunsaker as president and steve ault as vice president โ product development . as per the terms of their respective employment agreements , amongst other consideration , mr. hunsaker was granted a total of 250,000 stock options exercisable for shares of fact 's class a common stock at $ 0.275 per share and mr. ault was granted a total of 100,000 stock options exercisable for shares of fact 's class a common stock at $ 0.275 per share . for additional information on stock options , please refer to note 9 above . both mr. hunsaker and mr. ault receive an annual base salary of $ 80,000 with an additional $ 13,200 as an expense allowance for general expenses inclusive of telephone , internet and other pre-approved expense items for travel and miscellaneous activities . ยท ms. tucker was appointed chief financial officer of the company on october 15 , 2010 . 569728 bc ltd , a company owned by ms. tucker , purchased 200,000 units of securities at $ 0.25 per unit for a total amount of $ 50,000 during the fiscal year ended december 31 , 2010. each unit consists of one share of class a common stock and two share purchase warrants ( one class a warrant and one class b warrant ) . each class a warrant entitles the holder to purchase one share of class a common stock at $ 0.30 per share within one calendar year from the date of issue . each class b warrant entitles the holder to purchase one share of class a common stock at 0.35 per share within two calendar years from the date of issue . ยท on october 29 , 2010 , mr. brad hunsaker was appointed to the board of directors of the company . h h and company llc , a consulting company owned story_separator_special_tag forward-looking statements this annual report contains forward-looking statements relating to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as `` may '' , `` should '' , `` intends '' , `` expects '' , `` plans '' , `` anticipates '' , `` believes '' , `` estimates '' , `` predicts '' , `` potential '' , or `` continue '' or the negative of these terms or other comparable terminology . these statements are only predictions and involve known and unknown risks , uncertainties and other factors which may cause our or our industry 's actual results , levels of activity or performance to be materially different from any future results , levels of activity or performance expressed or implied by these forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity or performance . you should not place undue reliance on these statements , which speak only as of the date that they were made . story_separator_special_tag these cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results , later events or circumstances or to reflect the occurrence of unanticipated events . in this annual report unless otherwise specified , all dollar amounts are expressed in united states dollars and all references to โ common shares โ refer to the common shares of our capital stock . 14 the management 's discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . liquidity and capital resources as of december 31 , 2010 , we have a total of $ 604,309 ( $ 186,925 โ 2009 ) in current assets , of which $ 323,198 ( $ 45,736 โ 2009 ) is in the form of cash , and $ 200,371 ( $ 133,915 โ 2009 ) is in the form of accounts receivable . our current liabilities total $ 2,104,995 ( $ 1,144,991 โ 2009 ) , resulting in a working capital deficit of $ 1,500,686 ( $ 958,066 ) . the company 's negative working capital increased due to the addition of loans from both related and arm 's length third parties , an increase to the current portion of long term debt payable and an increase to accounts payable as senior officers and certain consultants continued to accrue salaries without payment . during 2010 the company 's primary sources of working capital have come from revenues generated from our functional foods business , new revenues from sales in our natural supplement products division , monthly rental income ( up until august 2010 ) and the net proceeds from : ยท $ 634,988 in loan proceeds from an arms ' length third parties , of which amount $ 249,250 is an operating line of credit for use in financing accounts receivable ; ยท $ 61,147 in loan proceeds from a related party ; ยท $ 131,500 in proceeds from the sale of common stock through private placement . this working capital deficit places the company in a position of having insufficient resources to meet our short term and projected commitments , as well as insufficient to further our business plan in the absence of additional funding . currently the company and its subsidiaries operate in loss positions with insufficient revenues to offset the operational expenses . the company will be required to generate additional revenues through sales , raise funds through loans or equity offerings . at this time the company has no commitments for the additional funds required and it is not known whether the company will have sufficient capital to continue operations . while management believes that it will be able to generate additional revenues during 2011 to marginally meet its operational funding requirements and continue with its business operations there can be no assurance that the company will generate such revenue and if generated whether it will be sufficient to continue operations without a restructure . further , the company has maintained its operations historically through loans and the sale of equity . certain of the loans are currently in arrears with no payments of either principal or interest having been made . while the creditors have represented their willingness to extend such loans , there can be no assurance they will continue to do so . loans going into default without sufficient revenues to negotiate payments could result in the loss of the company 's assets and the cease of operations . there is also no assurance that if required , the company will be able to raise funds through equity funding or by further loans . the company anticipates it will require between $ 1,500,000 and $ 4,000,000 over the next twelve months to successfully implement our 2011 through 2013 strategic plan , which includes significant product development and commercialization efforts , marketing studies and category analysis , marketing plans and sales efforts , a national consumer awareness and public relations campaign , concepts for development , manufacturing and distribution of a line of our own food products for specific restricted dietary needs , expanded management resources and support staff , and other day to day operational activities . the company may require additional funds beyond the $ 1.5m to $ 4.0m above , over the next three years ; to assist in realizing its goals should it not achieve anticipated bench marks over the 2011 , 2012 and 2013 fiscal years . the amount and timing of additional funds required can not be definitively stated as at the date of this report and will be dependent on a variety of factors . as of the filing of this report , the company has been successful in raising funds required to meet our existing revenue shortfall for the funding of our current operations . funds have been raised through private loans , equity financing and conventional bank debt , as well as through the sale of certain active and passive investments . the company anticipates revenues generated from its functional food business and its nutraceutical business will greatly reduce the requirement for additional funding ; however , we can not be certain the company will be successful in achieving revenues from those operations . furthermore the company can not be certain that we will be able to raise any additional capital to fund our ongoing operations . 15 additionally the company is aggressively pursuing acquisition opportunities which may result in additional financing requirements in order to successfully conclude a transaction . at the date of this report , the company can not definitively state the amount of
| results of operations sales from the premixes and other complementary products in 2010 accounted for ninety-three ( 93 % ) of the company 's total revenues . the remaining revenue contribution was generated from new business operations in fact products inc. and the sale of natural supplement products , accounting for 3.2 % of gross revenues , and revenues generated from the sublease of certain office space , accounting for the remaining 3.8 % of gross revenue . the company 's total gross revenues declined slightly in fiscal 2010 by approximately 4.8 % or $ 60,928 as compared to 2009 , with net revenues reflecting a decline of only 1 % year over year . the decline to gross revenues is the result of ( 1 ) decreased revenues from leasing activities of $ 30,943 as our sublease operations ceased during the third quarter of 2010 ; and ( 2 ) slightly decreased revenues from functional food premix sales , a decline of 5.7 % or $ 68,175 in gross sales year over year , though net margins ( premix ) reflect a slight increase from 18.6 % ( 2009 ) to 21.8 % ( 2010 ) . the decrease to gross revenues from functional food sales and leasing operations was slightly offset by new sales generated in fact products inc. of $ 38,190 from the sale of natural supplement products with no comparative figures from fiscal 2009. costs of goods sold on wholesale bake mixes decreased slightly from $ 967,218 or 81.3 % ( 2009 ) to $ 876,760 or 78.2 % ( 2010 ) . costs of goods sold on natural supplement products sold by fact products inc were $ 32,733 or approximately 86 % .
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the amendments that clarify the board 's intent about the application of existing fair value measurement and disclosure requirements include ( a ) the application of the highest and best use and valuation premise concepts , ( b ) measuring the fair value of an instrument classified in a reporting entity 's shareholders ' equity , and ( c ) disclosures about fair value measurements that clarify that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within level 3 of the fair value hierarchy . the amendments in this update that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements include ( a ) measuring the fair value of financial instruments that are managed within a portfolio , ( b ) application of premiums and discounts in a fair value measurement , and ( c ) additional disclosures about fair value measurements that expand the disclosures about fair value measurements . the amendments in asu 2011-04 are to be applied prospectively . for public entities , the amendments are effective during interim and annual periods beginning after december 15 , 2011. early application by public entities is not permitted . management does not expect the adoption of asu 2011-04 to have a material effect on the company 's financial position , results of operations or cash flows . in june 2011 , fasb issued asu 2011-05 โ comprehensive income ( topic 220 ) . โ under the amendments in this update , an entity has the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . in a single continuous statement , the entity is required to present the components of net income and total net income , the components of other comprehensive income and a total for other comprehensive income , along with the total of comprehensive income in that statement . in the two-statement approach , an entity is required to present components of net income and total net income in the statement of net income . the statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income , along with a total for comprehensive income . the amendments in this update should be applied retrospectively . for public entities , the amendments are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. early adoption is permitted . the amendments do not require any transition disclosures . management elected early adoption and has presented the total of comprehensive income , the components of net income , and the components of other comprehensive income in a single continuous statement of comprehensive income . 10 in december 2011 , fasb issued asu 2011-12 โ comprehensive income ( topic 220 ) . โ in order to defer only those changes in update 2011-05 that relate to the presentation of reclassification adjustments , the paragraphs in this update supersede certain pending paragraphs in update 2011-05. the amendments are being made to allow the board time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented . while the board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments , entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before update 2011-05. all other requirements in update 2011-05 are not affected by this update , including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements . public entities should apply these requirements for fiscal years , and interim periods within those years , beginning after december 15 , 2011. management does not expect the adoption of asu 2011-11 to have a material effect on the company 's financial position , results of operations or cash flows . in july 2012 , the fasb issued asu 2012-02 , `` intangibles -goodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment '' in accounting standards update no . 2012-02. this update amends asu 2011-08 , intangibles -goodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with subtopic 350-30 , intangibles -goodwill and other -general intangibles other than goodwill . the amendments are effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. early adoption is permitted , including for annual and interim impairment tests performed as of a date before july 27 , 2012 , if a public entity 's financial statements for the most recent annual or interim period have not yet been issued or , for nonpublic entities , have not yet been made available for issuance . the adoption of asu 2012-02 is not expected to have a material impact on our financial position or results of operations . in october 2012 , the financial accounting standards board ( fasb story_separator_special_tag the amendments that clarify the board 's intent about the application of existing fair value measurement and disclosure requirements include ( a ) the application of the highest and best use and valuation premise concepts , ( b ) measuring the fair value of an instrument classified in a reporting entity 's shareholders ' equity , and ( c ) disclosures about fair value measurements that clarify that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within level 3 of the fair value hierarchy . the amendments in this update that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements include ( a ) measuring the fair value of financial instruments that are managed within a portfolio , ( b ) application of premiums and discounts in a fair value measurement , and ( c ) additional disclosures about fair value measurements that expand the disclosures about fair value measurements . the amendments in asu 2011-04 are to be applied prospectively . for public entities , the amendments are effective during interim and annual periods beginning after december 15 , 2011. early application by public entities is not permitted . management does not expect the adoption of asu 2011-04 to have a material effect on the company 's financial position , results of operations or cash flows . in june 2011 , fasb issued asu 2011-05 โ comprehensive income ( topic 220 ) . โ under the amendments in this update , an entity has the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . in a single continuous statement , the entity is required to present the components of net income and total net income , the components of other comprehensive income and a total for other comprehensive income , along with the total of comprehensive income in that statement . in the two-statement approach , an entity is required to present components of net income and total net income in the statement of net income . the statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income , along with a total for comprehensive income . the amendments in this update should be applied retrospectively . for public entities , the amendments are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. early adoption is permitted . the amendments do not require any transition disclosures . management elected early adoption and has presented the total of comprehensive income , the components of net income , and the components of other comprehensive income in a single continuous statement of comprehensive income . 10 in december 2011 , fasb issued asu 2011-12 โ comprehensive income ( topic 220 ) . โ in order to defer only those changes in update 2011-05 that relate to the presentation of reclassification adjustments , the paragraphs in this update supersede certain pending paragraphs in update 2011-05. the amendments are being made to allow the board time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented . while the board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments , entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before update 2011-05. all other requirements in update 2011-05 are not affected by this update , including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements . public entities should apply these requirements for fiscal years , and interim periods within those years , beginning after december 15 , 2011. management does not expect the adoption of asu 2011-11 to have a material effect on the company 's financial position , results of operations or cash flows . in july 2012 , the fasb issued asu 2012-02 , `` intangibles -goodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment '' in accounting standards update no . 2012-02. this update amends asu 2011-08 , intangibles -goodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with subtopic 350-30 , intangibles -goodwill and other -general intangibles other than goodwill . the amendments are effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. early adoption is permitted , including for annual and interim impairment tests performed as of a date before july 27 , 2012 , if a public entity 's financial statements for the most recent annual or interim period have not yet been issued or , for nonpublic entities , have not yet been made available for issuance . the adoption of asu 2012-02 is not expected to have a material impact on our financial position or results of operations . in october 2012 , the financial accounting standards board ( fasb
| results of operations - for the years ended december 31 , 2012 and 2011 , the company had net income ( loss ) from operations of approximately ( $ 315,000 ) and $ 42,000 , respectively . total revenues - for the years ended december 31 , 2012 and 2011 , the company had total sales of approximately $ 1,118,500 and $ 1,078,000 respectively , for an increase of approximately $ 40,500 or 4 % . management believes revenues will continue to grow in the future as airport traffic increases . costs and expenses - costs of revenues , which include the costs of food , beverage , and kitchen supplies increased 3.3 % as a percentage of sales from 2011 to 2012. this increase can be attributed to the higher cost of certain food items . the cost of labor increased less than 2 % as a percentage of sales from 2011 to 2012. there were no sales for a little over three months in 2011 while the restaurant was closed for renovations . however , managers were paid during this time in order to have a company representative on location at all times during construction and there were some part-time employees paid to help clean out the restaurant just prior to construction and were also paid to help restock the restaurant prior to reopening . once renovations were completed the restaurant returned to operating with its full staff throughout all of 2012. the cost of rent increased approximately 4 % as a percentage of sales from 2011 to 2012. e.a.j . phl airport pays $ 14,000 per month basic rent plus 20 % of gross revenues above $ 1,200,000 under the lease . the rent is a fixed cost and sales are variable , so the total rent paid varies from year to year .
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securities litigation reform act of 1995ย contained at the beginning of part i of this form 10-k. overview we are a leading provider of payroll , human resource , and benefits outsourcing solutions for small- to medium-sized businesses . our payroll and human resource services offer a portfolio of services and products that allow our clients to meet their diverse payroll and human resource needs . our payroll services are the foundation of our service portfolio . they are provided through either our core payroll or major market services ( ยmmsย ) , which is utilized by clients that have more sophisticated payroll and benefits needs , and include : payroll processing ; payroll tax administration services ; employee payment services ; and regulatory compliance services ( new-hire reporting and garnishment processing ) . in addition to the above , our software-as-a-service ( ยsaasย ) solution through our mms platform provides human resource management , employee benefits management , time and attendance systems , online expense reporting , and applicant tracking . 13 our human resource services primarily include : paychex hr solutions , under which we offer our administrative services organization ( ยasoย ) and our professional employer organization ( ยpeoย ) . we also offer paychex hr essentials , an aso product that provides support to our clients over the phone or online to help manage employee-related topics ; retirement services administration ; insurance services ; eservices ; and other human resource services and products . our business strategy is focused on achieving strong long-term financial performance by providing high-quality , timely , accurate , and affordable services ; growing our client base ; increasing utilization of our ancillary services ; leveraging our technology and operating infrastructure ; and expanding our service offerings . we continue to focus on driving growth in clients , revenue , and profits . we are managing our personnel costs and expenses while continuing to invest in our business , particularly in areas related to innovation and supporting technology . we believe these investments are critical to our success . looking to the future , we continue to focus on investing in our products , people , and service capabilities , positioning ourselves to capitalize on opportunities for long-term growth . our financial results for fiscal 2012 reflected sustained growth in our business . our key business indicators of checks per payroll and revenue per check continued to show improvement . checks per payroll grew 2.0 % for fiscal 2012. this growth is slightly less than the growth of 2.7 % for fiscal 2011 , as expected . our revenue growth has been moderate , as new business formation remains challenged . our financial results continue to be adversely impacted by the interest rate environment . the equity markets hit a low in march 2009 , with interest rates available on high quality financial instruments remaining low since that time . the federal funds rate has been at a range of zero to 0.25 % since december 2008. our combined funds held for clients and corporate investment portfolios earned an average rate of return of 1.1 % for fiscal 2012 , compared to 1.3 % for fiscal 2011 and 1.5 % for fiscal 2010. highlights of our financial results for fiscal 2012 compared to fiscal 2011 are as follows : payroll service revenue increased 5 % to $ 1.5 billion . human resource services revenue increased 13 % to $ 676.2 million . interest on funds held for clients decreased 9 % to $ 43.6 million . total revenue increased 7 % to $ 2.2 billion . operating income increased 9 % to $ 853.9 million , and operating income , net of certain items , increased 10 % to $ 810.3 million . refer to the ยnon-gaap financial measureย discussion on the following page for further information on operating income , net of certain items . net income and diluted earnings per share each increased 6 % to $ 548.0 million and $ 1.51 per share , respectively . dividends of $ 460.5 million were paid to stockholders , representing 84 % of net income . our results for fiscal 2012 benefited from the inclusion of surepayroll , inc. ( ยsurepayrollย ) , a provider of payroll processing for small businesses , acquired on february 8 , 2011 , and eplan services , inc. ( ยeplanย ) , a provider of recordkeeping and administrative solutions to the defined contribution marketplace , acquired on may 3 , 2011. these acquisitions in fiscal 2011 and an immaterial business acquisition in fiscal 2012 contributed approximately 2 % in total revenue growth for fiscal 2012 . 14 non-gaap financial measure in addition to reporting operating income , a united states ( ยu.s.ย ) generally accepted accounting principle ( ยgaapย ) measure , we present operating income , net of certain items , which is a non-gaap measure . we believe operating income , net of certain items , is an appropriate additional measure , as it is an indicator of our core business operations performance period over period . it is also the basis of the measure used internally for establishing the following year 's targets and measuring management 's performance in connection with certain performance-based compensation payments and awards . operating income , net of certain items , excludes interest on funds held for clients and the expense charge in fiscal 2010 to increase the litigation reserve . interest on funds held for clients is an adjustment to operating income due to the volatility of interest rates , which are not within the control of management . the expense charge to increase the litigation reserve is also an adjustment to operating income due to its unusual and infrequent nature . it is outside the normal course of our operations and obscures the comparability of performance period over period . operating income , net of certain items , is not calculated through the application of gaap and is not the required form of disclosure by the securities and exchange commission . story_separator_special_tag we believe that our investments as of may 31 , 2012 were not other-than-temporarily impaired , nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment . our primary source of cash is our ongoing operations . cash flow from operations was $ 706.6 million for fiscal 2012. historically , we have funded our operations , capital purchases , business acquisitions , and dividend payments from our operating activities . our positive cash flows in fiscal 2012 allowed us to support our business growth and to pay substantial dividends to our stockholders . during fiscal 2012 , dividends paid to stockholders were 84 % of net income . it is anticipated that cash and total corporate investments as of may 31 , 2012 , along with projected operating cash flows , will support our normal business operations , capital purchases , and dividend payments for the foreseeable future . 16 for further analysis of our results of operations for fiscal years 2012 , 2011 , and 2010 , and our financial position as of may 31 , 2012 , refer to the tables and analysis in the ยresults of operationsย and ยliquidity and capital resourcesย sections of this item 7 and the discussion in the ยcritical accounting policiesย section of this item 7. outlook our outlook for the fiscal year ending may 31 , 2013 ( ยfiscal 2013ย ) is based upon current economic and interest rate conditions continuing with no significant changes . our expected fiscal 2013 payroll revenue growth rate is based upon anticipated client base growth , offset by an expected lower rate of growth in checks per payroll , and modest increases in revenue per check . human resource services revenue growth is expected to remain in line with our historical organic experience . prior acquisitions are expected to have minimal impact to projected revenue growth rates for fiscal 2013. our fiscal 2013 guidance is as follows : replace_table_token_6_th operating income , net of certain items , as a percent of service revenue , is expected to approximate 37 % for fiscal 2013. the effective income tax rate for fiscal 2013 is expected to approximate 36 % . interest on funds held for clients and investment income for fiscal 2013 are expected to continue to be impacted by the low interest rate environment . the average rate of return on our combined funds held for clients and corporate investment portfolios is expected to remain at 1.1 % for fiscal 2013. as of may 31 , 2012 , the long-term investment portfolio had an average yield-to-maturity of 2.2 % and an average duration of 3.0 years . in the next twelve months , approximately 15 % to 20 % of this portfolio will mature , and it is currently anticipated that these proceeds will be reinvested at a lower average interest rate of approximately 1.1 % . investment income is expected to benefit from ongoing investment of cash generated from operations . earnings per share for fiscal 2013 is expected to be adversely impacted by approximately $ 0.01 per share due to a planned increase in our sales force and an increase in employee-related costs for the increase in the 401 ( k ) employer match implemented during fiscal 2012. purchases of property and equipment for fiscal 2013 are expected to be in the range of $ 95 million to $ 100 million . this includes costs for internally developed software as we continue to invest in our product development . fiscal 2013 depreciation expense is projected to be in the range of $ 80 million to $ 85 million , and we project amortization of intangible assets for fiscal 2013 to be slightly less than $ 20 million . 17 story_separator_special_tag width= '' 3 % '' > ( 2 ) includes workers ' compensation insurance services clients and health and benefits services clients . ( 3 ) includes eplan as of may 31 , 2012 and 2011. organic growth in retirement services clients would have been approximately 3 % for fiscal 2012 and 5 % for fiscal 2011. organic growth in the asset value of retirement services client employees ' funds would have been approximately 2 % for fiscal 2012 and 26 % for fiscal 2011. total service revenue : total service revenue increased 7 % for fiscal 2012 and 5 % for fiscal 2011 , attributable to the factors previously discussed . organic service revenue growth was approximately 6 % for fiscal 2012 and 4 % for fiscal 2011. interest on funds held for clients : interest on funds held for clients decreased 9 % for fiscal 2012 and 13 % for fiscal 2011 compared to the respective prior year periods . these declines were the result of lower average interest rates earned , partially offset by an increase in average investment balances . average investment balances for funds held for clients increased 7 % for fiscal 2012 and 6 % for fiscal 2011. the increase for fiscal 2012 was the result of the inclusion of surepayroll client funds , wage inflation , increase in state unemployment insurance rates , and the increase in checks per payroll . the increase in average investment balances for fiscal 2011 was the result of increases in state unemployment insurance rates and the increase in checks per payroll , offset somewhat by the lingering effects of the difficult economic conditions on our client base . refer to the ยmarket risk factorsย section , contained in item 7a of this form 10-k , for more information on changing interest rates . combined operating and sg & a expenses : the following table summarizes total combined operating and selling , general and administrative ( ยsg & aย ) expenses for fiscal years : replace_table_token_11_th a significant portion of the increases in expenses for fiscal 2012 and fiscal 2011 were driven by the acquisitions during these periods .
| results of operations summary of results of operations for the fiscal years ended may 31 : replace_table_token_7_th we invest in highly liquid , investment-grade fixed income securities and do not utilize derivative instruments to manage interest rate risk . as of may 31 , 2012 , we had no exposure to high-risk or illiquid investments and had insignificant exposure to european investments . details regarding our combined funds held for clients and corporate investment portfolios are as follows : replace_table_token_8_th 18 replace_table_token_9_th ( 1 ) the net unrealized gain on our investment portfolios was approximately $ 58.0 million as of july 13 , 2012 . ( 2 ) the federal funds rate was a range of zero to 0.25 % as of may 31 , 2012 , 2011 , and 2010 . ( 3 ) these items exclude the impact of vrdns , as they are tied to short-term interest rates . payroll service revenue : payroll service revenue increased 5 % for fiscal 2012 and 2 % for fiscal 2011 to $ 1.5 billion and $ 1.4 billion , respectively . organic growth in payroll service revenue was approximately 4 % for fiscal 2012 and 2 % for fiscal 2011. both fiscal 2012 and fiscal 2011 revenue benefited from increases in checks per payroll and revenue per check . checks per payroll increased 2.0 % for fiscal 2012 compared to fiscal 2011 , and fiscal 2011 increased 2.7 % compared to fiscal 2010. revenue per check was positively impacted by price increases , partially offset by discounting . our organic client base growth was essentially flat for fiscal 2012 , and declined 0.9 % for fiscal 2011 , as new business formation remains challenged . client retention improved for both fiscal 2012 and fiscal 2011. human resource services revenue : human resource services revenue increased 13 % for fiscal 2012 and 10 % for fiscal 2011 to $ 676.2 million and $ 597.4 million , respectively .
| 2,758 |
the aggregate carrying values of these properties situated on parcels of the land are $ 19,894,947 and $ 20,409,998 as at december 31 , 2019 and december 31 , 2018 , respectively . during the year ended december 31 , 2019 , depreciation and amortization expense totaled $ 13,991,583 of which $ 10,796,085 , $ 848,345 and $ 2,347,153 were recorded in direct labor and factory overheads incurred during plant shutdown , administrative expenses story_separator_special_tag overview we are a holding company which conducts operations through our wholly-owned china-based subsidiaries . our business is conducted and reported in four segments , namely , bromine , crude salt , chemical products and natural gas . through our wholly-owned subsidiary , schc , we produce and trade bromine and crude salt . we are one of the largest producers of bromine in china , as measured by production output . elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture . bromine also is used to form intermediary chemical compounds such as tetramethylbenzidine . bromine is commonly used in brominated flame retardants , fumigants , water purification compounds , dyes , medicines and disinfectants . crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical , food and beverage , and other industries . through our wholly-owned subsidiary , syci , we manufacture and sell chemical products used in oil and gas field exploration , oil and gas distribution , oil field drilling , papermaking chemical agents , inorganic chemicals and manufacture and sell materials that are used for human and animal antibiotics . as disclosed in the company 's current report on form 8-k filed on september 8 , 2017 , the company received , on september 1 , 2017 , letters from the yangkou county , shouguang city government addressed to each of its subsidiaries , schc and syci , which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises , the plants are requested to immediately stop production and perform rectification and improvements in accordance with the country 's new safety and environmental protection requirements . in the company 's press release of august 11 , 2017 and on its conference call of august 14 , 2017 , the company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated , could have an impact on our business in both the short and long-term . the company also expressed that although it believed its facilities were fully compliant at the time , the company did not know how its facilities would fare under the new rules and that the company expected to have a full understanding of the implications within the next two months . teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities . the local government requested that facilities be closed , so that the facilities can undergo the inspection and analysis in the most efficient manner by inspectors ' team . as a result , our facilities were closed on september 1 , 2017. subsequently , the safety supervision and administration department and the environmental protection departments of the local government conducted inspections of every bromine production enterprise within its jurisdiction , in order to improve security , environmental protections , pollution , and safety . the company had been working closely with the county authorities to develop rectification plans for both its bromine and its chemical businesses . the company and the government had agreed on a rectification plan for schc , the company 's bromine and crude salt businesses which is currently under process . the company worked closely with the county authorities to develop rectification plans for both its bromine and crude salt businesses and agreed on a plan in october 2017. in the fiscal year ended december 31 , 2018 , the company incurred $ 16,243,677 in the rectification and improvements of plant and equipment of the bromine and crude salt factories resulting in a cumulative amount of $ 34,182,329 incurred as of december 31 , 2018. based on the renewed mining certificate , schc is limited to produce up to 24,000 tons of bromine per year , we believe this is sufficient for its production utilization rate .the shouguang city bromine association , on behalf of all the bromine plants in shouguang , has started discussions with the local government agencies . the local governmental agencies confirmed the facts that their initial requirements for the bromine industry did not include the project approval , the planning approval and the land use rights approval and that those three additional approvals were new requirements of the provincial government . the company understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants are not allowed to commence production prior to obtaining those approvals . in april 2019 , factory no.1 , factory no.5 and factory no.7 ( factory no . 5 is considered part of factory no.7 and both are managed as one factory since 2010 ) restarted operations upon receipt of verbal notification from local government of yangkou county . on may 7 , 2019 , the company renamed its subdivision factory no . 1 to factory no . 4 ; and factory no . 5 ( which was previously considered part of factory no . 7 ) to factory no . 7 . 21 the company is not certain when the issuance of the approval documents will be effected . the company believes that this is another step by the government to improve the environment . story_separator_special_tag chemical products segment for the year ended december 31 , 2018 , the gross profit margin for our chemical segment was 11 % because the goods sold was raw materials in which we had recorded a 100 % allowance for obsolescence in the fiscal year 2017. direct labor and factory overheads incurred during plant shutdown . on september 1 , 2017 , the company received notification from the government of yangkou county , shouguang city of prc stated that production at all its bromine and crude salt and chemical factories should be halted with immediate effect in order for the company to perform rectification and improvement in accordance with the county 's new safety and environmental protection requirements . on november 24 , 2017 , the company received a letter from the government of yangkou county , shouguang city notifying the company to relocate its two chemical production plants located in the second living area of the qinghe oil extraction plant to bohai park . as such , direct labor and factory overhead costs ( including depreciation of plant and machinery ) of a total amount of $ 15,175,280 and $ 21,081,692 incurred for the fiscal year 2019 and 2018 which would have been presented in the cost of net revenue were presented as part of the operating expense . loss on demolition of factory on september 21 , 2018 , the company received a closing notice from the people 's government of yangkou town , shouguang city informing it to close its three bromine factories ( number 3 , number 4 , and number 11. ) . the crude salt fields surrounding these factories have been reclaimed as cultivated or construction land and hence did not meet the requirement for bromine and crude salt co-production set by the relevant authority . in closing these factories , the company wrote off net book value of these factories ' property , plant and equipment in the amount of $ 18,644,473 in the loss on demolition of factory in the consolidated statements of income for the fiscal year 2018. impairment for goodwill . as of december 31 , 2018 , the company performed the qualitative assessment and determined that it is more likely than not that the fair value of its chemical segment is less than its carrying amount due to the uncertainty in the timing of receipt of the final approval of the design of the new factory and the time that the segment may need to build up the customer base to a level similar to the past . considering these factors , the company determined the fair value of its chemical segment based on the discounted cash flow model is less than the carrying amount of its chemical segment to the extent of the entire goodwill and recorded an impairment charge of $ 27,966,050 in the year ended december 31 , 2018 . 26 general and administrative expenses . general and administrative expenses were $ 13,272,921 for the year ended december 31 , 2019 , an increase of $ 2,004,121 ( or 18 % ) as compared to $ 11,268,800 for the same period in 2018. loss from operations . loss from operations was $ 23,294,383 for the fiscal year 2019 , compared to a loss of $ 83,552,531 in the same period in 2018. replace_table_token_9_th bromine segment loss from operations from our bromine segment was $ 15,609,979 for the fiscal year 2019 , compared to a loss of $ 40,504,752 in the same period in 2018. crude salt segment loss from operations from our crude salt segment was $ 4,446,900 for fiscal year 2019 , compared to a loss of $ 8,336,305 in the same period in 2018. chemical products segment loss from operations from our chemical products segment was $ 2,823,298 for the fiscal year 2019 , compared to a loss of $ 34,757,750 in the same period in 2018. natural gas segment loss from operations from our natural gas segment was $ 188,949 for the fiscal year 2019 , compared to a loss of $ 204,517 in the same period in 2018. other income , net . other income , net , which represent bank interest income , net of finance lease interest expense was $ 301,325 for the fiscal year 2019 , an decrease of $ 199,365 ( or approximately 40 % ) as compared to the same period in 2018. net income ( loss ) . net loss was $ 25,800,045 for the fiscal year 2019 , compared to net loss of $ 69,963,986 in the same period in 2018. this decrease in the net loss was attributable to resume production and sales of two factories . effective tax rate . our effective income tax ( expense ) benefit rate for the fiscal years 2019 and 2018 were ( 12 % ) and 16 % respectively . this was mainly due to an increase in valuation allowance of $ 8,672,817 in the fiscal year 2019. the effective income tax benefit rate of 16 % for the fiscal year 2018 differs from the prc statutory income tax rate of 25 % mainly due to non-taxable item in connection with the unrealized exchange gain . 27 liquidity and capital resources as of december 31 , 2019 , cash and cash equivalents were $ 100,301,986 as compared to $ 178,998,935 as of december 31 , 2018. the components of this decrease of $ 78,696,949 are reflected below . replace_table_token_10_th for the fiscal years 2019 and 2018 , we met our working capital and capital investment requirements mainly by using cash flows from operations and cash on hand . net cash provided by operating activities during the year ended december 31 , 2019 , cash flow used in operating activities of approximately $ 15 million was mainly due to a net loss of $ 25.8 million , an increase in accounts receivable of $ 5.07 million , reduced by a non-cash adjustment related to a decrease in deferred tax assets of $ 2.7 million and to depreciation and amortization of property , plant and equipment .
| results of operations . year ended december 31 , 2019 as compared to year ended december 31 , 2018 replace_table_token_3_th net revenue the table below shows the changes in net revenue in the respective segment of the company for the fiscal year 2019 compared to the same period in 2018 : replace_table_token_4_th years ended december 31 percent change bromine and crude salt segments product sold in tonnes 2019 2018 decrease bromine ( excluded volume sold to syci ) 2,320 โ โ crude salt 24,441 50,407 ( 52 % ) year ended percentage change chemical products segment sold in tonnes december 31 , 2019 december 31 , 2018 decrease oil and gas exploration additives โ โ โ paper manufacturing additives โ โ โ pesticides manufacturing additives โ 14 ( 100 % ) pharmaceutical intermediate โ โ โ by product โ 96 ( 100 % ) overall โ 110 โ 23 year ended percentage natural gas segments product sold in cubic metre december 31 , 2019 december 31 , 2018 change increase natural gas 349,900 โ โ bromine segment net revenue from our bromine segment increased to $ 10,022,027 for the nine-month period ended december 31 , 2019 compared to $ 0 for the year ended december 31 , 2018. crude salt segment net revenue from our crude salt segment decreased to $ 522,758 for the year ended december 31 , 2019 compared $ 1,981,573 for the same period in 2018 , the reason for the decrease in the year ended december 31 , 2019compared with the same period of last year is that the production of only two plants resumed in april 2019 , hence , there is limited amount of crude salt available for sale in the year ended december 31 , 2019. chemical products segment replace_table_token_5_th for the year ended december 31 , 2019 , the net revenue for the chemical products segment was $ 0 due to the closure of our chemical factories since september 1
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the fair value of the story_separator_special_tag story_separator_special_tag style= '' margin-top:6pt ; margin-bottom:0pt ; text-indent:4.54 % ; font-style : italic ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > research and development expenses research and development expenses consist primarily of personnel costs ( including salaries , benefits and other staff-related costs ) for employees in research and development functions , costs associated with preclinical and clinical development services , including clinical trials and related manufacturing costs , third-party contract research organizations , or cros , and related services and other outside costs , including fees for third-party professional services such as consultants . our preclinical studies and clinical studies are performed by cros . we expect to continue to focus our research and development efforts on preclinical studies and clinical trials of our product candidates . as a result , we expect our research and development expenses to continue to increase for the foreseeable future . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to cros and others in connection with our preclinical and clinical development activities and related manufacturing . we do not allocate employee costs or facility expenses , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple product development programs and , as such , are not separately classified . successful development of our current and potential future product candidates is highly uncertain . completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict . as a result , we can not estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates . we anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials , our ability to enter into licensing , collaboration and similar arrangements with respect to current or potential future product candidates , success of research and development programs and assessments of commercial potential . general and administrative expenses general and administrative expenses consist primarily of personnel costs ( including salaries and benefits ) for our executive , finance and other administrative employees . in addition , general and administrative expenses include fees for third-party professional services , including consulting , information technology , legal and accounting services and other corporate expenses and allocated overhead . critical accounting policies and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , 74 revenues and expenses . we base our estimates and assumptions on historical experience and on various assumptions that we believe are reasonable under the circumstances , and we evaluate them on an ongoing basis . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources . actual results and exper iences may differ materially from these estimates and judgments . in addition , our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business . our significant accounting policies are described in note 1 to our audited consolidated financial statements for the year ended december 31 , 2017 in this annual report on form 10-k. we believe that our accounting policies relating to revenue recognition , research and development expenses , stock-based compensation and fair value of financial instruments are the most critical to understanding and evaluating our reported financial results . we have identified these policies as critical because they both are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods . for more information regarding these policies , you should refer to note 1 of our audited consolidated financial statements included in this annual report on form 10-k. revenue recognition we generate revenue primarily from the receipt of upfront or license fees , milestone payments and payments for procurement services that are made pursuant to license agreements or related supply agreements . substantially all of our revenue to date has been derived from our license agreement with ea pharma , our royalty interest acquisition agreement , or riaa , with healthcare royalty partners iii , l.p. , or hcr , and a now-terminated license agreement with ferring international center s.a. , or ferring . where an out-license arrangement involves the provision of multiple elements that may contain different remuneration arrangements such as upfront payments , milestone payments or product sales , the arrangement is assessed to determine whether separate delivery of the individual elements of such arrangements comprises more than one unit of accounting . the delivered elements are separated if ( a ) they have value to the licensee on a stand-alone basis , ( b ) there is objective and reliable evidence of the fair value of the undelivered element ( s ) and ( c ) if the arrangement includes a general right of return relative to the delivered element ( s ) , delivery or performance of the undelivered element ( s ) is considered probable and is substantially in our control . allocation of revenue to the different elements that require separate accounting is based on the separate selling prices determined for each component , and total consideration is then allocated pro rata across the components of the arrangement . story_separator_special_tag the expected dividend is assumed to be zero . except for a single dividend paid by albireo limited in 2012 , we have never paid dividends and we have no current plans to pay any dividends . in addition to the assumptions used in the black-scholes option-pricing model , we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards . our estimated forfeiture rate is based on an analysis of actual forfeitures . we will continue to evaluate the appropriateness of our estimated forfeiture rate based on actual experience , analysis of employee turnover and other factors . quarterly changes in the estimated forfeiture rate could have a significant impact on stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in our consolidated statement of operations . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated statement of operations . we will continue to use judgment in evaluating the expected volatility , expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis . as we continue to accumulate additional data related to our common stock and stock-based awards , there may be refinements to the estimates of expected volatility , expected terms and forfeiture rates , which could impact future stock-based compensation expense . some of our stock-based awards are subject to performance-based vesting conditions . compensation expense related to awards with performance-based vesting conditions is recognized over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable or , in some cases , when the vesting condition occurs . fair value of financial instruments in december 2014 , we executed a convertible loan instrument , which provided 1,251,000 1.00 unsecured convertible loan notes denominated in euros and was subsequently amended in october 2015 , and issued all of the convertible loan notes to certain albireo limited shareholders and their affiliates . in october 2015 , we executed a separate convertible loan instrument , which provided 5,000,000 $ 1.00 unsecured convertible loan notes denominated in u.s. dollars , and , as of december 31 , 2015 , issued $ 3.5 76 m illion of the convertible loan notes to certain albireo limited shareholders and their affiliates and members of management . all of the recipients of the convertible loan notes in 2014 and 2015 are considered related parties . we bifurcated the embedded con version features of the convertible loan note instruments from the loan note payable and recorded the fair value of the conversion features as debt discount . in accordance with applicable guidance , we allocated the proceeds received based on the relative f air values of the respective convertible loan notes and conversion features , which resulted in the recording of debt discount totaling $ 526,000 ( 432,000 ) for the 2014 loan notes at issuance and $ 1.5 million for the 2015 loan notes at issuance . the debt di scounts are accreted over the life of the respective convertible loan notes . in connection with the completion of the biodel transaction in november 2016 , all of the convertible loan notes issued in 2014 and 2015 were converted into equity . similarly , in december 2014 , we entered into a loan facility agreement with kreos capital iv limited , or kreos , under which kreos provided a 6.0 million ( $ 7.3 million ) loan facility . in connection with the agreement , we issued to an affiliate of kreos detachable warrants that provided a right to acquire shares of albireo limited . in connection with the biodel transaction , these warrants were replaced with warrants to purchase shares of our common stock . because the number of shares issuable upon exercise of both the initial and replacement warrants was variable , we treated the warrants as a liability under financial accounting standards board accounting standard codification topic 480 , distinguishing liabilities from equity , and measured them at fair value . the fair value of the warrants ' or replacement warrants ' liability is required to be remeasured at the end of each reporting period , with any change in fair value recognized in the consolidated statements of operations . in accordance with applicable guidance , we allocated the proceeds received based on the fair value of the warrants and the residual value of the debt , which resulted in us recording debt discount totaling 1.0 million ( $ 1.2 million ) at issuance . the debt discount was accreted over the life of the associated loan , and the loan has been paid and satisfied in full as of december 31 , 2017. the replacement warrants were exercised in full by the affiliate of kreos in may 2017. results of operations years ended december 31 , 2017 and december 31 , 2016 revenue year ended december 31 , change 2017 2016 $ in thousands revenue $ 1 $ 11,364 $ ( 11,363 ) revenue was $ 1,000 for the year ended december 31 , 2017 compared with revenue of $ 11.4 million for the year ended december 31 , 2016 , a decrease of $ 11.4 million . the lower revenue for 2017 was due to recognition in full of payments from ea pharma of $ 8.0 million received in april 2016 in connection with a renegotiated payment stream linked to know-how and intellectual property that we had delivered upon inception of the license agreement in 2012 and 3.225 million earned in the fourth quarter of 2016 upon the decision of ea pharma to proceed with the preparation of a new drug application for elobixibat in japan .
| financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the โ risk factors โ section of this annual report on form 10-k ( see part i , item 1a ) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statement contained in the following discussion and analysis . overview prior to november 3 , 2016 , we were a specialty biopharmaceutical company known as biodel inc. that historically had been focused on the development and commercialization of innovative treatments for diabetes . on november 3 , 2016 , we completed a share exchange transaction , or the biodel transaction , pursuant to an amended and restated share exchange agreement dated july 13 , 2016 that we entered into with albireo limited and the shareholders and noteholders of albireo limited . upon the completion of the biodel transaction , we changed our name to โ albireo pharma , inc. , โ the business of albireo limited became our business and we became a biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver or gastrointestinal diseases and disorders . the initial target indication for our lead product candidate , a4250 , is progressive familial intrahepatic cholestasis , or pfic , a rare , life-threatening genetic disorder affecting young children for which there is currently no approved drug treatment .
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the contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments . because the corporation does not intend to sell the investments and it is not more likely than not that the corporation will be required to sell story_separator_special_tag critical accounting policies generally accepted accounting principles require management to apply significant judgment to certain accounting , reporting and disclosure matters . management must use assumptions and estimates to apply those principles where actual measurement is not possible or practical . for a complete discussion of the corporation 's significant accounting policies , see note 1. nature of operations and summary of significant accounting policies in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k for additional detail . results of operations โ 2015 net income available to stockholders was $ 65.4 million , or $ 1.72 per fully diluted common share , an increase of $ 5.2 million , compared to $ 60.2 million , or $ 1.65 per fully diluted common share in 2014. included in the 2015 results were $ 9.8 million , or $ 0.17 per share , of non-recurring acquisition , merger and system conversion expenses related to our 2014 and 2015 acquisitions and our on-line banking system conversion . details of the december 31 , 2015 ameriana acquisition , the april 17 , 2015 c financial acquisition and the november 7 , 2014 community acquisition are included in note 2. acquisitions and divestitures , included within the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. as of december 31 , 2015 , total assets equaled $ 6.8 billion , an increase of $ 936.9 million from december 31 , 2014. loans and investments , the corporation 's primary earning assets , totaled $ 6.0 billion , an increase of $ 868.0 million from the prior year 's total of $ 5.1 billion . investments increased $ 96.4 million and loans increased $ 769.0 million . of the increase in loans , organic growth accounted for $ 338.7 million , or 8.6 percent . the corporation acquired $ 110.6 million in loans as a result of the c financial acquisition and $ 319.7 million in loans as a result of the ameriana acquisition . additional details of these changes are included within the `` earning assets '' section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation 's allowance for loan losses totaled $ 62.5 million as of december 31 , 2015. the allowance provides 199.0 percent coverage of all non-accrual loans and 1.33 percent of total loans . details of the allowance for loan losses and non-performing loans are discussed within the โ loan quality โ and โ provision and allowance for loan losses โ sections of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation recognized increases in premises and equipment and cash surrender value of life insurance of $ 20.0 million and $ 31.1 million , respectively , primarily as a result of the c financial and ameriana acquisitions . in addition , the excess of purchase price over net tangible assets acquired was allocated to core deposit intangibles of $ 4.2 million and goodwill of $ 48.9 million . these increases were offset by a decrease in core deposit intangibles and goodwill of $ 742,000 and $ 8.5 million , respectively , triggered by the corporation 's sale of fmig . at december 31 , 2015 , other real estate owned totaled $ 17.3 million , a decrease of $ 2.0 million , or 10.6 percent , from the december 31 , 2014 balance of $ 19.3 million . included in the december 31 , 2015 balance was $ 5.7 million acquired in the ameriana acquisition on december 31 , 2015. taxes , both current and deferred , increased in 2015 by $ 5.0 million . details related to the change in taxes are discussed within the โ income taxes โ section of the management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k and in note 22. income tax of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. deposits increased $ 649.0 million from december 31 , 2014 , and borrowings increased $ 156.6 million during the same period . deposits increased from the c financial and ameriana acquisitions by $ 105.3 million and $ 382.5 million , respectively . as part of the ameriana acquisition , the corporation assumed approximately $ 24.9 million of federal home loan bank advances . the c financial acquisition resulted in an additional $ 19.0 million of federal home loan bank advances at acquisition , of which , approximately $ 7.4 million matured during 2015 and $ 11.6 million remained at december 31 , 2015. additional details related to the change are discussed within the โ deposits and borrowings โ section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of โ well-capitalized โ as discussed in the โ capital โ section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. results of operations โ 2014 net income available to stockholders was $ 60.2 million , or $ 1.65 per fully diluted common share , an increase of $ 18.0 million compared to $ 42.2 million , or $ 1.41 per fully diluted common share in 2013. on november 12 , 2013 , the corporation acquired cfs bancorp , inc. ( `` cfs story_separator_special_tag the corporation also experienced a $ 3.5 million increase in net occupancy expense , as 20 banking center locations were added as a result of the cfs acquisition . in addition to the non-interest expense increases associated with operating a larger organization , 2014 included $ 1.5 million of non-recurring expenses associated with the cfs acquisition . the community acquisition resulted in $ 2.2 million of one-time expenses in 2014 and also added $ 646,000 of non-interest expense in the last seven weeks of 2014. income tax expense income tax expense in 2015 was $ 25,665,000 on pre-tax income of $ 91,049,000 , or 28.2 percent . for the same period in 2014 , income tax expense was $ 22,123,000 on pre-tax income of $ 82,285,000 , or 26.9 percent . the increase in the effective tax rate in 2015 when compared to 2014 was primarily a result of a permanent book-to-tax basis difference associated with the gain on sale of fmig . details of the fmig sale are included in note 2. acquisitions and divestitures , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. additional income tax expense details are discussed within the โ income taxes โ section of the management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k and in note 22. income tax , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. capital capital adequacy is an important indicator of financial stability and performance . the corporation and the bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category . the assigned capital category is largely determined by four ratios that are calculated according to the regulations : total risk-based capital , tier 1 risk-based capital , common equity tier 1 capital , and tier 1 leverage ratios . the ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity . the capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity 's activities that are not part of the calculated ratios . there are five capital categories defined in the regulations , ranging from well capitalized to critically undercapitalized . classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank 's operations . quantitative measures established by regulation to ensure capital adequacy require the bank to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets , and of tier 1 capital to average assets , or leverage ratio , all of which are calculated as defined in the regulations . banks with lower capital levels are deemed to be undercapitalized , significantly undercapitalized or critically undercapitalized , depending on their actual levels . the appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice . banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category . basel iii was effective for the corporation on january 1 , 2015. basel iii requires the corporation and the bank to maintain minimum amounts and ratio of common equity tier 1 capital to risk weighted assets , as defined in the regulation . under the new basel iii rules , in order to avoid limitations on capital distributions , including dividends , the corporation must hold a capital conservation buffer above the adequately capitalized common equity tier 1 capital to risk-weighted assets ratio . the capital conservation buffer is being phased in from zero percent to 2.50 percent by 2019. under basel iii , the corporation and bank elected to opt-out of including accumulated other comprehensive income in regulatory capital . regulatory capital ratios at december 31 , 2015 , were calculated under basel iii while regulatory capital ratios at december 31 , 2014 , were calculated under basel i . 34 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations as of december 31 , 2015 , the bank met all capital adequacy requirements to be considered well capitalized . there is no threshold for well capitalized status for bank holding companies . the corporation 's and bank 's actual and required capital ratios as of december 31 , 2015 and december 31 , 2014 were as follows : replace_table_token_27_th replace_table_token_28_th tier i regulatory capital consists primarily of total stockholders ' equity and subordinated debentures issued to business trusts categorized as qualifying borrowings , less non-qualifying intangible assets and unrealized net securities gains or losses . on november 7 , 2014 , the corporation acquired 100 percent of community and pursuant to the merger agreement , each outstanding share of common stock of community was converted into the right to receive either ( a ) 4.0926 shares of first merchants ' common stock , plus cash in lieu of fractional shares ; or ( b ) $ 85.94 in cash , based upon shareholder elections . the corporation paid $ 14.2 million in cash and issued approximately 1.6 million shares of common stock , valued at approximately $ 35.0 million , for a total purchase price of approximately $ 49.2 million . on december 31 , 2015 , the corporation acquired 100 percent of ameriana and pursuant to the merger agreement , each ameriana shareholder received 0.9037 of a share of first merchants common stock for each outstanding share of ameriana bancorp common stock held . the corporation issued approximately 2.8 million shares of common stock , which was valued at approximately $ 70.4 million .
| net interest income net interest income is the primary source of the corporation 's earnings . net interest margin is a function of net interest income and the level of average earning assets . the following table presents the corporation 's interest income , interest expense , and net interest income as a percent of average earning assets for the three-year period ending in 2015 . replace_table_token_26_th ( 1 ) average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment . ( 2 ) tax-exempt securities and loans are presented on a fully taxable equivalent basis , using a marginal tax rate of 35 percent for 2015 , 2014 and 2013. these totals equal $ 10,975 , $ 7,921 and $ 6,043 , respectively . ( 3 ) non-accruing loans have been included in the average balances . 32 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations in 2015 , asset yields decreased 10 basis points on a fully taxable equivalent basis ( fte ) . interest costs increased 1 basis point , resulting in a net decrease in net interest margin of 11 basis points when compared to 2014. average earning assets increased $ 479,491,000 primarily due to a larger loan portfolio .
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the following discussion and analysis of our financial condition and results of operations , our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to risks , uncertainties and other factors including those described in โ item 1a . risk factors โ of this annual report . our actual results may differ materially from those contained in any forward-looking statements . you should read the following discussion together with our audited financial statements and related notes thereto and other financial information included in this report . our financial information may not be indicative of our future performance . basis of presentation we operate under a 52/53 week fiscal year . our last two completed fiscal years ended on december 28 , 2014 ( โ fiscal 2014 โ ) and december 29 , 2013 ( โ fiscal 2013 โ ) . fiscal 2014 and fiscal 2013 consist of 52 weeks . the differing length of certain fiscal years may affect the comparability of certain data . overview we are a provider of temporary staffing services and have completed a series of acquisitions , which includes the acquisition of bg personnel , lp and b g staff services inc. in may 2010 , jna staffing , inc. in december 2010 , extrinsic , llc in november 2011 , american partners , inc. in december 2012 and instaff in may 2013. we operate within three industry segments : light industrial , multifamily and it staffing . we provide services to customers within the united states of america . the light industrial segment provides temporary workers primarily to distribution and logistics customers needing a flexible workforce in illinois , wisconsin , texas , tennessee and mississippi . we completed the instaff acquisition on may 28 , 2013 , which expanded our light industrial operations into texas , mississippi and tennessee . the multifamily segment provides front office and maintenance personnel on a temporary basis to various apartment communities , in texas and other states , via property management companies responsible for the apartment communities day to day operations . the it staffing segment provides skilled contract labor on a nationwide basis for it implementations and maintenance projects . 19 story_separator_special_tag fiscal 2014 due to the mix of customers . as a percentage of revenue , gross profit de creased from 22.3 % in fiscal 2013 to 21.5 % in fiscal 2014 . selling , general and administrative expenses : selling , general and administrative expenses in creased $ 5.1 million ( 26.8 % ) to $ 24.1 million in fiscal 2014 from $ 19.0 million in fiscal 2013 , primarily due to additional selling expenses of approximately $ 2.5 million at multifamily with $ 1.8 million from branches outside of texas and $ 0.7 million from branches in texas , $ 1.4 million at light industrial , and $ 1.2 million at corporate in stock-based compensation . depreciation and amortization : depreciation and amortization charges de creased $ 0.3 million ( 6.1 % ) to $ 4.6 million in fiscal 2014 , compared with $ 4.9 million during fiscal 2013 . the de crease in depreciation and amortization is primarily due to changing the it staffing segment 's trade names to an indefinite lived intangible assets that would no longer amortize , due to a remarketing launch in 2014 , after which the company noticed significant remaining name recognition and distinctiveness in its it staffing segment 's trade names and decided to continue their use in operations indefinitely . interest expense , net : interest expense , net was $ 2.7 million in fiscal 2014 compared with $ 4.1 million in fiscal 2013 , a de crease of $ 1.4 million . the de crease in interest expense , net is primarily due to an amendment with the lender under the senior credit facility on january 29 , 2014 which resulted in the repayment of the subordinated loans having a higher interest rate . income taxes : we had income tax expense of $ 1.4 million in fiscal 2014 , compared with income tax benefit of $ 7.5 million in fiscal 2013 . the in crease in income taxes is primarily due to an in crease in taxable income related to the change from a partnership where the partners pay the tax on taxable income to a c corporation that is taxable on its own income . prior to our reorganization into a delaware corporation , which occurred on november 3 , 2013 , we were treated as a partnership for federal income tax purposes except for two subsidiaries , which were and are taxed as c corporations . the tax benefit recorded in 2013 is the result of the reorganization . liquidity and capital resources our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facility . our primary uses of cash are payroll , subcontractor costs , operating expenses , capital expenditures and debt service . we believe that the cash generated from operations , together with the borrowing availability under our senior credit facility , will be sufficient to meet our normal working capital needs for at least the next twelve months , including investments made , and expenses incurred , in connection with opening new branches throughout the next year . our ability to continue to fund these items may be affected by general economic , competitive and other factors , many of which are outside of our control . if our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs , we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt . at december 28 , 2014 , we are in material compliance with all debt covenants . story_separator_special_tag accrued and unpaid interest on borrowings under our revolver and term loan a are due and payable monthly in arrears and , with respect to term loan a , principal payments are required monthly and upon the occurrence of certain events . term loan b bears interest at a fixed rate of 11.0 % per annum . accrued and unpaid interest on borrowings under the term loan b are due and payable monthly in arrears , a compounding deferred fee of 1.5 % per annum is due in a lump-sum payment , and principal payments are required upon the occurrence of certain events . borrowings under our revolver and term loan a were partially used to prepay the senior subordinated indebtedness ( as described below under โ โsubordinated loans โ ) . at closing , we paid commitment fees of $ 100,000 ( with respect to the revolver and term loan a ) and $ 160,000 ( with respect to term loan b ) . we must pay an unused commitment fee of 0.25 % of the difference between the revolving loan commitment ( i.e. , $ 20.0 million ) and the average daily balance of the revolver for each month , payable in arrears , and a compounding deferred fee ( as defined in the loan agreement ) on the earlier of the date term loan b matures or is paid in full . the loan agreement contains negative covenants that , among other things , restricts our ability to , with certain exceptions , ( i ) incur indebtedness , ( ii ) grant liens , ( iii ) make investments , ( iv ) dispose of assets , ( v ) enter into mergers , consolidations or similar transactions , ( vi ) issue securities , ( vii ) pay dividends or make distributions , ( viii ) enter into transactions with affiliates or ( ix ) change the nature of their business . in addition , the loan agreement requires us to satisfy certain financial covenants , specifically : ( i ) we may not permit the debt service coverage ratio ( as defined in the loan agreement ) for the four fiscal quarter period ending in march 2014 and for the four fiscal quarter period ending in each fiscal quarter thereafter to be less than 1.20 to 1.00 ; ( ii ) as of the end of each fiscal quarter for the four fiscal quarter period then ending , we may not permit the total funded indebtedness to adjusted ebitda ratio ( as such term is defined in the loan agreement ) to be greater than 3.50 to 1.00 for the four fiscal quarters ended in march 2014 , 3.25 to 1.00 for the four fiscal quarters ended in june 2014 , 3.25 to 1.00 for the four fiscal quarters ended in september 2014 , 3.00 to 1.00 for the four fiscal quarters ended in december 2014 , 3.00 to 1.00 for the four fiscal quarters ended in march 2015 , and 2.50 to 1.00 for the four fiscal quarters ended in june 2015 and each fiscal quarter thereafter ; ( iii ) we must have , as of the end of each fiscal quarter for the four fiscal quarters then ending , consolidated adjusted ebitda ( as defined in the loan agreement ) of least $ 9.5 million ; and ( iv ) we may not incur capital expenditures in excess of $ 500,000 in the aggregate in any fiscal year ) . we are permitted to prepay in part or in full amounts due under our revolver and may prepay the term a loan and term b loan without penalty provided certain conditions are met . events of default include , among other things , late payment or non-payment , breach of representations , breach of affirmative or negative covenants ( including financial covenants ) , defaults on other indebtedness , default of a borrower with respect to a material purchase or lease of goods or services where the default might reasonably be expected to have a material adverse effect ( as defined in the loan agreement ) , bankruptcy or insolvency , certain judgments , a change of control ( as defined in the loan agreement ) and impairment of collateral . if an event of default occurs , the interest rate applicable to our revolver and term loan a will increase by 2 % per annum , and the interest rate applicable to term loan b will increase by 2 % per annum or to the default interest rate applicable to our revolver and term loan a , whichever is higher . 24 subordinated loans we had approximately $ 14.6 million of outstanding subordinated loans at december 29 , 2013 . the subordinated notes were prepaid on january 29 , 2014 through the use of proceeds obtained pursuant to the loan agreement with fifth third ( discussed above ) . the subordinated loans were expressly junior and subordinated only to the debt outstanding under the senior credit facility . interest on the subordinated loans accrued at a rate of 14.0 % per annum ( of which 12 % was cash and 2 % was paid in kind ) . accrued interest on the subordinated loans was approximately $ 0.6 million as of december 29 , 2013 . the subordinated loans required , effective december 30 , 2012 , that an excess cash flow payment to be made if specific thresholds were met . a mandatory principal payment of approximately $ 0.5 million was made in the first quarter of 2013. the subordinated loans were to mature on may 31 , 2015. the former holders of the subordinated loans currently hold shares of our common stock , and therefore were related parties . for all of our borrowings , we must comply with various financial covenants . as of december 28 , 2014 , we were in compliance with these covenants .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of net sales , and have been derived from our consolidated financial statements . replace_table_token_5_th 20 fifty-two week fiscal year ended december 28 , 2014 ( fiscal 2014 ) compared with fifty-two week fiscal year ended december 29 , 2013 ( fiscal 2013 ) revenues : replace_table_token_6_th light industrial revenues : light industrial revenues have in creased $ 10.3 million ( 14.4 % ) from $ 71.6 million in fiscal 2013 to $ 81.9 million in fiscal 2014 , mainly due to the additional volume acquired in the may 2013 acquisition of instaff , which accounted for $ 20.0 million of the in crease in light industrial revenue and partially offset by a de crease of $ 9.7 million in remaining branches . multifamily revenues : multifamily revenues in creased $ 10.5 million ( 44.1 % ) from $ 23.8 million in fiscal 2013 to $ 34.3 million in fiscal 2014 , due to our continued focus on expanding our market outside the state of texas . revenue from branches outside of texas accounted for $ 7.3 million of the in crease and revenue from branches in texas in creased $ 3.2 million . it staffing revenues : it staffing revenues in creased $ 0.3 million ( 0.5 % ) from $ 56.3 million in fiscal 2013 to $ 56.6 million in fiscal 2014 , mainly due to organic growth . in creased revenues from fiscal 2013 were $ 0.8 million at our extrinsic division , which were partially offset by a de crease of $ 0.5 million at our american partners division . gross profit : gross profit represents revenues from services less cost of services expenses , which consist of payroll , payroll taxes , payroll-related insurance , subcontractor costs , and reimbursable costs .
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the md & a is provided as a supplement to , and should be read in conjunction with , change healthcare inc. 's and change healthcare llc 's audited financial statements and the accompanying notes . in addition to historical data , the discussion contains forward-looking statements about the business , operations and financial performance of change healthcare inc. and change healthcare llc based on current expectations that involve risks , uncertainties and assumptions . actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including but not limited to those discussed in ยcautionary notice regarding forward-looking statementsย and ยrisk factorsย above . for a discussion of the comparison of the fiscal years ended march 31 , 2019 and 2018 , see the results of operations section disclosed in ยmanagement 's discussion and analysis of financial condition and results of operationsย of our registration statement on form s-4 , as amended ( registration no . 333-236234 ) , which was declared effective by the securities and exchange commission on february 28 , 2020 . 74 change healthcare inc. overview change healthcare inc. ( formerly hcit holdings , inc. ) , a delaware corporation , was formed on june 22 , 2016 to hold an equity investment in change healthcare llc , a joint venture between change healthcare inc. and mckesson corporation ( ยmckessonย ) , which we refer to as the joint venture . prior to the merger described below , change healthcare inc. accounted for this investment using the equity method of accounting . subsequent to the merger , change healthcare inc. owns 100 % of change healthcare llc , and as a result , consolidates the financial statements of change healthcare llc . due to the timing of the merger , change healthcare inc. had no substantive assets apart from its investment in the joint venture for the majority of its fiscal year . as a result , change healthcare inc. believes the financial statements of the joint venture are more relevant to an investor than change healthcare inc. 's financial statements as they include greater detail regarding the financial condition and results of operations of the business . recent developments effective june 26 , 2019 , change healthcare inc. 's registration statement on form s-1 for the initial public offering of 49.3 million shares of common stock and the concurrent offering of 5.75 million tangible equity units ( ยteusย ) was declared effective by the securities and exchange commission ( ยsecย ) and change healthcare inc. subsequently amended its charter to authorize 9.0 billion shares of common stock and effected a 126.4 for 1 split of its common stock . change healthcare inc. 's common stock and teus began trading the next day on the nasdaq under the ยchngย and ยchnguย ticker symbols , respectively . on july 1 , 2019 , the offerings of common stock and teus were consummated and resulted in change healthcare inc. receiving net proceeds of $ 608.7 million and $ 278.9 million respectively , before consideration of offering costs paid subsequent to the offering from available cash . the proceeds of the offering of common stock were subsequently contributed to the joint venture in exchange for 49.3 million additional units of the joint venture , thereby resulting in an additional ownership in the joint venture of approximately 11 % . the proceeds of the offering of teus were used to acquire teus of the joint venture that substantially mirror the terms of the teus issued by change healthcare inc. in the offering . the joint venture , in turn , used the proceeds received from change healthcare inc. to repay $ 805.0 million of its indebtedness under the term loan facility ( as defined herein ) without penalty in july 2019. in march 2020 , mckesson completed a split-off of its interest in the joint venture ( ยqualified mckesson exitย ) through an exchange offer of its common stock for shares of pf2 spinco , inc , a delaware corporation and wholly owned subsidiary of mckesson ( ยspincoย ) . on march 10 , 2020 ( the ยmerger effective dateย ) , pursuant to the agreement and plan of merger , dated december 20 , 2016 ( the ยmerger agreementย ) , by and among change healthcare inc. , mckesson and spinco , change healthcare inc. combined with spinco in a two-step all-stock ยreverse morris trustย transaction that involved ( i ) a separation of spinco from mckesson pursuant to the separation and distribution agreement , dated february 10 , 2020 ( the ยseparation agreementย ) , followed by ( ii ) the merger of spinco with and into change healthcare inc. , with change healthcare inc. as the surviving company ( such merger , together with the other transactions contemplated by the merger agreement , the ยmergerย ) . the merger was consummated pursuant to the merger agreement and the separation agreement . as a result , the joint venture became a wholly owned subsidiary of change healthcare inc. pursuant to the merger agreement , mckesson accepted 15,426,537 shares of its own common stock , par value $ 0.01 in exchange for all 175,995,192 issued and outstanding shares of spinco common stock , par value $ 0.001 per share ( the ยspinco common stockย ) . all shares of spinco common stock were then converted into an equal number of shares of common stock of change healthcare inc. , par value $ 0.001 , which change healthcare inc. issued to the former holders of spinco common stock , together with cash in lieu of any fractional shares . 75 subsequent to the merger , mckesson no longer holds any equity or voting interest in the joint venture . factors affecting results of operations qualified mckesson exit through the merger , change healthcare inc. acquired the interest in the joint venture that it did not own prior to the transaction . story_separator_special_tag loss from equity method investment in the joint venture loss from equity method investment in the joint venture generally represents change healthcare inc. 's proportionate share of the income or loss from this investment , including basis adjustments related to amortization expense associated with equity method intangible assets , property and equipment , deferred revenue and other items . loss from equity method investment in the joint venture was $ 380.7 million , $ 70.5 million , and $ 58.7 million for the years ended march 31 , 2020 , 2019 and 2018 , respectively . for the year ended march 31 , 2020 , the loss from equity method investment was impacted by the remeasurement of change healthcare inc. 's investment in the joint venture , resulting in a loss of approximately $ 230.2 million . for the year ended march 31 , 2019 , the joint venture recognized a gain of $ 111.4 million during the year ended march 31 , 2019 related to the sale of its extended care business in july 2018 ; however , its effect on change healthcare inc. 's loss from equity method investment was almost completely offset by the required write-off of the equity method intangible asset basis differences attributable to this business . general and administrative expense and management fees in addition to its loss from its equity method investment in the joint venture , prior to the merger , change healthcare inc. also periodically incurred certain other operating expenses , including professional service fees , general liability insurance , and other fees associated with being an sec registrant . to the extent any such fees change healthcare inc. incurs were required to facilitate or maintain its status as a public company , however , the limited liability company agreement of the joint venture ( the ยllc agreementย ) contemplated that change healthcare inc. be reimbursed for such costs by the joint venture . 77 goodwill impairment goodwill was established through the application of the guidance for a business combination achieved in stages in accordance with asc 805 as of the date of the merger . subsequent to the merger , change healthcare inc. concluded a triggering event had occurred due to the expected impacts to its financial results arising out of the covid-19 pandemic beginning in the first quarter of fiscal year 2021. change healthcare inc. performed a goodwill impairment test as of march 31 , 2020 , and as a result , recorded a non-cash goodwill impairment charge of $ 561.2 million . other risks and future developments that change healthcare inc. was unable to anticipate as of the testing date may require it to further revise future projected cash flows , which could adversely affect the fair value of reporting units in future periods . as a result , change healthcare inc. may be required to record additional impairment charges . refer to note 9 , goodwill and intangible assets , for further information . loss ( gain ) on sale of interests in the joint venture under the terms of the llc agreement , change healthcare inc. and the joint venture agreed to cooperate to ensure a 1:1 ratio of outstanding shares of common stock of change healthcare inc. to the units of the joint venture ( ยllc unitsย ) held by change healthcare inc. as long as the subsidiaries of mckesson that serve as members of the joint venture ( the ยmck membersย ) hold llc units . this provision required that change healthcare inc. be issued an additional llc unit for each share of common stock that change healthcare inc. issued . similarly , for any share that change healthcare inc. repurchases , the joint venture is required to repurchase a respective llc unit from change healthcare inc. the joint venture 's repurchase of llc unit ( s ) results in change healthcare inc. recognizing a gain or loss equal to the difference in the fair value of such llc units and the proportionate carrying value of change healthcare inc. 's investment in the joint venture associated with such repurchased llc units . gain on forward purchase contract gain on forward purchase contract was $ 14.8 million , $ 0 and $ 0 for the years ended march 31 , 2020 , 2019 and 2018. the gain on forward purchase contract reflects the change in the fair value of the forward contract that is a component of the teus . income taxes as the joint venture is treated as a partnership for income tax purposes , change healthcare inc. was subject to income taxes for its allocable portion of the joint venture 's taxable income until the merger . in conjunction with the consolidation of the joint venture by change healthcare inc. as a result of the merger , the tax provision for the year ended march 31 , 2020 reflects the consolidated results for the period from march 10 , 2020 to march 31 , 2020. in addition , change healthcare inc. elected to begin recording its deferred tax assets and liabilities with respect to its investment in the joint venture under the look through approach . the result of the above was an income tax benefit of $ 143.3 million ( which resulted in an effective income tax rate of 13.1 % ) for the year ended march , 31 , 2020 , compared with an income tax benefit of $ 18.6 million ( which resulted in an effective income tax rate of 26.3 % ) for the year ended march 31 , 2019. see note 18 , income taxes , for further discussion . acquisitions and divestitures change healthcare inc. actively evaluates opportunities to improve and expand its business through targeted acquisitions that are consistent with its strategy . on occasion , change healthcare inc. also may dispose of certain components of its business that no longer fit within its overall strategy .
| results of operations year ended march 31 , 2020 ( asc 605 basis ) compared to year ended march 31 , 2019 the joint venture adopted the new revenue recognition accounting standard , asc 606 , effective april 1 , 2019 on a modified retrospective basis . its results of operations as presented within the following discussion and analysis includes financial results for reporting periods during fiscal 2020 , which are disclosed in compliance with asc 606. historical financial results have not been retroactively restated and are presented in conformity 87 with amounts previously disclosed under the prior revenue recognition standard , asc 605. the joint venture included additional information regarding the impacts from the adoption of asc 606 for the year ended march 31 , 2020 and included financial results during fiscal 2020 under asc 605 for comparison to the prior year . the following table summarizes our consolidated results of operations for the years ended march 31 , 2020 and 2019 : replace_table_token_9_th ( 1 ) as a result of displaying amounts in millions , rounding differences may exist in the table above . 88 revenues solutions revenue solutions revenue increased $ 34.8 million for the year ended march 31 , 2020 , compared with the prior year . factors affecting the joint venture 's solutions revenue are described in the various segment discussions below . postage revenue postage revenue decreased $ 10.5 million for the year ended march 31 , 2020 as compared with the prior year . see ยcustomer postageย below for an explanation of the decline . expenses costs of operations ( exclusive of depreciation and amortization ) costs of operations decreased $ 5.5 million for the year ended march 31 , 2020 as compared with the prior year . the decrease in the joint venture 's costs of operations is primarily attributable to cost synergies associated with network efficiencies and reduction or elimination of duplicative roles , among other factors .
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certain statements in this section are forward-looking statements that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations and intentions . our future results and financial condition may differ materially from those we currently anticipate as a result of the factors we describe under item 1a . risk factors . certain income statement amounts discussed herein are presented on an actual and on a constant currency basis . we calculate constant currency by converting the non-u.s. dollar income statement balances for the most current year to u.s. dollars by applying the average exchange rates of the preceding year . certain amounts that appear in this section may not sum due to rounding . overview we offer a collection of high quality , market leading information and analytic products and solutions through our science segment and intellectual property ( โ ip โ ) segment , which are also our reportable segments . our science segment consists of our academic , and life science product lines , and our ip segment consists of our patents , trademarks , domains and ip management product lines . our highly curated web of science products are offered primarily to universities , helping them navigate scientific literature , facilitate research and evaluate and measure the quality of researchers , institutions and scientific journals across various academic disciplines . our life sciences product line offerings serve the content and analytical needs of pharmaceutical and biotechnology companies across the drug development lifecycle , including content on discovery and pre-clinical research , competitive intelligence , regulatory information and clinical trials . our derwent product line offerings help patent and legal professionals in r & d intensive businesses evaluate the novelty and patentability of new ideas and products to help protect and research patents . our trademark product line allow businesses and legal professionals to access our comprehensive trademark database . our domains product line offerings include enterprise web domain portfolio management products and services . finally , our ip management product line provides technology solutions and legal support services across the ip lifecycle , including renewal and validation of ip rights on behalf of customers and the development and provision of ip management software , as well as other patent activities including patent searching , ip filing , prosecution support and trademark watching . objective the objective of the management discussion and analysis is to detail material information , events , uncertainties and factors impacting the company and provide investors an understanding from `` management 's perspective '' . item 7 , management 's discussion and analysis of financial condition and results of operations , management highlights the critical areas for evaluating the company 's performance which includes a discussion of reportable segment information . in addition , refer to item 1. business for management 's discussion of forward looking transformational strategy and initiatives including operational improvements , revenue growth and pursuit of acquisition opportunities . factors affecting the comparability of our results of operations the following factors have affected the comparability of our results of operations between the periods presented in this annual report and may affect the comparability of our results of operations in future periods . strategic acquisitions acquisition of decision resources group on february 28 , 2020 , we acquired 100 % of the assets , liabilities and equity interests of decision resources group ( `` drg '' ) , a premier provider of high-value data , analytics and insights products and services to the healthcare industry , from piramal enterprises limited ( `` pel '' ) , which is a part of global business conglomerate piramal group . the acquisition helps us expand our core businesses and provides us with the potential to grow in the life sciences product line . the aggregate consideration paid in connection with the closing of the drg acquisition was $ 964,997 , composed of $ 900,000 of base cash plus $ 6,100 of adjusted closing cash paid on the closing date and up to 2,895,638 of the company 's ordinary shares to be issued to pel following the one-year anniversary of closing . the contingent stock consideration was valued at $ 58,897 on the closing date and will be revalued at each period end and included in the accrued expenses and other current liabilities in the consolidated balance sheets . 36 acquisition of cpa global on october 1 , 2020 , we acquired 100 % of the assets , liabilities and equity interests of cpa global , a global leader in intellectual property software and tech-enabled services . clarivate acquired all of the outstanding shares of cpa global in a cash and stock transaction . the aggregate consideration in connection with the closing of the cpa global acquisition was $ 8,740,989 , net of $ 98,610 cash acquired , including an equity hold-back consideration of $ 46,485. the aggregate consideration was composed of ( i ) $ 6,761,515 from the issuance of up to 218,183,778 ordinary shares to redtop holdings limited , a portfolio company of leonard green & partners , l.p. , representing approximately 35 % pro forma fully diluted ownership of clarivate and ( ii ) approximately $ 2,078,084 in cash to fund the repayment of cpa global 's parent company outstanding debt of $ 2,055,822 and related interest swap termination fee of $ 22,262. of the 218,306,663 ordinary shares issuable in the acquisition , clarivate issued 216,683,778 ordinary shares on october 1 , 2020. in conjunction with the closing of the transaction , the company incurred an incremental $ 1,600,000 of term loans under our term loan facility and used the net proceeds from such borrowings , together with cash on hand , to fund the transaction . story_separator_special_tag cpa global acquisition integration and optimization program during the fourth quarter of 2020 , the company approved restructuring actions designed to eliminate duplicative costs following the acquisition of cpa global and to streamline our operations simplifying our organization and reducing our leasing portfolio . as a result of these actions , the company expects to record total pre-tax restructuring charges of approximately $ 96,767 for all phases of the program . approximately $ 14,352 of costs have been incurred to date under the program and $ 82,415 are expected to be incurred in a future period . this estimate includes approximately $ 21,827 for severance related charges , approximately $ 54,060 of estimated maximum lease exit costs , assuming no sublease agreements are entered into , and $ 6,528 of other exit costs . during the year ended december 31 , 2020 , the company recorded pre-tax charges of $ 14,352 , respectively , recognized in restructuring and impairment in the consolidated statements of operations comprised of $ 707 of lease impairment and location exit costs , $ 3,472 of contract exit costs and legal and advisory fees and $ 10,173 of severance and related benefit costs , respectively . effect of currency fluctuations 38 as a result of our geographic reach and operations across regions , we are exposed to currency transaction and currency translation impacts . currency transaction exposure results when we generate revenues in one currency and incur expenses in another . while we seek to limit our currency transaction exposure by matching revenues and expenses , we are not always able to do so . for example , our revenues were denominated approximately 74 % in u.s. dollars , 11 % in euros , 8 % in british pounds and 6 % in other currencies for the year ended december 31 , 2020 , 81 % in u.s. dollars , 9 % in euros , 3 % in british pounds and 7 % in other currencies for the year ended december 31 , 2019 and 79 % in u.s. dollars , 7 % in euros , 7 % in british pounds and 7 % in other currencies for the year ended december 31 , 2018 , while our direct expenses before depreciation and amortization , tax and interest in 2020 , 2019 and 2018 , were denominated approximately 69 % , 70 % , and 70 % % in u.s. dollars , 9 % , 9 % , and 9 % in euros , 13 % , 13 % , and 11 % in british pounds and 9 % , 8 % , and 10 % in various other currencies , respectively . the financial statements of our subsidiaries outside the u.s. and the uk are typically measured using the local currency as the functional currency . assets and liabilities of these subsidiaries are translated at the balance sheet date exchange rates , while income and expense items are translated at the average monthly exchange rates . resulting translation adjustments are recorded in accumulated other comprehensive income ( loss ) on the consolidated balance sheets . subsidiary monetary assets and liabilities that are denominated in currencies other than the functional currency are remeasured using the month-end exchange rate in effect during each month , with any related gain or loss recorded in other operating expense , net within the consolidated statements of operations . in september 2020 , the company entered into two foreign exchange forward contracts to reduce its exposure to variability in cash flows relating to funding of the repayment of cpa global 's parent company outstanding debt on october 1 , 2020. the company recognized a gain from the mark to market adjustment of $ 2,903 , in other operating income , net on the consolidated statements of operations for the year ended december 31 , 2020. the nominal amount of outstanding foreign currency contracts was $ 0 as of december 31 , 2020 and december 31 , 2019. additionally , the company periodically enters into foreign currency contracts . the purpose of these derivative instruments is to help manage the company 's exposure to foreign exchange rate risks within the acquired cpa global business . these contracts generally do not exceed 180 days in duration . see item 7a . quantitative and qualitative disclosures about market risk and item 8. financial statements and supplementary data - note 10 to the consolidated financial statements - derivative instruments , for additional information . key performance indicators we regularly monitor the following key performance indicators to evaluate our business and trends , measure our performance , prepare financial projections and make strategic decisions . adjusted revenues we present adjusted revenues , which excludes the impact of the deferred revenue purchase accounting adjustments , which is allowable under the company 's debt covenant calculation , and revenues from divestitures . we present these measures because we believe it is useful to readers to better understand the underlying trends in our operations . see - certain non-gaap measures - adjusted revenues below for important information on the limitations of adjusted revenues and their reconciliation to the respective revenues measures under u.s. gaap . adjusted ebitda and adjusted ebitda margin adjusted ebitda is presented because it is a basis upon which our management assesses our performance , and we believe it is useful for investors to understand the underlying trends of our operations . see certain non-gaap measures - adjusted ebitda and adjusted ebitda margin for important information on the limitations of adjusted ebitda and its reconciliation to our net loss under u.s. gaap .
| results of operations the following table presents the results of operations for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_6_th 44 revenues , net total revenue revenues , net of $ 1,254,047 in 2020 increased by $ 279,702 , or 28.7 % , from $ 974,345 in 2019. on a constant currency basis , revenues , net increased by $ 276,176 , or 28.3 % . adjusted revenues of $ 1,277,148 , which excludes the impact of the deferred revenues adjustment , in 2020 increased by $ 302,365 , or 31.0 % , from $ 974,783 in 2019. on a constant currency basis , adjusted revenues increased by $ 298,839 , or 30.7 % . revenues , net of $ 974,345 in 2019 increased by $ 5,877 , or 0.6 % , from $ 968,468 in 2018. on a constant currency basis , revenues , net increased by $ 11,806 , or 1.2 % . adjusted revenues of $ 951,170 , which excludes the impact of the deferred revenues adjustment , in 2019 increased by $ 23,613 , or 2.5 % , from $ 951,170 in 2018. on a constant currency basis , adjusted revenues increased by $ 29,542 , or 3.1 % . the comparability of our revenues , net between periods was impacted by several factors described under โ factors affecting the comparability of our results of operations โ above . the tables below presents the items that impacted the change in our revenues , net between periods . replace_table_token_7_th replace_table_token_8_th revenues , net from our ongoing business improved for both our segments , led by science , reflecting a trend consistent with the increase in our acv between periods , mainly due to product price increases and new business . the evolution of our recurring business is discussed further below . 45 revenue by transaction type the following tables present the amounts of our subscription , transactional and re-occurring revenues for the periods indicated .
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the company story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in โ item 8. financial statements and supplementary data โ of this annual report on form 10-k. we have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report as that disclosure is included in our annual report on form 10-k for the year ended december 31 , 2019 filed with the securities and exchange commission ( โ sec โ ) on march 10 , 2020. you are encouraged to reference the discussion and analysis of our results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2019 in โ item 7. management 's discussion and analysis of financial condition and results of operations โ within that report . overview we are a maryland corporation and an externally managed real estate investment trust ( โ reit โ ) that is primarily focused on originating , holding and managing commercial real estate ( โ cre โ ) mortgage loans and other commercial real estate-related debt investments . on july 31 , 2020 , our management contract was acquired from exantas capital manager inc. , a subsidiary of c-iii capital partners llc , by acres capital , llc ( the โ manager โ ) , a subsidiary of acres capital corp. ( collectively , โ acres โ ) , a private commercial real estate lender exclusively dedicated to nationwide middle market cre lending with a focus on multifamily , student housing , hospitality , office and industrial in top united states ( โ u.s. โ ) markets ( the โ acres acquisition โ ) . our manager draws upon the management team of acres and its collective investment experience to provide its services . our objective is to provide our stockholders with total returns over time , including quarterly distributions and capital appreciation , while seeking to manage the risks associated with our investment strategies as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified cre loan portfolio . in connection with the acres acquisition : we entered into a fourth amended and restated management agreement ( the โ management agreement โ ) which was amended and restated to ( i ) extend its term to july 21 , 2023 , ( ii ) allow for board designation rights that give the manager the right to designate not less than two nominees for election to our board of directors ( โ board โ ) , ( iii ) provide for a termination fee to be payable to the manager upon its termination of the management agreement due to our default in the performance of any material term , condition or covenant in the management agreement , ( iv ) provide for a minimum monthly base management fee through july 31 , 2022 and ( v ) revise the computation of incentive compensation with respect to each fiscal quarter commencing with the quarter ended december 31 , 2022. we entered into separate agreements with massachusetts mutual life insurance company ( โ massmutual โ ) and a fund managed by oaktree capital management , l.p. ( โ oaktree โ ) for new capital commitments aggregating up to $ 375 million . the asset-based revolving loan facility of up to $ 250.0 million can be used to finance our core cre lending business and is not subject to mark-to-market provisions . the senior note and warrant purchase agreement ( the โ note and warrant purchase agreement โ ) of up to $ 125.0 million can be used for general corporate purposes . see further discussion of these commitments in โ liquidity and capital resources. โ we entered into a $ 12.0 million promissory note ( the โ promissory note โ ) as lender with acres to partially fund the acquisition of our management contract . an important aspect of the acres acquisition was that it delivered operational liquidity in order to substantially mitigate additional potential margin call risk , allowing us to focus on asset management within the existing portfolio and restart loan originations and underwriting . additionally , our manager expects to leverage the complementary nature of our lending platforms , its experience and its network of relationships to generate a cre pipeline to improve and grow book value and earnings . ( back to index ) 38 ( back to index ) in december 2019 , a novel strain of coronavirus ( โ covid-19 โ ) was identified . the resulting spread of covid-19 throughout the globe led the world health organization to designate covid-19 as a pandemic and numerous countries , including the u.s. , to declare national emergencies . many countries have responded to the outbreak by instituting quarantines and restrictions on travel and limiting operations of non-essential offices and retail centers , which has resulted in the closure or remote operation of non-essential businesses and increased rates of unemployment . while certain countries around the world have eased restrictions and financial markets have stabilized to some degree , the pandemic continues to cause uncertainty surrounding its ultimate impact on the global economy , generally , and the cre business in particular . we continue to actively and responsibly manage corporate liquidity and operations in light of the market disruptions caused by covid-19 . additionally , nationwide restrictions placed on most businesses in response to covid-19 are expected to cause significant cash flow disruptions across the economy that will likely impact our borrowers and their ability to stay current with their debt obligations in the near term . we have used and continue to expect to use a variety of legal and structural options to manage that risk effectively , including through forbearance and extension provisions or agreements . it is inherently difficult to accurately assess the impact of covid-19 on our revenues , profitability and financial position due to uncertainty of the severity and duration of the pandemic . story_separator_special_tag except for four loans ( two of which were paid currently as of february 2021 ) , all of our loans were current on debt service at december 31 , 2020 . additionally , we have provided relief in the form of forbearance agreements , term extensions and other modifications on 25 loans during the year ended december 31 , 2020. thirteen of these loans were given forbearances , with a weighted average forbearance period of five months . eighteen loans were extended by a weighted average of 10 months in exchange for $ 891,000 of extension fees , in an effort to manage credit risk that was created in connection with the effects of the covid-19 pandemic . our cre mezzanine loan and preferred equity investments earn interest at fixed rates and were current on debt service at december 31 , 2020 . we use leverage to enhance our returns . the cost of borrowings to finance our investments is a significant part of our expenses . our net interest income depends on our ability to control these expenses relative to our revenue . our cre loans may initially be financed with term facilities , such as cre loan warehouse financing facilities , in anticipation of their ultimate securitization . we ultimately seek to finance our cre loans through the use of non-recourse long-term , match-funded cre debt securitizations . in september 2020 , with an improved liquidity profile , we repaid the outstanding balances on all of our cre warehouse financing facilities , and in october 2020 , we amended all three of our cre loan warehouse financing facilities to revise a covenant definition to be in line with other market participants as well as , at our request , to reduce the maximum borrowing capacity from $ 400.0 million to $ 250.0 million on one warehouse financing facility as well as to extend the maturity of that same warehouse facility one year . at december 31 , 2020 and 2019 , we had an outstanding balance of $ 12.3 million and $ 544.9 million , respectively , on our cre loan warehouse financing facilities , representing 0.94 % and 29.1 % , respectively , of total outstanding borrowings . we expect to utilize our cre loan warehouse financing facilities to fund our loan origination pipeline in 2021 alongside the equity we will invest . we also expect to utilize cre securitization financing alternatives as market conditions permit in 2021. at december 31 , 2020 and 2019 , we had outstanding balances of $ 1.0 billion and $ 746.4 million , respectively , on cre debt securitizations , or 78.8 % and 39.9 % , respectively , of total outstanding borrowings . in march 2020 , we closed a cre debt securitization that financed cre loans of $ 522.6 million at a weighted average cost of libor plus 1.43 % . in september 2020 , we closed a cre debt securitization that financed $ 297.0 million of cre loan commitments at a weighted average cost of libor plus 3.13 % . we anticipate that we will close cre debt securitizations of between $ 500.0 million and $ 1.0 billion for the year ended december 31 , 2021. in september 2020 , we liquidated our 2018 cre debt securitization by refinancing loans with our senior secured financing facility obtained as a result of the acres acquisition . at december 31 , 2020 , we had an outstanding principal balance on our senior secured financing facility of $ 33.4 million . also in conjunction with the acres acquisition , we issued $ 50.0 million in 12.00 % senior unsecured notes due 2027 ( โ senior unsecured notes due 2027 โ ) and warrants to purchase 466,661 shares of our common stock to improve and stabilize our corporate liquidity . in january 2020 , we adopted updated accounting guidance that replaced the incurred loss approach with the current expected credit losses ( โ cecl โ ) model for the determination of our allowance for credit losses and write-offs on our investment securities available-for-sale . upon adoption on january 1 , 2020 , we recorded an initial cecl reserve of approximately $ 4.5 million , of which $ 3.0 million , or $ 0.29 per share , was recorded as a charge to retained earnings . the estimated cecl reserve represented 0.25 % of the aggregate outstanding principal balance of our $ 1.8 billion commercial loan portfolio at december 31 , 2019. we reevaluate our cecl reserves quarterly , incorporating our current expectations of macroeconomic factors considered in the determination of our cecl reserves . at december 31 , 2020 , the cecl reserves on our cre loan portfolio was $ 34.3 million or 2.21 % of our $ 1.5 billion loan portfolio , which reflects weakened macroeconomic factors , including increased unemployment , declining cre values and less liquidity in cre capital markets since the adoption of cecl on january 1 , 2020. we historically used derivative financial instruments to hedge a portion of the interest rate risk associated with our borrowings . we generally sought to minimize interest rate risk with a strategy that is expected to result in the least amount of volatility under accounting principles generally accepted in the united states of america ( โ gaap โ ) while still meeting our strategic economic objectives and maintaining adequate liquidity and flexibility . these hedging transactions may include interest rate swaps , collars , caps or floors , puts , calls and options . ( back to index ) 40 ( back to index ) in april 2020 we terminated all interest rate hedges in conjunction with the disposition of our financed cmbs portfolio . at termination , we recognized a realized loss in equity of $ 11.8 million that will be amortized into interest expense over the remaining life of the debt . during the year ended december 31 , 2020 , we recognized amortization expense on these terminated contracts of $ 1 . 3 million . we target originating transitional floating-rate cre loans between $ 10.0 million and $ 80.0 million .
| results of operations our net loss allocable to common shares for the year ended december 31 , 2020 was $ 208.1 million , or $ ( 19.33 ) per share-basic ( $ ( 19.33 ) per share-diluted ) , as compared to net income allocable to common shares of $ 25.6 million , or $ 2.45 per share-basic ( $ 2.43 per share-diluted ) , for the year ended december 31 , 2019 . ( back to index ) 41 ( back to index ) net interest income the following table analyzes the change in interest income and interest expense for the comparative years ended december 31 , 2020 and 2019 by changes in volume and changes in rates . the changes attributable to the combined changes in volume and rate have been allocated proportionately , based on absolute values , to the changes due to volume and changes due to rates ( dollars in thousands , except amounts in footnotes ) : replace_table_token_2_th ( 1 ) percent change is calculated as the net change divided by the respective interest income or interest expense for the year ended december 31 , 2019 . ( 2 ) includes decreases in fee income of approximately $ 1.2 million , $ 49,000 and $ 9,000 recognized on our floating-rate cre whole loans , legacy cre loan and cre preferred equity investments , respectively , that were due to changes in volume . ( 3 ) includes the change in interest income recognized on one legacy cre loan with an amortized cost of $ 11.4 million and $ 11.5 million at december 31 , 2020 and 2019 , respectively , classified as a cre loan on the consolidated balance sheet . ( 4 ) includes a decrease from net accretion income of approximately $ 2.1 million that was due to changes in volume .
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we record a valuation allowance to reduce the carrying value of our deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will expire before realization of the benefit or future deductibility is not probable . the ultimate realization of the deferred tax assets depends story_separator_special_tag the following discussion is qualified in its entirety by , and should be read in conjunction with , our consolidated financial statements and notes thereto , included elsewhere in this annual report on form 10-k. overview we have historically positioned ourselves as a leading , reliable , high quality service provider of engineering services and engineered solutions to our customers primarily in the energy industry . as energy commodity prices began falling at the end of 2014 , our clients had incomplete capital projects either earmarked or underway that we were already working on or were awarded to us . as these projects were completed throughout 2015 and 2016 , there were fewer replacement awards of capital projects . although we continued our work on maintenance related and smaller capital projects , our revenues declined as a result . during this period of reduced activity , we have taken the opportunity to expand our capabilities and refocus our business on providing engineered , repeatable and modularized solutions for our clients . these solutions are typically larger in scope than our traditional projects . to that end , we have made several strategic hires in the key areas of business development and project management and have opened a fabrication facility to accommodate the expected additional project scope . with this addition , we are now vertically integrated from engineering and design to fabrication and integration . one result of this process is the development of a patent pending , modularized approach to well site oil and gas production systems that , in addition to other benefits , is intended to reduce well completion time and overall costs for certain clients . this methodology can be duplicated for other processes that our clients perform repeatedly . the addition of our fabrication facility is expected to allow us to capture additional scope on future projects and self-perform work that we historically have outsourced allowing us to be more competitive in the market place . we continue to be mindful of our overhead structure . while we have made investments in key individuals , product developments and new facilities and equipment , which all negatively impact our sg & a , our sg & a costs have continued to decrease . we recognize that the level of our sg & a is greater than it could be for a company our size ; however , we have retained our overhead structure in anticipation of higher revenue levels . as a result of these steps , we believe we are well positioned to take advantage of the anticipated increase in demand as the energy markets rebound . the outlook for the energy industry is uncertain at best given the sustained reduction in crude oil and natural gas prices . pricing for our services continues to be very competitive in this environment . going into 2017 , we have an ongoing , extremely focused marketing effort and are observing an adequate amount of proposal activity , which we believe will translate into maintaining our backlog . in particular , we are focused on higher margins and lower risks associated with significant projects located inside of the united states . story_separator_special_tag 10pt times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > the declines in both the epcm and automation segment 's 2016 gross profit margins are primarily due to lower manpower utilization , which increased our variable labor operating costs , resulting from the decline in our clients ' activities and corresponding reduction in the number of new projects . in the second quarter of 2016 , we initiated cost savings measures by introducing a furlough program and reducing our payroll burden . we also took additional steps in the third quarter of 2016 by limiting hours spent on indirect activities . we expect these measures to positively impact our gross profit margins in 2017. additionally , we intend to monitor labor utilization for both the epcm and the automation segments with the goal of improving gross profit margins while remaining positioned for a potential rebound and growth in future periods . selling , general and administrative โ overall , our sg & a expenses decreased by $ 0.8 million for the year ended december 31 , 2016 as compared to the year ended december 26 , 2015. while we made a significant investment in strategic business development resources and incurred costs in support of the startup of our fabrication facility during 2016 , totaling approximately $ 1.0 million , we have more than offset this investment by reducing our sg & a expenses over $ 1.8 million by streamlining our business processes , reducing our reliance on outside services and reducing our capital spending . we continue to look for ways to streamline our processes and delay expenditures while we continue to invest in our business development activities . other income โ other income decreased by $ 0.3 million for the year ended december 31 , 2016 as compared to the year ended december 26 , 2015 , due to the resolution and ultimate liquidation and collection of certain notes receivable in 2015 partially offset by approximately $ 0.3 million of expense for a potential acquisition that did not close . interest expense , net โ interest expense is less than $ 0.2 million for the years ended december 31 , 2016 and december 26 , 2015. our interest expense consists primarily of interest on our capital leases , amortization of the cost of obtaining the loan agreement with regions bank , unused loan agreement line fees and other fees associated with the loan agreement . story_separator_special_tag risk factors โ risk related to our business , industry and strategy - we currently can not borrow under our credit facility which may limit our ability to finance operations or engage in other business activities which could have a material impact on our financial condition. โ 24 borrowing base โ the borrowing base is an amount equal to the sum of ( a ) 85 % of the total amount of eligible approved cost plus contract amounts , plus ( b ) the lesser of ( i ) 85 % of the total amount of eligible approved fixed price contract accounts or ( ii ) $ 2,500,000 , plus ( c ) the lesser of ( i ) 85 % of the total amount of eligible approved government contract accounts or ( ii ) $ 1,000,000 , plus ( d ) the lesser of ( i ) 75 % of the total amount of eligible unbilled accounts or ( ii ) total revenues from all accounts over the preceding 30-day period , provided that to the extent that any eligible unbilled accounts consist of accounts that would be eligible approved government contracts and be included in provision ( c ) above if billed there shall be a limitation in eligibility thereof under this provision ( d ) of $ 800,000 , plus ( e ) 75 % of the total amount of eligible costs in excess of billings , and minus ( f ) such amounts as may be required by lender to be reserved at any time and from time to time . interest โ any loans will bear interest at a rate per annum equal to the libor index rate plus 2.25 % . if the loan is converted to a base rate loan , then such loan will bear interest at a rate per annum equal to the base rate ( defined as a rate per annum equal to the greatest of ( a ) the federal funds rate in effect on such day plus 0.50 % , ( b ) the prime rate in effect on such day , or ( c ) a per annum rate equal to libor determined with respect to an interest period of one month plus 1.00 % ) plus 1.25 % . collateral โ all obligations of the company under the loan agreement are secured by a first priority perfected lien against any and all personal property assets of the company ( other than certain excluded property ) . term โ all loans and all other obligations outstanding under the loan agreement shall be payable in full on september 14 , 2017 , unless otherwise terminated pursuant to the terms of the loan agreement . material covenants โ the loan agreement requires the company to comply with various financial , affirmative and negative covenants affecting its businesses and operations , including : โ the company will not be a party to mergers , acquisitions , consolidations , reorganizations or similar transactions . โ the company will not sell , lease , transfer or otherwise dispose of any of its properties or assets ( subject to certain exceptions set forth in the loan agreement ) . โ the company will not declare , pay or make any dividend or distribution on any shares of common or preferred stock or make any cash payment to repurchase or otherwise retire any common or preferred stock , provided that the company may repurchase up to $ 2.0 million of its common stock pursuant to its announced stock repurchase program , subject to certain conditions . โ the fixed charge coverage ratio must not be less than 1.10 to 1.00 . โ the company will not permit capital expenditures during any fiscal year to exceed $ 3.5 million . while the company was in compliance with all of the material covenants of the loan agreement as of december 31 , 2016 , the company is not presently in compliance with the fixed charge coverage ratio financial covenant , which is an event of default under the loan agreement as described above . stock repurchase program : on april 21 , 2015 , the company announced that our board of directors had authorized the repurchase of up to $ 2.0 million of our common stock from time to time through open market or privately negotiated transactions , based on prevailing market conditions . we were not obligated to repurchase any dollar amount or specific number of shares of common stock under the repurchase program , which may be suspended or discontinued at any time . during the year ended december 31 , 2016 , we purchased and retired 1,074,150 shares at a cost of $ 1.3 million under this program and during the year ended december 26 , 2015 , we purchased and retired 53,744 shares at a cost of $ 0.1 million . notes receivable as of december 31 , 2016 and december 26 , 2015 , the company had $ 0.1 million and $ 0.2 million , respectively , in current notes receivable outstanding , net of reserves of $ 0 and $ 0.5 million , respectively . the aspen note receivable for $ 0.5 million , which was fully reserved for in 2015 , was settled for $ 0.1 million in 2016 with the remaining balance written off against the reserve resulting in no impact on 2016 earnings . the increased performance note receivable was a trade receivable converted to a note during 2015 , bearing interest at 0 % per annum and payable in installments through its maturity on october 1 , 2016. during 2016 , the customer made minimal payments on this note and as a result $ 0.1 million remains outstanding as of december 31 , 2016. the company continues to pursue collection of this note from the customer . accounts receivables we typically sell our products and services on short-term credit and seek to minimize our credit risk by performing credit checks and conducting our own collection efforts .
| results of operations our revenue from operations is comprised of epcm services revenue and the sale of integrated engineered automation systems and other automation engineering services . we recognize service revenue as soon as the services are performed . the majority of our engineering services have historically been provided through time-and-material contracts whereas a majority of our integrated engineered automation system revenues are earned on fixed-price contracts . in the course of providing our services , we routinely provide materials and equipment and may provide construction or construction management services on a subcontractor basis . generally , these materials , equipment and subcontractor costs are passed through to our clients and reimbursed , along with handling fees , which in total are at margins lower than those of our services business . in accordance with industry practice and generally accepted accounting principles , all such costs and fees are included in revenue . the use of subcontractor services can change significantly from project to project ; therefore , changes in revenue and gross profit , sg & a expense and operating income as a percent of revenue may not be indicative of our core business trends . 21 segment operating sg & a expense includes management , business development and staff compensation , office costs such as rents and utilities , depreciation , amortization , travel , bad debt and other expenses generally unrelated to specific client contracts , but directly related to the support of a segment 's operations . corporate sg & a expenses includes investor relations , governance , finance , accounting , health , safety , environmental , human resources , legal and information technology which are unrelated to specific projects but which are incurred to support corporate activities .
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elsewhere in this annual report on form 10-k and in our other securities and exchange commission filings . the following discussion may contain predictions , estimates , and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under ยrisk factorsย and elsewhere in this annual report on form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . overview we are a medical device company that develops , manufactures , and markets medical devices and implants for the treatment of peripheral vascular disease . our principal product offerings are sold throughout the world , primarily in the united states , the european union and , to a lesser extent , japan . we estimate that the annual worldwide market for all peripheral vascular devices approximates $ 3 billion , within which our core product lines address roughly $ 750 million . we have grown our business by using a three-pronged strategy : competing in niche markets , expanding our worldwide direct sales force , and acquiring and developing complementary vascular devices . we have used acquisitions as a primary means of further accessing the larger peripheral vascular device market , and we expect to continue to pursue this strategy in the future . additionally , we have increased our efforts to expand our vascular device offerings through new product development efforts . we currently manufacture most of our product lines in our burlington , massachusetts , headquarters . our products are used by vascular surgeons who treat peripheral vascular disease through both open surgical methods and endovascular techniques . in contrast to interventional cardiologists and interventional radiologists , neither of whom are certified to perform open surgical procedures , vascular surgeons can perform both open surgical and minimally invasive endovascular procedures , and are therefore uniquely positioned to provide a wider range of treatment options to patients . our principal product lines include the following : balloon catheters , biologic patches , carotid shunts , a contrast injection device , laparoscopic cholecystectomy devices , non-occlusive modeling catheters , radiopaque marking tape , remote endarterectomy devices , valvulotomes , vascular grafts , and vessel closure systems . we divested our aortic stent grafts in june 2011 and terminated our distribution of the endologix products in august 2011. to assist us in evaluating our business strategies , we regularly monitor long-term technology trends in the peripheral vascular device market . additionally , we consider the information obtained from discussions with the medical community in connection with the demand for our products , including potential new product launches . we also use this information to help determine our competitive position in the peripheral vascular device market and our manufacturing capacity requirements . 39 our business opportunities include the following : the long-term growth of our sales force in north america , europe and japan , sometimes in connection with terminations of certain distributor relationships in order to expand our sales presence in new countries ; the addition of complementary products through acquisitions ; the updating of existing products and introduction of new products through research and development ; the introduction of our products in new markets upon obtainment of regulatory approvals in these markets ; and the consolidation of product manufacturing into our facilities in our burlington , massachusetts corporate headquarters . we sell our products primarily through a direct sales force . as of december 31 , 2012 our sales force was comprised of 81 sales representatives in north america , the european union and japan . we also sell our products in other countries through distributors . our worldwide headquarters is located in burlington , massachusetts . our international operations are headquartered in sulzbach , germany . we also have sales offices located in tokyo , japan , toronto , canada , madrid , spain , and milan , italy . in 2012 , approximately 94 % of our net sales were generated in markets in which we employ direct sales representatives . in recent years we have experienced comparatively greater success in product markets characterized by low or limited competition , for example the markets for biologic patches and valvulotome devices . in the biologic patch market , we believe that we have been able to increase market share . in the valvulotome market , we believe that we have been able to increase selling prices without compromising market share . there can be no assurance that we will not meet resistance to increased selling prices in the future . in contrast , we have experienced comparatively lesser success in highly competitive product markets such as such as prosthetic polyester and eptfe grafts , where we face stronger competition from larger companies with greater resources . while we believe that these challenging market dynamics can be mitigated by our strong relationships with our vascular surgeon customers , there can be no assurance that we will be successful in highly competitive markets . because we believe that direct-to-hospital sales engender closer customer relationships , and allow for higher selling prices and gross margins , we periodically enter into transactions with our distributors to transition their sales of our medical devices to our direct sales organization : in october 2012 , we entered into a definitive agreement with schaublin medica sa ( schaublin ) to terminate its distribution of our products in switzerland effective january 1 , 2013. the agreement required us to pay approximately $ 0.2 million in exchange for the purchase of their customer list for our products , certain customer contracts , sales and marketing transition services , and minimal inventory . in december 2012 , we entered into a definitive agreement with trytech corporation to terminate its distribution of our products in a certain japanese territory effective as of april 1 , 2013. the agreement required us to pay approximately $ 0.1 million in exchange for the purchase of their customer list for our products , certain customer contracts , sales and marketing transition services , and minimal inventory . story_separator_special_tag the united kingdom and france represented approximately 40 % of our albograft vascular graft sales volume in 2011. sales of albograft in the united kingdom and france were $ 1.0 million for the year ended december 31 , 2011 and $ 0.5 million for the year ended december 31 , 2012. as of december 31 , 2012 , we have approximately $ 2.7 million of inventory and $ 0.5 million of intangible assets related to the albograft vascular graft . see ยrisk factorsย for the risks associated with the regulatory environment in which we operate . fluctuations in the rate of exchange between the u.s. dollar and foreign currencies , primarily the euro , affect our financial results . for the year ended december 31 , 2012 , approximately 33 % of our sales were from outside the americas . we expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future . selling , marketing , and administrative costs related to these sales are largely denominated in the same respective currency , thereby partially mitigating our transaction risk exposure . however , most of our foreign sales are denominated in local currency , and if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less in u.s. dollars than we did before the rate increase went into effect . net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily generated by shipments to distributors who , in turn , sell to hospitals and clinics . in those cases where our products are held on consignment at a hospital or clinic , we generate sales at the time the product is used in surgery rather than at shipment . cost of sales . we manufacture nearly all of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at medical society meetings , training programs , advertising and product promotions , direct mail , and other marketing costs . 42 general and administrative . general and administrative expense consists primarily of executive , finance and human resource expense , stock based compensation , legal and accounting fees , information technology expense , intangible amortization expense , and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement , and regulatory approval of our products , principally salaries , laboratory testing , and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . restructuring . restructuring expense includes costs directly associated with distribution agreement termination expenses , severance and retention costs for terminated employees , factory relocation costs , and other expenses associated with restructuring our operations . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , investment impairment charges , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned german , french , italian , spanish , and japanese subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states , germany , france , italy , spain , switzerland , and japan , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag certain european markets of $ 0.1 million . as a percentage of net sales , general and administrative expenses were 19 % in both 2012 and 2011. we expect general and administrative expenses to increase in 2013 primarily due to our direct sales efforts in canada . research and development . research and development expenses increased 15 % to $ 5.1 million in 2012 from $ 4.4 million in 2011. as a percentage of net sales , research and development expenses increased to 9 % in 2012 from 8 % in 2011. product development expenses increased $ 1.0 million primarily due to increased product engineer compensation and additional testing and sample costs . clinical and regulatory expenses increased $ 0.1 million , primarily due to an increase in compensation expenses . process engineering expenses decreased $ 0.2 million . royalty expenses decreased $ 0.2 million , primarily due to our exit from our stent graft product lines . we expect research and development costs to increase marginally in 2013 as we continue to invest in new product development efforts . restructuring . we did not incur restructuring charges in 2012 compared to $ 2.2 million of restructuring charges in the prior year .
| results of operations comparison of the year ended december 31 , 2012 , to the year ended december 31 , 2011 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percent increase or decrease : replace_table_token_7_th net sales . net sales decreased 2 % to $ 56.7 million in 2012 from $ 57.7 million in 2011. divestitures , primarily of the taarget and unifit stent graft product lines as well as the termination of the endologix aortic stent graft distribution agreement , resulted in a decrease in sales of 8 % from the prior year . changes in foreign currency exchange rates reduced year over year sales by 2 % . net sales decreases of $ 1.0 million in 2012 were primarily driven by the 2011 divestiture of our stent graft product lines which accounted for $ 4.0 million of sales during 2011 , a $ 0.6 million decrease in polyester graft sales , and a weakening of the euro , which negatively impacted sales by $ 1.3 million . these decreases were partially offset by higher average selling prices across nearly all product lines , increased sales in biologic patches of $ 2.0 million , increased sales of radiopaque tape of $ 0.6 million and increased sales of catheters of $ 0.5 million , which was partially driven by selected pricing discounts in new geographies . direct-to-hospital net sales were 94 % of net sales in 2012 , compared to 93 % in 2011 . 43 net sales by geography .
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sec defined prices for each quarter-end in 2017 were as follows : replace_table_token_35_th asset retirement obligations the company accounts for its abandonment and restoration liabilities under financial accounting standards board ( โ fasb โ ) asc topic 410 , โ asset retirement and environmental obligations โ ( โ fasb asc 410 โ ) , which requires the company to record a liability equal to the fair value of the estimated cost to retire an asset . the asset retirement liability is recorded in the period in which the obligation meets the definition of a liability , which is generally when the asset is placed into service . when the liability is initially recorded , the company increases the carrying amount of oil and natural gas properties by an amount equal to the original liability . the liability is accreted to its present value each period , and the capitalized cost is depreciated consistent with depletion of reserves . upon settlement of the liability or the sale of the well , the liability is reversed . these liability amounts may change because of changes in asset lives , estimated costs of abandonment or legal story_separator_special_tag the following discussion should be read in conjunction with the โ selected financial data โ in item 6 and the financial statements and accompanying notes appearing elsewhere in this report . executive overview we are an independent energy company engaged in the acquisition , exploration , development and production of oil and natural gas properties , primarily in the bakken and three forks formations within the williston basin in north dakota and montana . our primary focus is oil exploration and production through non-operated working interests in wells drilled and completed by third-party operators of oil and gas wells . our financial and operating performance for the year ended december 31 , 2017 included the following : oil and gas sales of $ 224.0 million in 2017 , compared to $ 159.7 million in 2016 average daily production of 14,800 boepd in 2017 , an 8.4 % increase compared to 13,653 boepd in 2016 added 16.9 net wells to production in 2017 , compared to 10.7 net wells added to production in 2016 proved reserves of 75.8 mmboe at december 31 , 2017 , a 40 % increase compared to 2016 year-end , in each case as estimated by our third-party reserve engineers under sec guidelines closed a new term loan credit agreement in november 2017 , which provides $ 202.2 million of liquidity at december 31 , 2017 ( comprised of $ 102.2 million of cash on hand and $ 100.0 million of delayed draw term loan availability ) source of our revenues we derive our revenues from the sale of oil , natural gas and ngls produced from our properties . revenues are a function of the volume produced , the prevailing market price at the time of sale , oil quality , btu content and transportation costs to market . we use derivative instruments to hedge future sales prices on a substantial , but varying , portion of our oil production . we expect our derivative activities will help us achieve more predictable cash flows and reduce our exposure to downward price fluctuations . the use of derivative instruments has in the past , and may in the future , prevent us from realizing the full benefit of upward price movements but also mitigates the effects of declining price movements . 44 principal components of our cost structure oil price differentials . the price differential between our williston basin well head price and the nymex wti benchmark price is driven by the additional cost to transport oil from the williston basin via train , barge , pipeline or truck to refineries . gain ( loss ) on derivative instruments , net . we utilize commodity derivative financial instruments to reduce our exposure to fluctuations in the price of oil . gain ( loss ) on derivative instruments , net is comprised of ( i ) cash gains and losses we recognize on settled derivatives during the period , and ( ii ) non-cash market-to-market gains and losses we incur on derivative instruments outstanding at period end . production expenses . production expenses are daily costs incurred to bring oil and natural gas out of the ground and to the market , together with the daily costs incurred to maintain our producing properties . such costs also include field personnel compensation , salt water disposal , utilities , maintenance , repairs and servicing expenses related to our oil and natural gas properties . production taxes . production taxes are paid on produced oil and natural gas based on a percentage of revenues from products sold at market prices ( not hedged prices ) or at fixed rates established by federal , state or local taxing authorities . we seek to take full advantage of all credits and exemptions in our various taxing jurisdictions . in general , the production taxes we pay correlate to the changes in oil and natural gas revenues . depreciation , depletion , amortization and impairment . depreciation , depletion , amortization and impairment includes the systematic expensing of the capitalized costs incurred to acquire , explore and develop oil and natural gas properties . as a full cost company , we capitalize all costs associated with our development and acquisition efforts and allocate these costs to each unit of production using the units-of-production method . general and administrative expenses . general and administrative expenses include overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our acquisition and development operations , franchise taxes , audit and other professional fees and legal compliance . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings . as a result , we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions . story_separator_special_tag prices for various quantities of natural gas , ngls and oil that we produce significantly impact our revenues and cash flows . the following table lists average nymex prices for oil and natural gas for the years ended december 31 , 2017 , 2016 and 2015 . replace_table_token_18_th ( 1 ) based on average nymex closing prices . oil and natural gas prices have fallen significantly since their early third quarter 2014 levels . lower oil and natural gas prices not only decrease our revenues , but an extended decline in oil or natural gas prices has adversely affected our business and may materially and adversely affect our future business , financial position , cash flows , results of operations , liquidity , ability to finance planned capital expenditures and the oil and natural gas reserves that we can economically produce . also , lower oil and natural gas prices may reduce our ability to access the capital markets , which is partially based on the perceived value of our proved reserves . during 2017 , we began to experience an improving commodity price environment which increased our average nymex pricing as compared to 2016 . the average 2017 nymex pricing was $ 50.85 per barrel of oil or 17 % higher than the average nymex price per barrel in 2016 . although oil and natural gas prices have increased , our realized oil price after reflecting settled derivatives was lower in 2017 than in 2016 due to lower settlement prices on our derivatives in 2017. our average 2017 realized oil price per barrel after reflecting settled derivatives was $ 45.92 or 7 % lower than 2016 . the decrease in settled derivatives in 2017 as compared to 2016 was due to lower settlement prices on our hedged volumes and higher nymex oil prices in 2017 compared to 2016 . 47 story_separator_special_tag million from the $ 11.7 million net liability recorded as of december 31 , 2016 . the increase in the net liability at december 31 , 2017 as compared to december 31 , 2016 was primarily due to changes in oil prices on the open oil derivative contracts . our open oil derivative contracts are summarized in โ item 7a . quantitative and qualitative disclosures about market riskโcommodity price risk. โ production expenses production expenses were $ 49.7 million in 2017 compared to $ 45.7 million in 2016 and $ 52.1 million in 2015 . on a per unit basis , production expenses were relatively flat from $ 9.14 per boe in 2016 to $ 9.21 per boe in 2017 . on an absolute dollar basis , our production expenses in 2017 were 9 % higher when compared to 2016 due primarily to higher processing and maintenance costs , as well as a 7 % increase in the total number of net wells . on a per unit basis , our production expenses increased 4 % from $ 8.77 per boe in 2015 to $ 9.14 per boe in 2016 . on an absolute dollar basis , our production expenses in 2016 were 12 % lower when compared to 2015 due primarily to lower contract labor and maintenance costs and reduced variable costs on lower production levels which was partially offset by a 4 % increase in the total number of net wells . production taxes we pay production taxes based on realized oil and natural gas sales . higher production levels and commodity prices in 2017 as compared to 2016 increased the taxable base that is used to calculate production taxes . lower commodity prices in 2016 as compared to 2015 lowered the taxable base that is used to calculate production taxes . production taxes were $ 20.6 million in 2017 compared to $ 15.5 million in 2016 and $ 21.6 million in 2015 . as a percentage of oil and natural gas sales , our average production tax rates were 9.2 % , 9.7 % and 10.6 % in 2017 , 2016 and 2015 , respectively . in 2017 and 2016 , the decrease in production tax rates as a percentage of oil and gas sales is due to a lower oil production tax rate in north dakota , which dropped to 10 % beginning in 2016 . general and administrative expense general and administrative expense was $ 19.0 million for 2017 compared to $ 14.8 million for 2016 and $ 19.0 million for 2015 . the increase in 2017 compared to 2016 was due in part to a $ 3.6 million charge in the third quarter of 2017 in connection with a settlement agreement with our former chief executive officer , pursuant to which we agreed to pay him $ 750,000 in cash and issue him 3,000,000 shares of our common stock ( see note 8 ) . in addition , legal and professional expense was $ 1.3 million higher in 2017 compared to 2016 , partially offset by a $ 0.2 million decrease in cash compensation expense due primarily to reduced incentive compensation . general and administrative expense in 2016 as compared to 2015 was lower due primarily to a $ 5.9 million decrease in compensation expenses due in large part to the termination of the employment of the company 's chief executive officer during 2016 , which resulted in the reversal of $ 3.2 million in compensation expenses . additionally , compensation expenses in 2016 were lower as compared to 2015 due to workforce reductions in the fourth quarter of 2015 and $ 1.9 million of stock-based compensation costs incurred in 2015 in connection with a new employment agreement with our former chief executive officer . partially offsetting the lower compensation expenses in 2016 was a $ 1.4 million increase in legal expenses and $ 0.5 million in other professional fees . 50 depletion , depreciation , amortization and accretion depletion , depreciation , amortization and accretion ( โ dd & a โ ) was $ 59.5 million in 2017 compared to $ 61.2 million in 2016 and $ 137.8 million in 2015 .
| results of operations for 2017 , 2016 and 2015 the following table sets forth selected operating data for the periods indicated . production volumes and average sales prices are derived from accrued accounting data for the relevant period indicated . replace_table_token_19_th oil and natural gas sales our revenues vary from year to year primarily as a result of changes in realized commodity prices and production volumes . in 2017 , our oil , natural gas and ngl sales , excluding the effect of settled derivatives , increased 40 % from 2016 , driven primarily by an 8 % increase in production levels and a 28 % increase in our average oil sales price . the higher average realized price per boe , excluding the effect of settled derivatives , in 2017 as compared to 2016 was primarily driven by higher average nymex oil and gas prices , as well as a lower oil price differential . oil price differential during 2017 averaged $ 5.87 per barrel , as compared to $ 8.25 per barrel in 2016 . 48 in 2016 , oil , natural gas and ngl sales decreased 21 % from 2015 , driven primarily by a 16 % decrease in production and a 7 % decrease in our average oil sales price . the lower average realized price per boe , excluding the effect of settled derivatives , in 2016 as compared to 2015 was primarily driven by lower average nymex oil and gas prices , which were partially offset by a lower oil price differential . oil price differential during 2016 averaged $ 8.25 per barrel , as compared to $ 9.42 per barrel in 2015 . we add production through drilling success as we place new wells into production and through additions from acquisitions , which is offset by the natural decline of our oil and natural gas production from existing wells .
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to an additional week , resulting in a 53 week year . fiscal 2012 is a 53 week year . net sales numbers include results from the 53rd week ; however , comparable stores sales calculations exclude the 53rd week . fiscal 2012 , 2011 and 2010 ended on february 3 , 2013 , january 29 , 2012 and january 30 , 2011 , respectively . the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based on current expectations that involve risks , uncertainties and assumptions , such as our plans , objectives , expectations and intentions set forth in the ยspecial note regarding forward-looking statements.ย our actual results and the timing of events may differ materially from those anticipated in these forward looking statements as a result of various factors , including those set forth in the ยitem 1aยrisk factorsย section and elsewhere in this annual report on form 10-k. overview our results for fiscal 2012 demonstrate the ongoing success of our efforts to execute the goals we set at the end of last year . we committed to continued investment in our stores and our people , making infrastructure enhancements and funding working capital requirements , while remaining conscious of our discretionary spending . these goals included driving store productivity along with north american store build out and ecommerce , seeding international markets via a community , showroom and ecommerce model , and reinvesting in product innovation to create value and differentiation in our product lines and to enhance our leadership position for the long term . we continually assess the economic environment and market conditions when making decisions regarding timing of our investments . our investments in our stores and people were reflected in our comparable stores net revenue growth , which leveraged our fixed operating costs . we increased our store base through execution of our real estate strategy , when and where we saw opportunities for success . for example , we opened 37 new corporate-owned stores in north america , australia , and new zealand since fiscal 2011. where we find opportunities for growth through opening showrooms , or other community presence efforts , we expect to expand our store base and therefore our business . our growth strategy relies on positive comparable store sales and expansion in north america , particularly in the united states . we have also determined that international growth is an opportunity and are expanding our foothold in markets by establishing local community connections , distributing to strategic sales partners and opening showrooms where we feel our key guests are shopping . throughout fiscal 2012 , we were able to grow our e-commerce business which has further increased our brand awareness and has made our product available in new markets , including those outside of north america . this sales channel offers a higher operating margin than our other segments and accounted for 16.1 % of total revenue in the fourth quarter of fiscal 2012 compared to 13.5 % of total revenue in the same period of the prior year . continuing increases in traffic and conversion rates on our e-commerce website lead us to believe that there is potential for our direct to consumer segment to become an increasingly substantial part of our business and we plan to continue to commit a portion of our resources to further developing this channel . in fiscal 2012 we launched country and region specific websites in australia , europe and asia to provide our online guests with local content , assortment and pricing . in mid-march 2013 , we determined that certain shipments of women 's black luon bottoms received from our factories and available in our stores from march 1 , 2013 , did not meet our technical specifications . as we became aware of this issue , we pulled what we believe to be all of the affected items from our stores , showrooms 22 and e-commerce sites and began working with our supplier to replace the fabric and with our other manufacturers to replace these items as quickly as possible . the lost revenue , additional costs expected to be incurred and the write down of affected product on hand from this issue will negatively impact our results from operations in fiscal 2013. we believe that our brand is recognized as premium in our offerings of run and yoga assortment , as well as a leader in technical fabrics and functionality . this has made our product desirable to our consumers and has driven demand , which we are able to meet given our increased product depth compared to last year . delivering quality to our customers is a critical factor in our market place differentiation and removing items that do not meet our standards is key to maintaining our brand reputation . in fiscal 2013 , we plan on investing in new and legacy information technology systems to develop new capabilities in our vertical retail strategy . we have recently added strong leadership in quality control , our liason office and our commercialization and development teams , and expect these people and other investments to solidify our quality consistency and our delivery capabilities . we believe our strong cash flow generation , solid balance sheet and healthy liquidity provide us with the financial flexibility to continue executing the initiatives which we believe will lead to quality growth . operating segment overview lululemon is a designer and retailer of technical athletic apparel operating primarily in north america and australia . our yoga-inspired apparel is marketed under the lululemon athletica and ivivva athletica brand names . we offer a comprehensive line of apparel and accessories including fitness pants , shorts , tops and jackets designed for athletic pursuits such as yoga , running and general fitness , and dance-inspired apparel for female youth . story_separator_special_tag during fiscal 2010 we increased our investment to 80 % which provided us with control over lululemon athletica australia pty . during fiscal 2012 we purchased the remaining non-controlling interest in lululemon athletica australia pty . in fiscal 2008 , we opened our first company-operated showroom in hong kong and in fiscal 2012 we opened our first company-operated showroom in the united kingdom . basis of presentation net revenue is comprised of : corporate-owned store net revenue , which includes sales to customers through corporate-owned stores in north america and australia ; direct to consumer revenue , which includes sales from our e-commerce websites ; and other net revenue , which includes wholesale accounts , franchises net revenue , which consists of royalties as well as sales of our products to franchises , warehouse sales , outlets and sales from company-operated showrooms . in each case , net of an estimated allowance for sales returns and discounts . in addition , we separately track comparable store sales , which reflect net revenue at corporate-owned stores that have been open for at least 12 months . therefore , net revenue from a store is included in comparable store sales beginning with the first month for which the store has a full month of comparable prior year sales . non-comparable store sales include sales from new stores that have not been open or otherwise not operated by us for 12 months or from stores which have been significantly remodeled or relocated . also included in non-comparable stores sales are sales from direct to consumer sales , wholesale , franchises , warehouse sales and 24 showrooms , and sales from corporate-owned stores which we have closed . the 53rd week of fiscal 2012 is excluded from the calculation of comparable store sales . by measuring the change in year-over-year net revenue in stores that have been open for 12 months or more , comparable store sales allows us to evaluate how our core store base is performing . various factors affect comparable store sales , including : the location of new stores relative to existing stores ; consumer preferences , buying trends and overall economic trends ; our ability to anticipate and respond effectively to customer preferences for technical athletic apparel ; competition ; changes in our merchandise mix ; pricing ; the timing of our releases of new merchandise and promotional events ; the effectiveness of our grassroots marketing efforts ; the level of customer service that we provide in our stores ; our ability to source and distribute products efficiently ; and the number of stores we open , close ( including for temporary renovations ) and expand in any period . opening new stores is an important part of our growth strategy . accordingly , comparable store sales has limited utility for assessing the success of our growth strategy insofar as comparable store sales do not reflect the performance of stores open less than 12 months . cost of goods sold includes : the cost of purchased merchandise , which includes acquisition and production costs including raw material and labor , as applicable ; the cost incurred to deliver inventory to our distribution centers including freight , non-refundable taxes , duty and other landing costs ; the cost of our distribution centers ( such as labor , rent and utilities ) and the depreciation and amortization related to our distribution centers ; the cost of our production , merchandise and design departments including salaries , stock-based compensation and benefits , and operating expenses ; the cost of occupancy related to store operations ( such as rent and utilities ) and the depreciation and amortization related to store-level capital expenditures ; hemming ; and shrink and valuation reserves . cost of goods sold also may change as we open or close stores because of the resulting change in related occupancy costs . the primary drivers of the costs of individual goods are the costs of raw materials and labor in the countries where we source our merchandise . selling , general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold . our selling , general and administrative expenses include marketing costs , accounting costs , information technology costs , human resource costs , professional fees , corporate facility costs , corporate and 25 store-level payroll and benefits expenses , stock-based compensation and occupancy , depreciation and amortization expense for all assets other than depreciation and amortization expenses related to store-level capital expenditures and our distribution centers , each of which are included in cost of goods sold . we anticipate that our selling , general and administrative expenses will increase in absolute dollars due to anticipated continued growth of our corporate support staff and store-level employees . other income ( expense ) , net includes interest earned on our cash balances and our advances to franchise , interest costs associated with our credit facilities and with letters of credit drawn under these facilities for the purchase of merchandise and our share of the operations of our investment in lululemon athletica australia pty prior to obtaining control in fiscal 2010 , including the remeasurement of our investment immediately before obtaining control of the business . we expect to continue to generate interest income to the extent that our cash generated from operations exceeds our cash used for investment . we have maintained relatively small outstanding balances on our credit facilities and expect to continue to do so for the foreseeable future . provision for income taxes depends on the statutory tax rates in the countries where we sell our products . historically we had generated taxable income in canada and we had generated tax losses in the united states . in fiscal 2010 we earned taxable income in the united states and fully utilized any net operating losses available from prior periods . we anticipate continued growth in the united states and consequently foresee an increase in taxable income reported .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of net revenue : replace_table_token_7_th 26 replace_table_token_8_th comparison of fiscal 2012 to fiscal 2011 net revenue net revenue increased $ 369.5 million , or 37 % , to $ 1,370.4 million in fiscal 2012 from $ 1,000.8 million in fiscal 2011. assuming the average exchange rates in fiscal 2012 remained constant with the average exchange rates in fiscal 2011 , our net revenue would have increased $ 370.5 million , or 37 % . the net revenue increase was driven by increased sales at locations in our comparable stores base , sales from new stores opened , and the growth of our direct to consumer segment . the constant dollar increase in comparable store sales was driven primarily by the strength of our existing product lines , successful introduction of new products and increasing recognition of the lululemon athletica brand name , especially at our u.s. stores , that drove higher transactions per store . our net revenue on a segment basis for fiscal 2012 and fiscal 2011 are expressed in dollar amounts as well as relevant percentages , presented as a percentage of total net revenue below . replace_table_token_9_th corporate-owned stores . net revenue from our corporate-owned stores segment increased $ 273.3 million , or 33 % , to $ 1,090.2 million in fiscal 2012 from $ 816.9 million in fiscal 2011. the following contributed to the increase in net revenue from our corporate-owned stores segment : comparable store sales increase of 16 % in fiscal 2012 resulted in a $ 118.3 million increase to net revenue , including the effect of foreign currency fluctuations .
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the company adopted asu 2018-15 effective january 1 , 2020 and the adoption did not have a material impact on our consolidated financial statements . 91 notes to consolidated financial statements ( continued ) accounting standards issued not yet adopted in december 2019 , the fasb issued asu 2019-12 , income taxes ( story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements , related notes and other financial information included in part ii , item 8 of this annual report . the following discussion contains forward-looking statements , including , without limitation , our expectations and statements regarding our outlook and future revenue , expenses , results of operations , liquidity , plans , strategies and objectives of management and any assumptions underlying any of the foregoing . our actual results could differ materially from those discussed in the forward-looking statements . our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in โ special note regarding forward-looking statements โ and โ item 1a . risk factors โ . this section of the annual report generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and comparisons between 2019 and 2018 that are not included in this annual report can be found in `` management 's discussion and analysis of financial condition and results of operations , '' in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , which was filed with the sec on march 17 , 2020. overview our mission is to make data useful for all users by delivering trusted data when and where is it needed . we are a key enabler of the data-driven enterprise where data is a strategic asset powering business . talend data fabric allows customers in any industry to improve business performance by using their data to create new insights and to automate business processes . our customers rely on our software to better understand their customers , offer new applications and services , and improve operations . we had 1,397 employees as of december 31 , 2020 and we plan to continue to grow our employee base to address the needs of our global customers as well as to acquire customers in new geographies . we also plan to continue to invest in new product development . our business model combines our open source approach and direct sales . we supplement our direct sales and demand generation activities with self-service trials of our software . developers and users can download and try the free and paid versions of our products , creating sales leads for our more feature-rich commercial solutions . users of our open source products often catalyze adoption of our commercial solutions by their organizations , primarily to benefit from enterprise-grade features that include the scaling out of our offering to a larger set of users , among others . following an initial deployment of our paid subscription products , organizations often purchase more subscriptions or expand usage to additional products from our fully integrated suite after realizing the benefits of additional features or scale . we sell our product offerings as subscriptions based primarily on the number of users . we generate the majority of our revenue from subscriptions of our commercial solution talend data fabric . we primarily sell annual contracts billed in advance . our subscription offering includes enterprise-grade features and capabilities to scale our solutions across production environments and customer infrastructures . these product features and capabilities include scheduling , management and monitoring of data integration flows , collaboration across a team of users and technical support . we also provide professional services to implement our solutions . our subscription revenue represents a significant portion of our revenue , growing from 86 % of our total revenue in the year ended december 31 , 2018 , to 88 % in the year ended december 31 , 2019 , and 90 % in the year ended december 31 , 2020. we intend to generate profits based on increased sales of our solutions to new and existing customers . we currently anticipate that at some point in the future we will be able to increase revenues at a greater rate than increases in our operating expenses . however , there can be no assurance that we will achieve or maintain profitability on a consistent basis , that we will increase our sales to new and existing customers , or that our operating expenses will increase at a lower rate than our revenue may grow . covid-19 update our first priority remains ensuring the safety and health of our employees , customers and others with whom we partner in conducting our business . in response to the pandemic , and in line with guidance provided by government agencies and international organizations , we temporarily closed substantially all of our offices and requested our employees work remotely , suspended all non-essential travel and activated our business continuity plan so we can continue to support customers while protecting our employees . we continue , in the vast majority of instances , to operate our business remotely . we have also moved all in-person customer-facing events to virtual ones . to date , the pandemic , which has affected nearly all regions around the world , and preventive measures taken to contain or mitigate the pandemic , are adversely impacting economic activity and have 60 caused and may continue to cause significant disruptions in the financial markets . the covid-19 pandemic and resulting economic uncertainty has negatively impacted our business and we anticipate that it will continue to have an adverse impact on our results of operations and financial performance . story_separator_special_tag for the twelve-month periods ended december 31 , 2020 and 2019 , subscription sales , excluding monthly contracts , had an average pre-billed duration of 1.0 years and 1.1 years , respectively . open source strategy . our open source strategy consists of fostering a community of users and developers and selling commercial versions of our solutions . our open source developer community helps lower our research and development costs by contributing components and connectors , testing beta versions of our apps , identifying enhancements and providing free advice to other community members . to evaluate our open source strategy , we periodically review data points such as the volume of downloads of our open source apps and , the number of open source users that are members of our open source community . given that our open source users register with us voluntarily , we do not use a conversion rate to evaluate our strategy . the continued adoption of open source software by organizations as well as the vitality of our open source community impacts our performance . investment in sales and marketing . we continue to focus on long-term growth and expect to continue to invest in sales and marketing to grow our customer base and expand within existing customers . we also expect to increase investments in sales and marketing in markets outside of france and the united states . as we continue to focus on new customer acquisition , we will need to devote additional time and effort to the new customer sales cycle . expanding beyond initial buying centers within existing customers will also require additional time and effort . any investments that we make in sales and marketing will occur in advance of our experiencing benefits from such investments , as new sales hires take time to fully ramp . the success of these efforts will also be affected by our ability to hire and retain sales personnel , and attrition of these employees may slow our efforts . as a result , it may be difficult for us to determine if we are efficiently allocating our resources in these areas . increasing new customer bookings , particularly among small and medium businesses and large enterprise customers , is key to our growth strategy , and we also anticipate continuing to invest in expanding our international operations and increasing sales of our cloud-based offerings . integration and talend cloud . sales to enterprise customers have reflected larger deal sizes and have been one of the principal drivers of our revenue growth . however , sales to enterprise customers involve risks that may not be present with sales to smaller customers , including increased competition from companies that traditionally target larger enterprise customers and a longer sales cycle . these factors result in less visibility and create difficulties in assessing deal cyclicality for these customers . foreign currency exchange risk . a portion of our subscription revenue , professional services revenue and operating expenses are incurred outside the united states and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates , particularly changes in the euro . because our reporting currency is the u.s. dollar , the impact of foreign currency exchange on our business is material to our financial reporting . we believe that as the portion of u.s. business increases relative to our global business , the impact of foreign currency exchange on our financial reporting will be reduced . as our international operations grow , we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates . key business metrics we review a number of metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans and make strategic decisions . these key business metrics include the following : annual recurring revenue we believe disclosing annual recurring revenue , or arr , provides greater clarity into our results because it is not affected by revenue recognition differences between our term-based deployed licenses and cloud offerings or contract duration . our management uses arr to monitor the growth of our subscription business . arr represents the annualized recurring value of all active contracts at the end of a reporting period . arr includes subscriptions for use of term-based deployed licenses and cloud offerings and excludes original equipment manufacturer ( `` oem '' ) sales . both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve . due to the significant portion of our customers that are invoiced in non-u.s. dollar denominated currencies , we also calculate our arr growth rate on a constant currency basis , thereby removing the effect of currency fluctuation . the following table summarizes arr and its year-over-year growth rate on both an actual and constant currency basis as of the end of each reporting period since december 31 , 2019. the year-over-year growth rate for each quarter was calculated against the corresponding quarter in the prior year . we calculate arr growth on a constant currency basis by applying the spot 62 currency rate from the last day of the comparative period to the corresponding day in the current period . arr growth for the period ended december 31 , 2020 was driven by strong demand for our cloud solutions . during year ended december 31 , 2020 , our arr was negatively impacted by the absence of in-person marketing events for demand generation , and reduced it budgets as a result of the covid-19 pandemic . replace_table_token_2_th arr does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies . arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items .
| results of operations the following table sets forth our consolidated statement of operations ( in thousands ) . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . replace_table_token_10_th ( 1 ) amounts include share-based payment and amortization of acquired intangibles expense , as follows ( in thousands ) : replace_table_token_11_th 68 the following table sets forth our results of operations data for each of the periods indicated as a percentage of total revenue . replace_table_token_12_th revenue replace_table_token_13_th total revenue increased $ 39.6 million , or 16 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase in revenue was attributable to an increase in subscription revenue , partially offset by a decrease in professional services revenue . subscription revenue increased $ 42.5 million , or 20 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase in subscription revenue was primarily attributable to greater demand for our cloud solutions . professional services revenue decreased $ 2.9 million , or 9 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily due to lower demand for professional services resulting from the increasing proportion of cloud solutions as a percentage of our sales . customers of our cloud solutions typically have lower demand for our professional services . subscription revenues by geography were as follows for the years ended december 31 , 2020 , 2019 and 2018 : 69 replace_table_token_14_th cost of revenue replace_table_token_15_th total cost of revenue for the year ended december 31 , 2020 increased $ 2.3 million , or 4 % , compared to the year ended december 31 , 2019 driven by higher cost of subscription revenue partially offset by lower cost of professional services revenue .
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the company 's ability to systematically capture , analyze and deliver to its clients self-reported information from patients , families and consumers is critical in today 's healthcare market . nrc believes that access to and analysis of its extensive consumer-driven information will become even more valuable in the future as healthcare providers increasingly need to more deeply understand and engage patients and consumers in an effort towards effective population-based health management . the company 's portfolio of subscription-based solutions provide actionable information and analysis to healthcare organizations and payers across a range of mission-critical , constituent-related elements , including patient experience and satisfaction , community population health risks , workforce engagement , community perceptions , and physician engagement . nrc partners with clients across the continuum of healthcare services . the company 's clients range from acute care hospitals and post-acute providers , such as home health , long-term care and hospice , to numerous payer organizations . the company believes this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and interactive healthcare system . acquisitions on august 3 , 2010 , the company acquired all of the issued and outstanding shares of stock and stock rights of ocs , a provider of clinical , financial and operational benchmarks and analytics to home care and hospice providers . the acquisition provides the company with an entry in the home health and hospice markets through ocs 's customer relationships with home healthcare and hospice providers and expands the company 's service offerings across the continuum of care . goodwill related to the acquisition of ocs primarily relates to intangible assets that do not qualify for separate recognition , including the depth and knowledge of management . the all-cash consideration paid at closing was $ 15.3 million , net of $ 1.0 million cash received . critical accounting policies and estimates the preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein . the most significant of these areas involving difficult or complex judgments made by management with respect to the preparation of the company 's consolidated financial statements for fiscal year 2012 include : โ revenue recognition ; โ valuation of goodwill and identifiable intangible assets ; and โ income taxes . 17 revenue recognition the company derives a majority of its operating revenue from its annually renewable services , which include performance measurement and improvement services , healthcare analytics and governance education services . the company provides these services to its clients under annual client service contracts , although such contracts are generally cancelable on short or no notice without penalty . the company also derives some revenue from its custom and other research projects . services are provided under subscription-based service agreements . the company recognizes subscription-based service revenue over the period of time the service is provided . generally , the subscription periods are for twelve months and revenue is recognized equally over the subscription period . certain contracts are fixed-fee arrangements with a portion of the project fee billed in advance and the remainder billed periodically over the duration of the project . revenue and direct expenses for services provided under these contracts are recognized under the proportional performance method . under the proportional performance method , the company recognizes revenue based on output measures or key milestones such as survey set-up , survey mailings , survey returns and reporting . the company measures its progress based on the level of completion of these output measures and recognizes revenue accordingly . management judgments and estimates must be made and used in connection with revenue recognized using the proportional performance method . if management made different judgments and estimates , then the amount and timing of revenue for any period could differ materially from the reported revenue . the company also derives revenue from hosting arrangements where our propriety software is offered as a service to our customers through our data processing facilities . the company 's revenue also includes software-related revenue for software license revenue , installation services , post-contract support ( maintenance ) and training . software-related revenue is recognized in accordance with the provisions of accounting standards codification ( โ asc โ ) 985-605 , software-revenue recognition . hosting arrangements to provide customers with access to the company 's propriety software are marketed under long-term arrangements , generally over periods of one to three years . under these arrangements , the customer is not provided the contractual right to take possession of the licensed software at any time during the hosting period without significant penalty , and the customer is not provided the right to run the software on their own hardware or contract with another party unrelated to us to host the software . upfront fees for set-up services are typically billed for our hosting arrangements . however , these arrangements do not qualify for separation from the ongoing hosting services due to the absence of standalone value for the set-up services . therefore , we account for these arrangements as service contracts and recognize revenue ratably over the hosting service period when all other conditions to revenue are met . other conditions that must be met before the commencement of revenue recognition include achieving evidence of an arrangement , determining that the collection of the revenue is probable , and determining that fees are fixed and determinable . the company 's software arrangements typically involve the sale of a time-based license bundled with installation services , post-contract support ( โ pcs โ ) and training . license terms range from one year to three years and require an annual fee for bundled elements of the arrangement . pcs is also contractually provided for a period that is co-terminus with the term of the time-based license . the company 's installation services are not considered to be essential to the functionality of the software license . story_separator_special_tag no impairments were recorded during the years ended december 31 , 2012 , 2011 or 2010. the most recent quantitative analysis was performed as of october 1 , 2011. that analysis indicated that the fair value of our reporting units , including goodwill , was significantly in excess of their carrying values . the company performed a qualitative analysis as of october 1 , 2012 , which did not indicate that it was more likely than not that the carrying values of the reporting units exceeded fair value . income taxes the company uses the asset and liability method of accounting for income taxes . under that method , deferred income 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 using enacted tax rates . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . valuation allowances , if any , are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized . the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . management judgment is required to determine the provision for income taxes and to determine whether deferred income taxes will be realized in full or in part . such judgments include , but are not limited to , the likelihood we would realize the benefits of net operating loss carryforwards , the adequacy of valuation allowances , the election to capitalize or expense costs incurred , and the probability of outcomes of uncertain tax positions . it is possible that the various taxing authorities could challenge those judgments or positions and reach conclusions that would cause us to incur tax liabilities in excess of , or realize benefits less than , those currently recorded . in addition , changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate . story_separator_special_tag survey work . direct fixed expenses consist mainly of salaries and benefits and contracted services for client service , analytical , research , and information technology development functions . the primary reason for the increase in direct expenses was due to an increase in variable expenses of $ 2.4 million , including postage of $ 1.1 million and contracted survey related costs of $ 1.1 million to service the higher volume of business , and an increase in fixed expenses of $ 675,000 from additional staffing and related expenses in information technology development and client service functions . the addition of ocs also increased variable expenses by $ 106,000 and fixed expenses by $ 809,000. direct expenses decreased as a percentage of revenue to 37.8 % in 2011 from 38.8 % during 2010 , mainly due to leveraging revenue growth and expanded use of more cost-efficient survey methodologies . selling , general and administrative expenses . selling , general and administrative expenses increased $ 3.1 million or 15.3 % , to $ 23.3 million in 2011 from $ 20.2 million in 2010. of the increase , $ 2.0 million was primarily due to the expansion of the sales force , increased sales commissions , and the addition of several executives in various leadership roles . the addition of ocs accounted for the remaining $ 1.1 million of the increase . selling , general , and administrative expenses decreased as a percentage of revenue to 30.8 % for 2011 from 31.9 % for 2010 , primarily due to 2011 sales and revenue growth from the sales expansion in 2010 , decreases in acquisition and transition-related expenses for ocs and the consolidation of miv sales and operations activities into the lincoln location incurred in 2010 compared to 2011. depreciation and amortization . depreciation and amortization expenses increased 7.7 % to $ 5.1 million in 2011 from $ 4.7 million in 2010 , primarily due to the addition of ocs in 2010. depreciation and amortization expenses as a percentage of revenue decreased to 6.7 % in 2011 from 7.4 % in 2010. provision for income taxes . the provision for income taxes totaled $ 6.6 million ( 36.3 % effective tax rate ) for 2011 compared to $ 4.8 million ( 36.2 % effective tax rate ) for 2010. the increase in the effective tax rate was due to higher state taxes , partially offset by increased research and development credits and a decrease in unrecognized tax benefits . inflation and changing prices inflation and changing prices have not had a material impact on revenue or net income in the last three years . liquidity and capital resources as of december 31 , 2012 , our principal sources of liquidity included $ 8.3 million of cash and cash equivalents and up to $ 6.5 million of unused borrowings under our revolving credit note . of this cash , $ 5.6 million was held in canada . all of the amounts held in canada are intended to be indefinitely reinvested in foreign operations . the amounts held outside of the u.s. are eligible for repatriation , but under current law , would be subject to u.s. federal income taxes less applicable foreign tax credits . the company estimated at december 31 , 2012 , that an additional tax liability of $ 732,000 would become due if repatriation of undistributed earnings would occur . the amount of unused borrowings actually available under the revolving credit note varies in accordance with the terms of the agreement .
| results of operations the following table sets forth , for the periods indicated , selected financial information derived from the company 's consolidated financial statements , expressed as a percentage of total revenue and the percentage change in such items versus the prior comparable period ( please note that all columns may not add up to 100 % due to rounding ) . the trends illustrated in the following table may not necessarily be indicative of future results . the discussion that follows the table should be read in conjunction with the company 's consolidated financial statements . 20 replace_table_token_6_th year ended december 31 , 2012 , compared to year ended december 31 , 2011 revenue . revenue increased 14.1 % in 2012 to $ 86.4 million from $ 75.8 million in 2011. the increase was due to market share growth and vertical growth in the existing client base . revenue from subscription-based agreements comprised 76.0 % of the total revenue for the year ended december 31 , 2012 compared to 63.0 % of the total revenue for the year ended december 31 , 2011. direct expenses . direct expenses increased 23.7 % to $ 35.5 million in 2012 from $ 28.7 million in 2011. direct variable expenses are costs that vary with volumes and consist mainly of printing , postage , hourly labor , and contracted survey work . direct fixed expenses consist mainly of salaries and benefits , and contracted services for client service , analytical , research , and information technology development functions . the increase in variable expenses of $ 4.1 million included increased postage , labor costs , contracted survey-related costs to service the higher volume of business and conference-related expenses . the increase in fixed expenses of $ 2.7 million was due to additional staffing and related expenses in information technology development and client service functions . direct expenses increased as a percentage of revenue to 41.0 % in the year ended december 31 , 2012 , from 37.8
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other term loans with an aggregate balance of $ 2.4 million as of august 31 , 2013 and maturity dates ranging from october 2013 to february 2018. the notes payable , along with the revolving and operating lines of credit , contain certain covenants with respect to the company and various subsidiaries , the most restrictive of which , among other things , limit the ability to : incur additional indebtedness or guarantees ; pay dividends or repurchase stock ; enter into sale leaseback transactions ; story_separator_special_tag executive summary we operate in three primary business segments : manufacturing ; wheels , repair & parts ; and leasing & services . these three business segments are operationally integrated . the manufacturing segment , operating from facilities in the united states , mexico and poland , produces double-stack intermodal railcars , conventional railcars , tank cars , marine vessels and automotive railcar products . the wheels , repair & parts segment performs wheel and axle servicing ; railcar repair , refurbishment and maintenance activities ; as well as production and reconditioning of a variety of parts for the railroad industry in north america . the leasing & services segment owns approximately 8,600 railcars and provides management services for approximately 224,000 railcars for railroads , shippers , carriers , institutional investors and other leasing and transportation companies in north america . we also produce rail castings through an unconsolidated joint venture . management evaluates segment performance based on margin . multi-year supply agreements are a part of rail industry practice . customer orders may be subject to cancellations or modifications and contain terms and conditions customary in the industry . in most cases , little variation has been experienced between the quantity ordered and the quantity actually delivered . our total manufacturing backlog of railcar units as of august 31 , 2013 was approximately 14,400 units with an estimated value of $ 1.52 billion compared to 10,700 units with an estimated value of $ 1.20 billion as of august 31 , 2012. currently , the entire backlog is expected to be sold to third parties , therefore no orders in our backlog are expected to be placed into our owned lease fleet . a portion of the orders included in backlog reflects an assumed product mix . under terms of the orders , the exact mix will be determined in the future which may impact the dollar amount of backlog . our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations . subsequent to year end we received new railcar orders for 1,700 units valued at approximately $ 140 million . the new orders referenced are subject to customary documentation and completion of terms . marine backlog as of august 31 , 2013 was approximately $ 10 million compared to $ 25 million as of august 31 , 2012. in addition , during the fourth quarter of 2012 we became party to a letter of intent for 15 barges valued at $ 60 million subject to significant permitting and other conditions . during 2013 , we implemented a restructuring plan to sell or close certain wheels , repair & parts facilities to enhance margins and improve capital efficiency . restructuring charges related to this plan were $ 2.7 million ( $ 1.8 million , net of tax ) for the year ended august 31 , 2013. we anticipate we will incur additional pre-tax cash restructuring charges of about $ 2.0 - $ 3.0 million over the next 2 quarters . this range does not include future non-cash gains or losses from facilities reductions , as these are amounts are not presently determinable . the results of our annual goodwill impairment test during the third quarter of 2013 indicated that the carrying amount related to wheels , repair & parts was in excess of fair value . as a result , a non-cash impairment loss was recorded to the extent that the carrying amount of the reporting unit 's goodwill exceeded the implied fair value of that goodwill . a non-cash impairment charge of $ 76.9 million ( $ 71.8 million , net of tax ) was recorded for the year ended august 31 , 2013. after the goodwill impairment charge , a balance of $ 57.4 million remained in goodwill related to wheels , repair & parts as of august 31 , 2013. in october 2013 , the board of directors authorized our company to repurchase up to $ 50 million of our company 's common stock . under the share buyback program , shares of common stock may be purchased on the open market or through privately negotiated transactions from time-to-time . the timing and amount of purchases will be based upon market conditions , securities law limitations and other factors . the share buyback program does not obligate our company to acquire any specific number of shares in any period . the share buyback program expires april 30 , 2015 , but may be modified , suspended or discontinued at any time without prior notice . 26 the greenbrier companies 2013 annual report we operate two manufacturing facilities in sahagun , mexico , one of which we own and one which is leased . in september 2013 , we were notified by the landlord of our leased facility that the landlord does not intend to renew the lease following the expiration of the lease term in november 2014. while we continue to discuss the potential extension of the lease , we are also planning for alternatives to replace the manufacturing capacity of such facility , including potentially through expanding production capacity at our owned facility in sahagun , mexico or at other manufacturing sites . story_separator_special_tag ) $ 1.91 $ 0.24 the decrease in revenue for the year ended august 31 , 2013 was primarily the result of a lower volume of deliveries in the manufacturing segment of our business . story_separator_special_tag the increase in 2012 compared to 2011 was primarily the result of more favorable lease rates and higher rents earned on increased volumes of leased railcars for syndication , which was partially offset by the expiration of a certain management services contract in 2011. the percentage of owned units on lease as of august 31 , 2013 was 97.4 % compared to 93.5 % at august 31 , 2012 and 95.7 % at august 31 , 2011. selling and administrative selling and administrative expense was $ 103.2 million , or 5.9 % of revenue for the year ended august 31 , 2013 , $ 104.6 million , or 5.8 % of revenue for the year ended august 31 , 2012 and $ 80.3 million , or 6.5 % of revenue , for the year ended august 31 , 2011. the $ 1.4 million decrease in 2013 compared to 2012 was primarily due to a decrease in incentive compensation costs . the $ 24.3 million increase in 2012 compared to 2011 was primarily due to higher employee related costs including incentive compensation associated with increased levels of activity and profitability . in addition , the revenue-based administrative fees paid to our joint venture partner in mexico in 2012 increased due to higher activity levels . revenue-based fees paid to our joint venture partner in mexico were $ 5.9 million , $ 6.3 million and $ 3.1 million for the years ended august 31 , 2013 , 2012 and 2011. net gain on disposition of equipment net gain on disposition of equipment was $ 18.1 million , $ 9.0 million and $ 8.4 million for the years ended august 31 , 2013 , 2012 and 2011. the gain for the year ended august 31 , 2013 consists of $ 19.0 million in gains realized on the disposition of leased assets , a $ 0.6 million other gain and a $ 1.5 million loss related to the sale of certain assets from our roller bearing operation in elizabethtown , kentucky . the entire gain for the year ended august 31 , 2012 was realized on the disposition of leased assets . the gain for the year ended august 31 , 2011 consists of $ 5.1 million gain realized on the disposition of leased assets and a $ 3.3 million gain on insurance proceeds related to the january 2009 fire at one of our wheels , repair & parts facilities . the increase in gains realized on disposition of leased assets for the year ended august 31 , 2013 as compared to prior years reflect refinements of our leasing model as part of our previously announced strategic initiative to liberate capital . assets from greenbrier 's lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and manage risk and liquidity . goodwill impairment the results of our annual goodwill impairment test during the third quarter of 2013 indicated that the carrying amount related to wheels , repair & parts were in excess of fair value . as a result , a non-cash impairment loss was recorded to the extent that the carrying amount of the reporting unit 's goodwill exceeded the implied fair value of that goodwill . a non-cash impairment charge of $ 76.9 million ( $ 71.8 million , net of tax ) was recorded for the year ended august 31 , 2013. the primary drivers of the impairment charge were lower than expected operating results , changes in forecasted future results , accompanied by a reduction in observed market multiples . restructuring charges during 2013 , we implemented a restructuring plan to sell or close certain wheels , repair & parts facilities to enhance margins and improve capital efficiency . restructuring charges related to this plan totaled $ 2.7 million for the year ended august 31 , 2013 and consisted of employee related termination costs , contract termination expenses and other costs . we anticipate we will incur additional pre-tax cash restructuring charges of about $ 2.0 - $ 3.0 million over the next 2 quarters . this range does not include future non-cash gains or losses from facilities reductions , as these are amounts are not presently determinable . the greenbrier companies 2013 annual report 29 interest and foreign exchange interest and foreign exchange expense was composed of the following : ( in thousands ) years ended august 31 , increase ( decrease ) 2013 2012 interest and foreign exchange : interest and other expense $ 19,203 $ 22,474 $ ( 3,271 ) accretion of convertible debt discount 2,455 3,259 ( 804 ) foreign exchange ( gain ) loss 500 ( 924 ) 1,424 $ 22,158 $ 24,809 $ ( 2,651 ) interest and other expense decreased in 2013 from 2012 primarily due to lower interest expense on reduced levels of borrowings and benefit from interest accruals associated with uncertain tax positions that expired during the year . this was partially offset by a foreign exchange gain in the prior year and a foreign exchange loss in the current year . interest and foreign exchange expense was composed of the following : ( in thousands ) years ended august 31 , increase ( decrease ) 2012 2011 interest and foreign exchange : interest and other expense $ 22,474 $ 30,155 $ ( 7,681 ) accretion of term loan debt discount ย 3,564 ( 3,564 ) accretion of convertible debt discount 3,259 3,021 238 foreign exchange ( gain ) loss ( 924 ) 252 ( 1,176 ) $ 24,809 $ 36,992 $ ( 12,183 ) interest and other expense decreased in 2012 from 2011 primarily due to lower interest rates from refinancing certain indebtedness . in 2011 , we repaid $ 235.0 million of 8.375 % senior unsecured loans and replaced it with $ 230.0 million of 3.5 % convertible debt .
| results of operations the accounting policies of the three segments in which we operate are the same as those described in the summary of significant accounting policies . segment performance is evaluated based on margin . the company 's integrated business model results in selling and administrative costs being intertwined among the segments . currently , greenbrier 's management does not allocate these costs for either external or internal reporting purposes . overview ( in thousands ) 2013 2012 2011 revenue : manufacturing $ 1,215,734 $ 1,253,964 $ 721,102 wheels , repair & parts 469,222 481,865 452,865 leasing & services 71,462 71,887 69,323 1,756,418 1,807,716 1,243,290 margin : manufacturing 132,845 131,580 59,975 wheels , repair & parts 37,721 48,324 47,416 leasing & services 35,807 34,516 32,140 segment margin total 206,373 214,420 139,531 less unallocated items : selling and administrative 103,175 104,596 80,326 net gain on disposition of equipment ( 18,072 ) ( 8,964 ) ( 8,369 ) goodwill impairment 76,900 ย ย restructuring charges 2,719 ย ย interest and foreign exchange 22,158 24,809 36,992 loss on extinguishment of debt ย ย 15,657 earnings before income tax and earnings ( loss ) from unconsolidated affiliates 19,493 93,979 14,925 income tax expense ( 25,060 ) ( 32,393 ) ( 3,564 ) earnings ( loss ) before earnings ( loss ) from unconsolidated affiliates ( 5,567 ) 61,586 11,361 earnings ( loss ) from unconsolidated affiliates 186 ( 416 ) ( 2,974 ) net earnings ( loss ) ( 5,381 ) 61,170 8,387 net earnings attributable to noncontrolling interest ( 5,667 ) ( 2,462 ) ( 1,921 ) net earnings ( loss ) attributable to greenbrier $ ( 11,048 ) $ 58,708 $ 6,466 diluted earnings ( loss ) per common share $ ( 0.41
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aeti 's actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth in the section entitled โ risk factors โ in this form 10-k. overview our corporate structure currently consists of american electric technologies , inc. , which owns 100 % of m & i electric industries , inc. , its wholly-owned subsidiary , south coast electric systems , llc and m & i electric brazil sistemas e servicios em energia ltda ( โ m & i brazil โ ) . our foreign joint ventures are accounted for by the equity method . the company is a leading provider of power delivery solutions to the global energy industry . the principal markets that we serve include : power generation and distributionโ the company provides โ turn-key โ power delivery solutions for the power generation and distribution market sectors . the company works with turbine manufacturers , engine-generator manufacturers and dealers , epc firms , and high voltage service companies to provide electric power delivery products and solutions . the company also provides products and services for renewable power generation including biomass , geothermal and other renewable energy projects . the company designs , manufactures , commissions and maintains our equipment for implementation in base-load , peaking power , cogeneration , and substation transmission facilities worldwide . oil and gas โ the company provides โ turn-key โ power delivery solutions for the upstream , midstream and downstream oil and natural gas sectors . upstream oil and gas refers to the exploration and production of oil and natural gas . the company serves customers in the land drilling , offshore drilling , land-based production , and offshore production segments of the market . midstream oil and gas is primarily related to oil and gas transportation , including oil and gas pipelines and compression and pumping stations . the company also has a strong customer base in natural gas fractionation ( separation ) , cryo , natural gas to liquids , and other natural gas related-plants . downstream oil and gas includes oil refining and petrochemical plants , as well as liquefied natural gas ( lng ) plants , export facilities , and storage facilities . marine and industrial marine applications includes blue water vessels such as platform supply vessels ( psv ) , offshore supply vessels ( osv ) , tankers and other various work boats , typically up to 300 ft. in length . the company also provides solutions to brown water vessels such as barges , dredges and other river and inland water vessels . industrial , including non-oil and gas industrial markets such as steel , paper , heavy commercial , and other non-oil and gas applications . 15 business sectors disclosures our financial results are captured in three major market sectors . these sectors are : oil and gas ; power generation and distribution ; and marine and other industrial . the products we manufacture are consistent in application within all the sectors . this information is supplemental and provided to allow investors to follow our future trends in marketing to various customer groups . replace_table_token_3_th non-u.s. gaap financial measures a non-u.s. gaap financial measure is generally defined as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so adjusted in the most comparable u.s. gaap measure . in this report , we define and use the non-u.s. gaap financial measure ebitda as set forth below . ebitda definition of ebitda we define ebitda as follows : net income ( loss ) before : interest expense provision ( benefit ) for income taxes ; depreciation and amortization ; dividends on redeemable preferred stock ; and discontinued operations management 's use of ebitda we use ebitda to assess our overall financial and operating performance . we believe this non-u.s. gaap measure , as we have defined it , is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations . this measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance . it provides an indicator for management to determine if adjustments to current spending decisions are needed . ebitda provides us with a measure of financial performance , independent of items that are beyond the control of management in the short-term , such as dividends required on preferred stock , depreciation and amortization , taxation and interest expense associated with our capital structure . this metric measures our financial performance based on operational factors that management can impact in the short-term , namely the cost structure or expenses of the organization . ebitda is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a regular basis . ebitda is also used by research analysts and investors to evaluate the performance and value of companies in our industry . limitations of ebitda ebitda has limitations as an analytical tool . it should not be viewed in isolation or as a substitute for u.s. gaap measures of earnings . material limitations in making the adjustments to our earnings to calculate ebitda , and using this non-u.s. gaap financial measure as compared to u.s. gaap net income ( loss ) , include : the cash portion of dividends , interest expense and income tax ( benefit ) provision generally represent charges ( gains ) , which may significantly affect our financial results ; and 16 depreciation and amortization , though not directly affecting our current cash position , represent the wear and tear and or reduction in value of our fixed assets and may be indicative of future needs for capital expendi tures . an investor or potential investor may find this item important in evaluating our performance , results of operations and financial position . we use non-u.s. story_separator_special_tag however , there can be no assura nce that additional capital can be obtained or that it can be obtained at terms that are favorable to us and our existing stockholders . uses and sources of liquidity our primary need for liquidity is to fund working capital requirements of our businesses , capital expenditures and for general corporate purposes , including debt repayment . we have incurred losses and experienced negative operating cash flows for the past several years , and accordingly , the company has taken a number of actions to continue to support its operations and meet its obligations . 20 during 2016 , we undertook actions to monetize the value of certain of our assets which included disposition of the manufacturing facility and related assets in bay st. louis mississippi . during 2017 , the company refinanced its outstanding loans which at that time provided approximately $ 1.0 million of working capital . in addition , the board of directors of the company created a special committee to address strategic initiatives that include addressing liquidity . we acknowledge that we continue to face a challenging competitive environment and while we continue to focus on our overall profitability , including managing expenses , we reported a loss in 2017 and were required to fund cash used in operating activities with cash from investing and financing activities . going forward , we expect to generate additional liquidity from strategic initiatives including monetization of assets and additional debt and equity financing actions . we expect that these actions will be executed in alignment with the anticipated timing of our liquidity needs . we also continue to explore ways to unlock value across a range of assets , including exploring ways to maximize the value of our manufacturing facility in beaumont , texas . we expect to continue to optimize both international and domestic operations including expansion of our service business in brazil and diversification of our joint venture operations in china . our historical operating results indicate substantial doubt exists related to the company 's ability to continue as a going concern . however , we believe it is probable that the actions discussed above will occur and mitigate the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements . however , we can not predict , with certainty , the outcome of our actions to generate liquidity , including the availability of additional debt financing , or whether such actions would generate the expected liquidity as currently planned . in addition , the current senior secured note and redeemable preferred stock both contain certain limitations on our ability to sell assets , which could impact our ability to complete asset sale transactions or our ability to use proceeds from those transactions to fund our operations . therefore , any planned actions must take into account the ability to transact within any applicable restrictions under these agreements . if we continue to experience operating losses , and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions , while not expected , we may not be able to access additional liquidity and we might need to secure additional sources of funds , which may or may not be available to us . additionally , a failure to generate additional liquidity could negatively impact our access to materials or services that are important to the operation of our business . operating activities during the twelve months ended december 31 , 2017 , the company 's operating activities used cash of $ 0.68 million as compared to using $ 6.60 million during 2016. this was primarily the result of the net loss from operations and the timing of our billings on long-term contracts . investing activities during the twelve months ended december 31 , 2017 , the company 's investing activities provided $ 0.83 million in cash as compared to providing $ 0.17 million for the comparable period in 2016. this was primarily the result of dividends received of $ 0.78 million from the bomay joint venture and $ 0.46 million from the release of certificates of deposit pledged as collateral on a customer contract . financing activities during the twelve months ended december 31 , 2017 , the company 's financing activities provided $ 0.53 million in cash as compared to providing $ 0.03 million in the comparable period in 2016. the increase is primarily attributable to $ 0.97 million in net proceeds from the issuance of debt . liquidity we periodically evaluate our liquidity requirements , capital needs and availability of resources in view of debt requirements and operating cash needs . to meet our short and long-term liquidity requirements , we rely primarily on cash from operations . beyond cash generated from operations , the company has a shelf registration filed with the sec which permits us to issue an unspecified amount of debt or equity securities . operating lease commitments 21 the following is a schedule of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of december 31 , 2017 : replace_table_token_9_th contractual obligations payments due under contractual obligations other than leases at december 31 , 2017 are as follows : replace_table_token_10_th interest is estimated based on the current rate of approximately 11.50 % . outlook for fiscal 2018 although the global energy market experienced a significant decline in 2015 and 2016 due to reduced oil prices , 2017 saw the beginnings of a market recovery that the company believes has the potential to continue in 2018. first , the company believes the availability of low cost natural gas in the united states is a big growth driver .
| results of operations the table below summarizes our consolidated net sales and profitability for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : operations replace_table_token_7_th year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue and gross profit revenue increased 25 % , or $ 9.32 million , to $ 46.13 million for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. this growth was driven by the company 's continued sales progress in penetrating the midstream and downstream oil and gas market and increased orders for the company 's intellsafe medium voltage arc-resistant switchgear . the company 's operations in beaumont were temporarily idled as a result of hurricane harvey with an estimated $ 2.45 million revenue negative impact in the third quarter of 2017. gross profit increased 139 % , or $ 1.41 million , to $ 2.43 million for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. gross profit as a percentage of revenues increased to 5 % for the year ended december 31 , 2017 , compared to 3 % for the year ended december 31 , 2016. this increase was primarily attributable to the corresponding increase in revenue for the period . the company 's operations in beaumont were temporarily idled as a result of hurricane harvey , which negatively impacted revenues by an estimated $ 0.49 million in reduced gross profit .
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in march 2013 , the fasb issued asu no . 2013-05 , ยparent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entityย ( ยasu 2013-05ย ) . the asu clarifies that when a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business ( other than a sale of in substance real estate or conveyance of oil and gas mineral rights ) within a foreign entity , the parent is required to apply the guidance in accounting standards codification 830-30 to release any related cumulative translation adjustment into net income . the asu provides that the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided . the amendments take effect prospectively for public companies for fiscal years beginning after december 15 , 2013 , and interim reporting periods within those years . management does not expect the adoption of this standard will have a significant effect on the company 's consolidated financial position or results of operations . in march 2013 , the fasb issued asu no . 2013-07 , ยliquidation basis of accountingย ( ยasu 2013-07ย ) . the asu requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent . liquidation would be considered imminent when the likelihood is remote that the reporting entity would return from liquidation and either : ( a ) a plan for liquidation has been approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or the entity will return from liquidation , or ( b ) story_separator_special_tag overview we are an integrated food manufacturing company headquartered in shandong province , china . we develop , manufacture and sell the following types of food products : chestnut products , convenience foods ( including ready-to-cook , or rtc , foods , ready-to-eat , or rte , foods and meals ready-to-eat , or mre ) ; and frozen food products . we conduct our production activities in china . our products are sold in the chinese domestic markets as well as exported to foreign countries and regions such as japan , south korea and europe . we believe that we are the largest chestnut processor and manufacturer in china . we have developed brand equity for our chestnut products in china , japan and south korea over the past 10 to 15 years . we produced 58 high value-added chestnut products in 2013. we derive most of our revenues from sales in china , japan and south korea . in 2014 , our primary strategy is to continue building our brand recognition in china through consistent marketing efforts towards supermarkets , wholesalers , and significant customers , enhancing the cooperation with other manufacturers and factories , and enhancing the turnover for our existing chestnut , convenience and frozen food products . in addition , we are working to expand our marketing efforts in asia , europe and the middle east . we currently have limited sales and marketing activity in the united states , although our long-term plan is to significantly expand our activities there . production factors that affect our financial and operational condition our business depends on obtaining a reliable supply of various agricultural products , including chestnuts , vegetables , fruits , red meat , fish , eggs , rice , flour and packaging products . during 2013 , the cost of our raw materials decreased from $ 145,460,250 to $ 141,159,775 , for a decrease of approximately 3.0 % . we may have to increase the number of our suppliers of raw materials and expand our own agricultural operations in the future to meet growing production demands . despite our efforts to control our supply of raw materials and maintain good relationships with our suppliers , we could lose one or more of our suppliers at any time . the loss of several suppliers may be difficult to replace and could increase our reliance on higher cost or lower quality suppliers , which could negatively affect our profitability . in addition , if we have to increase the number of our suppliers of raw materials in the future to meet growing production demands , we may not be able to locate new suppliers who could provide us with sufficient materials to meet our needs . any interruptions to , or decline in , the amount or quality of our raw materials supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects . the average price that we paid for chestnuts in 2013 and 2012 was approximately $ 1,507 metric ton and $ 1,433 per metric ton , respectively , excluding value added taxes . in the past few years , increasing inflation pressures weighed on the chinese economy which reflected on agricultural product prices . we do not have effective means and do not currently hedge against changes in our raw material prices . consequently , if the costs of our raw materials increase further and we are unable to offset these increases by raising the prices of our products , our profit margins and financial condition could be adversely affected . 26 uncertainties that affect our financial condition we spend a significant amount of cash on our operations , principally to procure raw materials for our products . story_separator_special_tag if the note is not converted pursuant to the terms of the note , additional interest on the outstanding principal amount shall accrue at a rate of 4.5 % per annum and payable at the maturity of the note . unless the note is otherwise accelerated or converted , the unpaid principal amount of the note , together with all accrued but unpaid interest , is due and payable , at the election of the investor , on september 13 , 2014 or march 13 , 2015 ( ยmaturity dateย ) , provided , however , if the investor fails to notify the company in writing by august 13 , 2014 that it elects the maturity date of september 13 , 2014 , then the maturity date will be extended to march 13 , 2015. in addition , under the terms of the note , at any time commencing on or after september 13 , 2014 and before march 13 , 2015 , the investor may convert in whole or in part the outstanding principal amount into a number of shares of our common stock of the company on a per share conversion price of $ 1.15 , as may be adjusted from time to time pursuant to the terms and conditions of the note ( ยconversion priceย ) ; provided , however , the company will not effect any conversion of the note , and the investor will not have the right to convert any portion of the note , to the extent ( but only to the extent ) that the holder would beneficially own in excess of the beneficial ownership limitation ( as defined below ) , which beneficial ownership will be calculated in accordance with section 13 ( d ) of the securities exchange act of 1934 , as amended . the ยbeneficial ownership limitationย is 9.99 % of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of the note . the note is secured by the personal guarantee of si chen , our chief executive officer and chairman . story_separator_special_tag is reasonably possible that these assets could become impaired as a result of technology or other industry changes . determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . during the reporting years , there was no impairment loss . revenue recognition -- our revenue recognition policies are in compliance with staff accounting bulletin ( sab ) 104. sales revenue is recognized at the date of shipment to customers when a formal arrangement exists , the price is fixed or determinable , the delivery is completed , we have no other significant obligations and collectability is reasonably assured . payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue . our revenue consists of invoiced value of goods , net of a value-added tax ( vat ) . no product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered . 33 we believe that when custody and title of goods has been passed to our customers , or third party transporters , revenue is recognized . our industry does not call for revenue recognition under multiple deliverable arrangements . financial instruments our financial instruments are cash and cash equivalents , accounts receivable , other receivable , advances to suppliers , advances to employees , bank loans and notes , accounts payable , other payable , accrued liabilities , and long-term liabilities . the recorded values of cash and cash equivalents , accounts receivable , other receivable , advances to suppliers , advances to employees , bank loans and notes , accounts payable , other payable , and accrued liabilities approximate their fair values based on their short-term nature . the recorded values of long-term liabilities approximate their fair values , as interest approximates market rates . we have the accounting policy regarding financial instruments for our financial statements in 2013 and 2012. we consider it critical because our business is becoming more global in nature and the use of fair value for financial instruments has been widely adopted by accounting bodies around the globe . with financial statements that are widely accepted and comparable in many jurisdictions we will have greater access to capital locally . recent accounting pronouncements in january 2013 , the fasb issued asu no . 2013-01 , ยclarifying the scope of disclosures about offsetting assets and liabilitiesย ( ยasu 2013-01ย ) . the update clarifies that ordinary trade receivables and receivables are not in the scope of accounting standards update no . 2011-11 , balance sheet ( topic 210 ) : disclosures about offsetting assets and liabilities . specifically , update 2011-11 applies only to derivatives , repurchase agreements and reverse purchase agreements , and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in fasb accounting standards codificationยฎ or subject to a master netting arrangement or similar agreement . the amendments in this update are effective for fiscal years , and interim periods within those years , beginning on or after january 1 , 2013. management does not expect the adoption of this standard has a significant effect on the company 's consolidated financial position or results of operations .
| results of operations the following tables set forth key components of our results of operations for the periods indicated , and the differences between the two periods expressed in dollars and percentages . replace_table_token_4_th 28 year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue net revenues . net revenues decreased by $ 24.4 million , or approximately 10.2 % , to $ 215.3 million in 2013 from $ 239.7 million in 2012. this decrease was attributable to the decreased revenues from sales of our chestnut and convenience food products , as reflected in the following table : replace_table_token_5_th the decrease in revenue was due to decrease in both our chinese domestic sales and exports . revenues from sales in the chinese domestic market decreased by approximately $ 12.0 million , or approximately 7.0 % , in 2013. as a percentage of total revenues , revenues from sales in the domestic prc market increased slightly to approximately 73.8 % from approximately 71.3 % in 2012. in addition , in 2013 , revenues from international sales to japan , south korea , united kingdom , and belgium as well as other countries decreased , in the aggregate , approximately $ 12.4 million , or 18.0 % , compared to 2012. see note 15 to the financial statements contained in this report for more information on the breakdown of our sales pursuant to geographic region . cost of revenues .
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the company uses the simplified method to estimate the expected term of the options , but used an estimate for grants of `` plain vanilla `` story_separator_special_tag the following discussion is intended to assist in the assessment of significant changes and trends related to our results of operations and financial condition . the information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this report . readers should 14 also review and consider our disclosures under the heading `` special note regarding forward-looking statements '' describing various factors that could affect our business and the disclosures under the heading `` risk factors '' in this report . note that all dollar amounts in this item 7 are in thousands of u.s. dollars , except share and per share data . in 2014 , our board of directors approved a change in our fiscal year , from a fiscal year ending on december 31 of each calendar year to a fiscal year ending on the saturday closest to december 31 of each calendar year . this change is effective with the 2014 fiscal year . as a result our 2014 fiscal year ended on january 3 , 2015. the change in fiscal year did not have a material impact on our results for fiscal 2014 and did not materially impact the comparison of fiscal 2014 results to fiscal 2013 results discussed below . for purposes of this discussion , fiscal 2014 means the fiscal year ended january 3 , 2015 , fiscal 2013 means the fiscal year ended december 31 , 2013. overview we are a premier juvenile products company originally founded in 1985 and have publicly traded on the nasdaq stock market since 2007 under the symbol `` sumr . '' we create branded juvenile health , safety and wellness products ( targeted for ages 0-3 years ) that are intended to deliver a diverse range of parenting solutions to families . we focus on providing innovative products to meet the `` on-the-go '' lifestyle and demands of families who seek more opportunities to connect with their children . we operate in one principal industry segment across geographically diverse marketplaces , selling our products globally to large , national retailers as well as independent retailers , and on the internet through third-party websites and our own corporate website . in north america , our customers include babies r us , wal-mart , target , amazon.com , buy buy baby , burlington coat factory , kmart , home depot , and lowe 's . our largest european-based customers are mothercare , toys r us , argos and tesco . we also sell through international distributors , representatives , and to select international retail customers in geographic locations where we do not have a direct sales presence . the juvenile products industry is estimated to be a $ 20 billion market worldwide , and consumer focus is on quality , safety , innovation , and style . due to the halo effect of baby products in retail stores , there is a strong retailer commitment to the juvenile category . we believe we are positioned to capitalize on positive market trends in the juvenile products industry , including a predicted increase in u.s. birth rates over the next several years . fiscal 2014 was a transformative year for our company . we made several changes in executive leadership , including the appointment of carol e. bramson , a member of our board of directors , as our chief executive officer in february 2014. we also added several key members to our senior management team during 2014 , including ken price as our president of global sales , ronald t. cardone as our senior vice president , information technology , and anna dooley joined us as senior vice president of product development . in late 2014 , william e. mote , jr. was appointed our chief financial officer and in march 2015 , we announced the appointment of robert stebenne as our president and chief operating officer . in addition , we substantially completed the process of exiting our licensing arrangements with disneyยฎ and cartersยฎ begun in 2013 to focus on building our own summerยฎ , swaddlemeยฎ , and born freeยฎ branded products . as a result of exiting these arrangements , net sales in fiscal 2014 were lower than fiscal 2013 while gross profit increased in fiscal 2014 , reflecting the benefit of decreased sales of lower margin licensed , closeout and promotional product sales in fiscal 2014 as compared to fiscal 2013. in april 2014 , we announced a voluntary recall of rechargeable batteries in certain of our handheld video monitors . costs associated with the recall were approximately $ 300 , including shared costs from 15 our monitor manufacturer . the shared costs were taken as a charge to our cost of goods sold in the first quarter of 2014. we do not expect the recall to have a significant effect on 2015. in 2014 , we introduced several new products , including our pop ' n play portable playard , 3d liteย convenience strollers and bottle geniusย formula dispenser . we also launched homesafe by summer , a line of home safety products , and in late 2014 , we announced our co-branded partnership with little meยฎ , a premier newborn and infant clothing brand . the new co-branded product line is expected to launch in mid-2015 and provides us with the opportunity to broaden the presence of the swaddlemeยฎ brand into high-end department stores and premium specialty retailers . in addition , in 2015 we plan to launch our wifi 3.0 monitor and to expand on our success with the 3d lite convenience stroller . we expect to continue to execute on our growth strategy in 2015 by continuing to offer innovative products and to build upon consumer recognition of the summerยฎ , swaddlemeยฎ , and born freeยฎ brands . story_separator_special_tag if an intangible asset that is not being amortized is subsequently determined to have a finite useful life , it is amortized prospectively over its estimated remaining useful life . 17 income taxes income taxes are computed using the asset and liability method of accounting . under the asset and liability method , a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry forwards . the measurement of deferred income tax assets is adjusted by a valuation allowance , if necessary , to recognize future tax benefits only to the extent , based on available evidence ; it is more likely than not that such benefit will be realized . we recognize interest and penalties , if any , related to uncertain tax positions in interest expense . no interest and penalties related to uncertain tax positions were accrued at january 3 , 2015. all audit adjustments have been recorded without significant impact on our results of operations . on a global basis , the open tax years subject to examination by major taxing jurisdictions in which we operate is between two to six years . story_separator_special_tag style= '' padding:0pt ; position : relative ; width:80 % ; margin-left:10 % ; '' > replace_table_token_3_th estimated future interest payments on our line of credit were based upon the interest rates in effect at january 3 , 2015. capital resources in addition to operating cash flow , we also rely on our existing asset-based revolving credit facility with bank of america , n.a . to meet our financing requirements , which are subject to changes in our inventory and account receivable levels . we regularly evaluate market conditions , our liquidity profile , and various financing alternatives for opportunities to enhance our capital structure . if market conditions are favorable , we may refinance our existing debt or issue additional securities . based on past performance and current expectations , we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital , capital expenditures and debt service requirements for at least the next 12 months . however , if we are unable to meet our current financial forecast and can not raise additional funds or adjust our operations accordingly , we may not remain in compliance with the financial covenants required under our revolving credit facility . unforeseen circumstances , such as softness in the retail industry or deterioration in the business of a significant customer , could create a situation where we can not access all of our available lines of credit due to not having sufficient assets or fixed charge coverage ratio as required under our credit facility . there is no assurance that we will meet all of our financial or other covenants in the future , or that our lenders will grant waivers if there are covenant violations . in addition , should we need to raise additional funds through additional debt or equity financings , any sale of additional debt or equity securities may cause dilution to existing stockholders . if sufficient funds are not available or are not available on acceptable terms , our ability to address any unexpected changes in our operations could be limited . furthermore , there can be no assurance that we will be able to raise such funds if and when they are required . failure to obtain future funding when needed or on acceptable terms could materially adversely affect our results of operations . 20 credit facility the following is a summary of our existing credit facility . additional information about the credit facility may be found in note 4 to our consolidated financial statements included in this report . on february 28 , 2013 , we , along with our subsidiary , summer infant ( usa ) , inc. , entered into a new loan and security agreement with bank of america , n.a . to provide an $ 80,000 , asset-based revolving credit facility ( as subsequently amended , the `` bofa agreement '' ) . the bofa agreement replaced our prior credit facility with bank of america , which was set to expire in december 2013. in conjunction with our entry into the bofa agreement , we also entered into a term loan agreement with salus capital partners , which is described below under the heading `` term loan . '' the bofa agreement provides for an $ 80,000 , asset-based revolving credit facility , with a $ 10,000 letter of credit sub-line facility . the total borrowing capacity is based on a borrowing base , which is defined as 85 % of our eligible accounts receivable plus the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory , less reserves . the scheduled maturity date of loans under the bofa agreement is february 28 , 2018 , subject to customary early termination provisions . all obligations under the bofa agreement are secured by substantially all of our assets , subject to a first priority lien on certain assets held by the term loan lender described below . in addition , summer infant canada limited and summer infant europe limited , our subsidiaries , are guarantors under the bofa agreement . proceeds from the loans under the bofa agreement were used to satisfy existing debt , pay fees and transaction expenses associated with the closing of the bofa agreement , pay obligations under the prior bofa agreement , and were used to make payments on the term loan and for other general corporate purposes , including working capital . loans under the bofa agreement bear interest , at our option , at a base rate or at libor , plus applicable margins based on average quarterly availability under the bofa agreement and ranging between 1.75 % and 2.25 % on libor borrowings and 0.25 % and 0.75 % on base rate borrowings .
| results of operations the following table presents selected condensed consolidated financial information for our company for the years ended january 3 , 2015 ( `` fiscal year 2014 '' ) and december 31 , 2013 ( `` fiscal year 2013 '' ) . replace_table_token_2_th fiscal year 2014 compared with fiscal year 2013 net sales declined 1.4 % from $ 208,173 for fiscal 2013 to $ 205,359 for fiscal year 2014. the decline was primarily attributable to our having exited licensing arrangements with disneyยฎ and cartersยฎ in 2013 and early 2014 to focus on building our own branded products of summerยฎ , swaddlemeยฎ , and born freeยฎ in fiscal 2014 and lower closeout sales in fiscal 2014. excluding $ 16.9 million and $ 0.6 million of sales related to our exit of the disneyยฎ and cartersยฎ licensing arrangements in fiscal 2013 and 2014 , respectively , 2014 net sales increased 5.3 % . gross profit increased 3.0 % from $ 65,007 for fiscal year 2013 to $ 66,941 for fiscal year 2014 , and gross margin increased from 31.2 % for fiscal year 2013 to 32.6 % for fiscal year 2014. the increase in gross profit and 140 basis point improvement in gross margin was due to a favorable mix of higher margin products sold , partially offset by the effect of the voluntary battery recall announced in the second quarter of fiscal year 2014 and inventory charges related to product categories to be phased out . excluding $ 300 relating to the battery recall and $ 617 of nonrecurring inventory charges related to exiting our licensing arrangements in fiscal year 2014 , gross margin was 33.0 % .
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in may 2014 , the fasb issued story_separator_special_tag the following discussion and analysis of our financial condition and results of operations includes statements regarding industry outlook , our expectations regarding the performance of our business and other forward-looking statements within the meaning of the private securities litigation reform act of 1995 that are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in `` non-gaap financial measures , '' and `` forward-looking statements '' as well as `` risk factors '' in this annual report on form 10-k. these statements include those that are related to estimates reflected in our financial results as well as management 's plan and outlook . our actual results may differ materially from those contained in or implied by any forward-looking statements . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k , as well as the information presented under part ii , item 6 , `` selected financial data '' of this annual report on form 10-k. forward-looking statements many statements made in this annual report on form 10-k that are not statements of historical fact , including statements about our beliefs and expectations , are `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 , as amended ( the `` securities act '' ) and should be evaluated as such . forward-looking statements include information concerning possible or assumed future results of operations , including descriptions of our business plan and strategies . these statements often include words such as `` anticipate , '' `` expect , '' `` suggests , '' `` plan , '' `` believe , '' `` intend , '' `` estimates , '' `` targets , '' `` projects , '' `` should , '' `` could , '' `` would , '' `` may , '' `` will , '' `` forecast '' and other similar expressions . we base these forward-looking statements or projections on our current expectations , plans and assumptions that we have made in light of our experience in the industry , as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate under the circumstances and at such time . as you read and consider this annual report on form 10-k , you should understand that these statements are not guarantees of performance or results . the forward-looking statements and projections are subject to and involve risks , uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections . although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made , you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections . factors that may materially affect such forward-looking statements and projections include : adverse developments in economic conditions and , particularly , in conditions in the automotive and transportation industries ; volatility in the capital , credit and commodities markets ; our inability to successfully execute on our growth strategy ; increased competition ; weather conditions that may temporarily reduce the demand for some of our products ; reduced demand for some of our products as a result of improved safety features on vehicles and insurance company influence ; risks of the loss of any of our significant customers or the consolidation of msos , distributors and or body shops ; our reliance on our distributor network and third-party delivery services for the distribution and export of certain of our products ; price increases or interruptions in our supply of raw materials ; failure to develop and market new products and manage product life cycles ; business disruptions , security threats and security breaches , including cyber security risks ; risks associated with our non-u.s. operations , including our venezuelan operations ; currency-related risks ; terrorist acts , conflicts , wars and natural disasters that may materially adversely affect our business , financial condition and results of operations ; failure to comply with the anti-corruption laws of the united states and various international jurisdictions ; 37 failure to comply with anti-terrorism laws and regulations and applicable trade embargoes ; significant environmental liabilities and costs as a result of our current and past operations or products , including operations or products related to our business prior to the acquisition ; transporting certain materials that are inherently hazardous due to their toxic nature ; litigation and other commitments and contingencies ; ability to recruit and retain the experienced and skilled personnel we need to compete ; unexpected liabilities under any pension plans applicable to our employees ; work stoppages , union negotiations , labor disputes and other matters associated with our labor force ; our ability to protect and enforce intellectual property rights ; intellectual property infringement suits against us by third parties ; our ability to realize the anticipated benefits of any acquisitions and divestitures ; our joint ventures ' ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations ; risk that the insurance we maintain may not fully cover all potential exposures ; the risk of impairment charges related to goodwill , identifiable intangible assets and fixed assets ; our substantial indebtedness ; our ability to obtain additional capital on commercially reasonable terms may be limited ; the amount of the costs , fees , expenses and charges related to being a public company ; any statements of belief and any statements of assumptions underlying any of the foregoing ; other factors disclosed in this annual report on form 10-k ; and other factors beyond our control . story_separator_special_tag our overall net sales are generally impacted by the following factors : fluctuations in overall economic activity within the geographic markets in which we operate ; underlying growth in one or more of our end-markets , either worldwide or in particular geographies in which we operate ; the type of products used within existing customer applications , or the development of new applications requiring products similar to ours ; changes in product sales prices ( including volume discounts and cash discounts for prompt payment ) ; changes in the level of competition faced by our products , including price competition and the launch of new products by competitors ; our ability to successfully develop and launch new products and applications ; and fluctuations in foreign exchange rates . while the factors described above impact net sales in each of our operating segments , the impact of these factors on our operating segments can differ , as described below . for more information about risks relating to our business , see part i , item 1a , `` risk factorsโrisks related to our business . '' other revenue other revenue consists primarily of consulting and other service revenue and royalty income . cost of goods sold ( `` cost of sales '' ) our cost of sales consists principally of the following : production materials costs . we purchase a significant amount of the materials used in production on a global lowest-cost basis . employee costs . these include the compensation and benefit costs for employees involved in our manufacturing operations . these costs generally increase on an aggregate basis as production volumes increase and may decline as a percent of net sales as a result of economies of scale associated with higher production volumes . depreciation expense . property , plant and equipment are stated at cost and depreciated or amortized on a straight-line basis over their estimated useful lives . property , plant and equipment acquired through the acquisition were recorded at their estimated fair value on the acquisition date resulting in a new cost basis for accounting purposes . other . our remaining cost of sales consists of freight costs , warehousing expenses , purchasing costs , costs associated with closing or idling of production facilities , functional costs supporting manufacturing , product claims and other general manufacturing expenses , such as expenses for utilities and energy consumption . the main factors that influence our cost of goods sold as a percentage of net sales include : changes in the price of raw materials ; production volumes ; the implementation of cost control measures aimed at improving productivity , including reduction of fixed production costs , refinements in inventory management and the coordination of purchasing within each subsidiary and at the business level ; and fluctuations in foreign exchange rates . 40 selling , general and administrative expenses our selling , general and administrative expense consists of all expenditures incurred in connection with the sales and marketing of our products , as well as administrative overhead costs , including : compensation and benefit costs for management , sales personnel and administrative staff , including share-based compensation expense . expenses relating to our sales personnel increase or decrease principally with changes in sales volume due to the need to increase or decrease sales personnel to meet changes in demand . expenses relating to administrative personnel generally do not increase or decrease directly with changes in sales volume ; and depreciation , advertising and other selling expenses , such as expenses incurred in connection with travel and communications . changes in selling , general and administrative expense as a percentage of net sales have historically been impacted by a number of factors , including : changes in sales volume , as higher volumes enable us to spread the fixed portion of our administrative expense over higher sales ; changes in our customer base , as new customers may require different levels of sales and marketing attention ; new product launches in existing and new markets , as these launches typically involve a more intense sales activity before they are integrated into customer applications ; customer credit issues requiring increases to the allowance for doubtful accounts ; and fluctuations in foreign exchange rates . research and development expenses research and development expense represents costs incurred to develop new products , services , processes and technologies or to generate improvements to existing products or processes . interest expense , net interest expense , net consists primarily of interest expense on institutional borrowings and other financing obligations and changes in fair value of interest rate derivative instruments , net of capitalized interest expense . interest expense , net also includes the amortization of debt issuance costs and debt discounts associated with our senior secured credit facilities and other indebtedness . other expense , net other expense , net represents costs incurred , net of income , on various non-operational items including costs incurred in conjunction with our debt refinancing and extinguishment transactions , historical management expenses to carlyle ( prior to the change in control as defined herein ) , indemnity gains and losses associated with the acquisition ( as defined herein ) , as well as foreign exchange gains and losses and impairment losses on assets that are not part of our core operational activities . provision for income taxes we and our subsidiaries are subject to income tax in the various jurisdictions in which we operate . while the extent of our future tax liability is uncertain , changes to the debt and equity capitalization of our subsidiaries , and the realignment of the functions performed and risks assumed by the various subsidiaries are among the factors that will determine the future book and taxable income of the respective subsidiary and the company as a whole . non-gaap financial measures reconciliation of net income to ebitda and adjusted ebitda to supplement our financial information presented in accordance with u.s. gaap , we use the following non-gaap financial measures to clarify and enhance an understanding of past performance : ebitda and adjusted ebitda .
| segment results year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table presents net sales by segment and segment adjusted ebitda for the following periods : replace_table_token_8_th performance coatings segment net sales increased $ 18.1 million , or 0.8 % , to $ 2,403.2 million for the year ended december 31 , 2016 compared to net sales of $ 2,385.1 million for the year ended december 31 , 2015 . the increase in net sales for the year ended december 31 , 2016 was a result of higher average selling prices and volumes which contributed 3.8 % and 2.8 % , respectively . contributions from price included a stronger product mix which was driven by our north america and latin america regions . volume growth in both our refinish and industrial end-markets included a 3.2 % benefit from our acquisitions , slightly offset by the negative volume contribution from latin america . these increases were partially offset by the unfavorable impacts of weakening currencies across all regions , which contributed to a 5.8 % reduction in net sales . adjusted ebitda increased $ 15.3 million , or 2.8 % , to $ 554.4 million for the year ended december 31 , 2016 compared to adjusted ebitda of $ 539.1 million for the year ended december 31 , 2015 . the increase in adjusted ebitda for the year ended december 31 , 2016 was primarily driven by higher average selling prices , primarily in our refinish end-market , increases in sales volumes in both end-markets combined with lower variable costs across all regions and the impacts related to our recent acquisitions . offsetting this increase were unfavorable impacts of currency exchange across all regions , due mainly to the weakening of certain currencies within latin america compared to the u.s. dollar .
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based on the company 's previous assessment that it story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading ยrisk factors.ย please refer to our ยforward-looking statementsย section on page 49. overview background we are a leading provider of specialized online content that helps buyers of corporate it products and services , and a leading provider of marketing services for the sellers of those solutions . our offerings enable it vendors to identify , reach and influence corporate it decision makers who are actively researching specific it purchases . we do this through customized marketing programs that include data analytics-driven intelligence solutions , demand generation and brand advertising . it professionals have become increasingly specialized , and rely on our network of over 150 websites , each of which focuses on a specific it sector such as storage , security or networking , for key decision support information tailored to their specific areas of responsibility . we enable it professionals to navigate the complex and rapidly-changing it landscape where purchasing decisions can have significant financial and operational consequences . our content strategy includes three primary sources which it professionals use to assist them in their pre-purchase research : independent content provided by our professionals , vendor-generated content provided by our customers and user-generated , or peer-to-peer , content . in addition to utilizing our independent content , registered members are able to conduct their pre-purchase research by accessing extensive vendor content across our network of websites . our network of websites also allows users to seamlessly interact and contribute content , which is highly valued by it professionals during their research process . we had approximately 16.9 million and 15.3 million registered members as of december 31 , 2015 and 2014 , respectively . the size of our registered user base does not provide direct insight into the number of our customers or our revenues but it does provide context as to the breadth and reach of our content footprint , which our customers leverage through customized marketing programs . the targeted nature of our user base enables it vendors to reach a specialized audience efficiently because our content is highly segmented and aligned with the it vendors ' specific products . we have developed a broad customer base , and we delivered advertising campaigns to approximately 1,400 customers in 2015. story_separator_special_tag width= '' 100 % '' > it deal alert : deal data . deal data is a customized solution aimed at sales intelligence and data scientist functions within our customers that makes our activity intelligence data directly consumable by the customer 's internal applications . it deal alert : techtarget research . techtarget research is a newly launched subscription product that sources proprietary information about purchase transactions from it professionals who are making and have recently completed these purchases . the offering provides data on market trends , pricing dynamics and vendor win/loss and displacement trends . core online . our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to generate demand for their solutions , and through display advertising and other brand programs that influence consideration by prospective buyers . demand solutions . our suite of demand solutions offerings allows it vendors to maximize roi by capturing qualified sales leads from the distribution and promotion of content to our audience of it professionals . all of our demand solutions campaigns offer the activity intelligence dashboard , a technology platform that gives our customers ' marketers and sales representatives a real-time view of their prospects , which includes insights on the research activities of technology buying teams , including at an account level . demand solutions offerings may also include an additional service , techtarget re-engage , which helps both technology marketers and their sales teams to identify highly active prospects , detect emerging projects , retarget interested buying teams , and accelerate engagement with specific accounts . our demand solutions offerings may also include the following program components : white papers . white papers are technical documents created by it vendors to describe business or technical problems which are addressed by the vendors ' products or services . in a program that includes demand solutions , we post white papers on our relevant websites and our users receive targeted promotions about these content assets . prior to viewing white papers , our registered members 40 and visitors supply their corporate contact information and agree to receive further information from the vendor . the corporate contact and other qualification information for these leads are supplied to the vendor in real time through our proprietary lead management software . webcasts , podcasts , videocasts and virtual trade shows . webcasts , podcasts , videocasts , virtual trade shows and similar content bring informational sessions directly to attendees ' desktops and mobile devices . as is the case with white papers , our users supply their corporate contact and qualification information to the webcast , podcast , videocast or virtual trade show sponsor when they view or download the content . sponsorship includes access to the registrant information and visibility before , during and after the event . content sponsorships . it vendors , or groups of vendors , pay us to sponsor independent editorially created content vehicles on specific technology topics where the registrant information is then provided to all participating sponsors . in some cases , these vehicles are supported by multiple sponsors in a single segment , with the registrant information provided to all participating sponsors . story_separator_special_tag other income ( expense ) , net consists of non-operating gains or losses , primarily related to foreign currency exchange . application of critical accounting policies and use of estimates the discussion 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 u.s. the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amount of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue , long-lived assets , goodwill , allowance for doubtful accounts , stock-based compensation , contingent liabilities , self-insurance accruals and income taxes . we based our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable . in some cases , changes in the accounting estimates are reasonably likely to occur from period to period . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements . see the notes to our consolidated financial statements for information about these critical accounting policies as well as a description of our other accounting policies . revenue recognition we generate substantially all of our revenues from the sale of targeted advertising campaigns , which we deliver via our network of websites , data analytics solutions , and events . in all cases , we recognize revenue only when the price is fixed or determinable , persuasive evidence of an arrangement exists , the service is performed and collectability of the resulting receivable is reasonably assured . although each of our online media offerings can be sold separately , most of our online media sales involve multiple online offerings . because objective evidence of fair value does not exist for all elements in our bundled product offerings , we use a best estimate of selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of fair value . we establish best 43 estimates considering multiple factors including , but not limited to , class of client , size of transaction , available media inventory , pricing strategies and market conditions . we believe the use of the best estimate of selling price allows revenue recognition in a manner consistent with the underlying economics of the transaction . we apply a relative selling price method to allocate arrangement consideration at the inception of the arrangement to each deliverable in a multiple element arrangement . revenue is then recognized as delivery occurs . we evaluate all deliverables of an arrangement at inception and each time an item is delivered , to determine whether they represent separate units of accounting . based on this evaluation , the arrangement consideration is measured and allocated to each of these elements . online offerings it deal alert . it deal alert is a suite of products and services for it which includes qualified sales opportunities , priority engine , deal data and techtarget research . qualified sales opportunities revenue is recognized when the qualified sales opportunity is delivered to the customer , priority engine revenue is recognized ratably over the duration of the service , deal data revenue is recognized upon delivery of the data to the customer and research revenue is recognized when the product is delivered . core online . our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to generate demand for their solutions , and through display advertising and other brand programs that influence consideration by prospective buyers . demand solutions . as part of our demand solutions campaign offerings , we may guarantee a minimum number of qualified leads to be delivered over the course of the campaign . we determine the content necessary to achieve performance guarantees . scheduled end dates of campaigns sometimes need to be extended , pursuant to the terms of the arrangement , to satisfy lead guarantee obligations . we estimate a revenue reserve necessary to adjust revenue recognition for extended campaigns . these estimates are based on our experience in managing and fulfilling these offerings . the customer has cancellation privileges which generally require advance notice by the customer and require proportional payment by the customer for the portion of the campaign period that has been provided . additionally , we offer sales incentives to certain customers , primarily in the form of volume rebates , which are classified as a reduction of revenues and are calculated based on the terms of the specific customer 's contract . we accrue for these sales incentives based on contractual terms and historical experience . we recognize revenue from cost per lead advertising during the period in which leads are delivered to our customers and from duration-based campaigns over the duration of the campaign , which is typically less than six months . brand solutions . brand solutions consist mostly of banner revenue , which is recognized in the period in which the banner impressions , engagements or clicks occur and microsite revenue , which is recognized over the period during which the microsites are live . custom content . custom content revenue is recognized when the creation is completed and delivered to the customer . events we recognize revenue from events in the period in which the event occurs . the majority of our events are free to qualified attendees ; however , certain events are based on a paid attendee model . we recognize revenue for paid attendee events upon completion of the event . amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue .
| executive summary our revenues for the year ended december 31 , 2015 grew approximately 5 % , to $ 111.8 million , compared with the same period in 2014. online revenues grew 8 % over the prior year , driven primarily by growth in the it deal alert offerings . despite headwinds caused by the strong u.s. dollar , online international geo-targeted revenues , where our target audience is outside north america ( ยinternationalย ) grew 12 % compared to the prior year , again driven primarily by it deal alert sales . overall , it deal alert sales grew 38 % in 2015 as compared with 2014. in addition , our international business continues to benefit from the shift to online tools from traditional print sources by it professionals . 38 gross margin was 73 % and 74 % for the years ended december 2015 and 2014 , respectively . online gross profit increased by $ 5.6 million , primarily attributable to the increase in online revenues as compared to the same period a year ago . events gross profit decreased by $ 1.9 million , primarily as a result of the lower events revenues as compared to the same period in the prior year . we ended 2015 with adjusted ebitda of $ 24.5 million , which is up 14 % from 2014. this growth is primarily driven by the increased revenues as described above . adjusted ebitda , a non-gaap financial measure , is described further in item 6 , selected financial data . due to the impact of the strong u.s. dollar on foreign currency , our large multi-national customers , who generate a significant amount of their revenues outside the u.s. , continue to be cautious . in the year ended december 31 , 2015 , online revenues from our top 12 global customers , which have the most international exposure , decreased slightly compared to the same period a year ago .
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in addition to historical information , the following discussion and analysis includes forward looking statements that involve risks , uncertainties and assumptions . our actual results and the timing of events could differ materially from those anticipated in these forward looking statements as a result of a variety of factors , including those discussed in โ risk factors โ and elsewhere in this annual report . see the discussion under โ forward looking statements โ beginning on page 1 of this annual report . overview we are engaged in the design , manufacture , marketing and sale of wearable display devices also referred to as head mounted displays ( or hmds ) , in the form of augmented reality ( ar ) glasses , virtual reality ( vr ) glasses and smart glasses . our wearable display products are referred to as , video eyewear , head mounted wearable displays , video glasses , personal viewers , near-eye virtual displays , and near-eye displays or neds . our wearable display products provide virtual large high-resolution screens , fit in a user 's pocket or purse and can be viewed practically anywhere , anytime . they can also be used for vr and ar applications , in which the wearer is either immersed in a computer generated world or has their real world view augmented with computer generated information or graphics . we produce and sell two main types of wearable display products : smart glasses for a variety of enterprise and commercial users and applications , including ar ; and video viewing glasses ( for on-the-go users as mobile displays for entertainment , gaming as well as support for stepping into virtual worlds , simulations & vr gaming ) . our products are available with varying features , including with and without application running computer processors , and are offered as either monocular or binocular display systems . 30 with respect to our smart glasses and ar products we are focused on the enterprise , industrial , commercial , and medical markets while our video eyewear products are sold in the consumer markets and are targeted at applications including video viewing , gaming and vr . all of the mobile display and mobile electronics space in which we compete have been subject to rapid technological change over the last decade including the rapid adoption of tablets , larger screen sizes and display resolutions along with declining prices on mobile phones and other computing devices , and as a result we must continue to improve our products ' performance and lower our costs . we believe our intellectual property portfolio gives us a leadership position in microdisplay projection engines , waveguides , ergonomics , packaging , and optical systems . critical accounting policies and significant developments and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements and related notes appearing elsewhere in this annual report . the preparation of these statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies , many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements , including the statement of operations , balance sheet , cash flow and related notes . we continually evaluate our estimates used in the preparation of our consolidated financial statements , including those related to revenue recognition , bad debts , inventories , warranty reserves , product warranty , carrying value of long-lived assets , derivatives , valuation of stock compensation awards , and income taxes . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources . since future events and their impact can not be determined with certainty , the actual results will likely differ from our estimates . such differences could be material to the consolidated financial statements . we believe that our application of accounting policies , and the estimates inherently required therein , are reasonable . we periodically reevaluate these accounting policies and estimates , and make adjustments when facts and circumstances dictate a change . historically , we have found our application of accounting policies to be appropriate , and actual results have not differed materially from those determined using necessary estimates . our accounting policies are more fully described in the notes to our consolidated financial statements included in this annual report on form 10-k. the critical accounting policies , judgments and estimates that we believe have the most significant effect on our financial statements are : ยท valuation of inventories ; ยท carrying value of long-lived assets ; ยท software development costs ; ยท revenue recognition ; ยท product warranty ; ยท derivatives and fair value measurements ; ยท stock-based compensation ; and ยท income taxes . valuation of inventories inventory is stated at the lower of cost or net realizable value , with cost determined on a weighted average first-in , first-out method . inventory includes purchased parts and components , work in process and finished goods . provisions for excess , obsolete or slow moving inventory are recorded after periodic evaluation of historical sales , current economic trends , forecasted sales , estimated product life cycles and estimated inventory levels . purchasing practices , electronic component obsolescence , accuracy of sales and production forecasts , introduction of new products , product life cycles , product support and foreign regulations governing hazardous materials are the factors that contribute to inventory valuation risks . exposure to inventory valuation risks is managed by maintaining safety stocks , minimum purchase lots , managing product and end-of-life issues brought on by aging components or new product introductions , and by utilizing certain inventory minimization strategies such as vendor-managed inventories . story_separator_special_tag when sold as part of a mea , revenue from the licensed software is recognized when the product with its embedded software is shipped to the customer . for either a single element transaction or a mea , the company allocates consideration to all deliverables based on their relative stand-alone selling prices . amendments to asc 605-25 establish a hierarchy to determine the stand-alone selling price as follows : ยท vendor specific objective evidence of the fair value ( vsoe ) , ยท third party evidence ( tpe ) ยท best estimate of the selling price ( esp ) sales which constitute a mea are accounted for by determining if the elements can be accounted for as separate accounting units , and if so , by applying values to those units , per the hierarchy above . if vsoe is not available , management estimates the fair selling price using historical pricing for similar items , in conjunction with current pricing and discount policies . revenue from licensed software is recognized upon shipment and in accordance with industry-specific software recognition accounting guidance . software updates that will be provided free of charge are evaluated on a case-by-case basis to determine whether they meet the definition of an upgrade and create a multiple element arrangement . fees charged to customers for post-contract technical support are recognized ratably over the term of the contract . costs related to maintenance obligations are expensed as incurred . product warranty warranty obligations are generally incurred in connection with the sale of our products . the warranty period for these products is generally one year except in european countries where it is two years . warranty costs are accrued , to the extent that they are not recoverable from third party manufacturers , for the estimated cost to repair or replace products for the balance of the warranty periods . we provide for the costs of expected future warranty claims at the time of product shipment or over-builds to cover replacements . the adequacy of the provision is assessed at each quarter end and is based on historical experience of warranty claims and costs . the costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale . future warranty costs are estimated based on historical performance rates and related costs to repair given products . the accounting estimate related to product warranty is considered a โ critical accounting estimate โ because judgment is exercised in determining future estimated warranty costs . should actual performance rates or repair costs differ from estimates , revision to the estimated warranty liability would be required . derivatives and fair value measurements fasb asc topic 820 fair value measurements and disclosures ( asc 820 ) defines fair value , establishes a framework for measuring fair value in generally accepted accounting principles , and expands disclosures about fair value measurements . asc 820 clarifies that fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . asc 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period . in accordance with asc 815-10-25 derivatives and hedging we measured the derivative liability using a monte carlo options lattice pricing model at their issuance date and subsequently as they are remeasured . accordingly , at the end of each quarterly reporting date , the derivative fair market value is remeasured and adjusted to current market value . derivatives that have more than one year remaining in their life are shown as long term . significant unobservable inputs are used in the fair value measurement of the company 's derivative liability . the primary input factors driving the economic or fair value of the derivatives warrants and convertible notes are the stock price of the company 's shares , the price volatility of the shares , reset events , and exercise behavior . an important valuation input factor used in determining fair value was the expected volatility of observed share prices and the probability of projected resets in warrant exercise and note conversion prices from financing before each security 's maturity . for exercise behavior , the company assumed that without a target price of 2 times the projected reset price or higher , the holders of the warrants and convertible notes would hold to maturity . in determining the fair value of the derivatives it was assumed that the company 's business would be conducted as a going concern and that holding to maturity was reasonable . further the january 2 , 2015 series a preferred financing reduced the expected probability to near zero for price resets from financing events . 33 asc 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value . level 1 inputs are quoted prices in active markets for identical assets or liabilities . level 2 inputs are inputs other than quoted prices included in level 1 that are directly or indirectly observable for the asset or liability . such inputs include quoted prices in active markets for similar assets and liabilities , quoted prices for identical or similar assets or liabilities in markets that are not active , inputs other than quoted prices that are observable for the asset or liability , or inputs derived principally from or corroborated by observable market data by correlation or other means . level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value . stock-based compensation our board of directors approves grants of stock options to employees to purchase our common stock . stock compensation expense is recorded based upon the estimated fair value of the stock option at the date of grant .
| general and administrative . general and administrative costs include professional fees , investor relations ( ir ) costs including shares and warrants issued for ir services , salaries and related stock compensation , travel costs , office and rental costs . replace_table_token_8_th general and administrative costs were $ 5,114,139 for the year ended december 31 , 2016 as compared to $ 6,120,101 for the year ended december 31 , 2015 , a decrease of $ 1,005,962 or 16 % . these costs were lower overall primarily because of : lower compensation expense related to stock awards totaling $ 1,375,000 to our officers and directors awarded in january 2015 , partially offset by an increase in incentive bonuses of $ 302,500 ; a $ 56,267 decrease in travel costs ; $ 84,727 decrease in legal fees , primarily related to a stock award made to our attorneys in january 2015 ; a $ 217,303 increase in accounting and audit fees , with the majority of the change being for sarbanes-oxley section 404 consultants retained to assist management in designing and implementing improvements in our financial reporting controls and accruals for expected additional external audit fees , as compared to the same period in 2015 when no such consultants were retained . depreciation and amortization . depreciation and amortization expense for the year ended december 31 , 2016 was $ 770,668 as compared to $ 380,841 in the same period in 2015 , an increase of $ 389,827. the increase in depreciation and amortization expense is due to new investments in depreciable assets during 2016. loss on inventory valuation .
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fourth loan amendment in october 2016 , limited entered into the fourth loan amendment with hercules , which further amended certain terms of the term loan agreement . pursuant to story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited annual consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those set forth in the section entitled โ risk factors โ and elsewhere in this annual report on form 10-k. for further information regarding forward-looking statements , please refer to the โ special note regarding forward-looking statements and projections โ at the beginning of part i of this annual report on form 10-k. overview alimera sciences , inc. , and its subsidiaries ( we , alimera or the company ) is a pharmaceutical company that specializes in the commercialization , research and development of prescription ophthalmic pharmaceuticals . we are presently focused on diseases affecting the back of the eye , or retina , because we believe these diseases are not well treated with current therapies and represent a significant market opportunity . our only commercial product is iluvien ยฎ , which has been developed to treat diabetic macular edema ( dme ) . dme is a disease of the retina that affects individuals with diabetes and can lead to severe vision loss and blindness . iluvien has received marketing authorization in the united states ( u.s. ) , austria , belgium , the czech republic , denmark , finland , france , germany , ireland , italy , luxembourg , the netherlands , norway , poland , portugal , spain , sweden , and the united kingdom . in the u.s. , iluvien is indicated for the treatment of dme in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure ( iop ) . in the european economic area ( eea ) countries in which iluvien has received marketing authorization , it is indicated for the treatment of vision impairment associated with dme considered insufficiently responsive to available therapies . as part of the approval process in europe , we committed to conduct a five-year , post-authorization , open label registry study in 800 patients treated with iluvien . in the fourth quarter of 2016 , we requested approval to modify our protocol to cap enrollment in the study due to our post market safety surveillance not showing any unexpected safety signals . although we have not received formal regulatory approval , the medicines & healthcare products regulatory agency ( mhra ) has agreed to allow us to suspend enrollment , pending approval of our protocol amendment . as of december 31 , 2016 , 548 patients were enrolled in this study . we launched iluvien in germany and the united kingdom in the second quarter of 2013 and in the u.s. and portugal in the first quarter of 2015. in addition , we have entered into various agreements under which distributors will provide regulatory , reimbursement or sales and marketing support for future commercialization of iluvien in numerous countries in the middle east , italy , australia , new zealand and canada . we commenced operations in june 2003. since our inception we have incurred significant losses . as of december 31 , 2016 , we had accumulated a deficit of $ 377.1 million . we expect to incur substantial losses through the continued commercialization of iluvien as we : continue the commercialization of iluvien in the u.s. and eea and through our distributor , in the middle east ; continue to seek regulatory approval of iluvien in other jurisdictions ; evaluate the use of iluvien for the treatment of other diseases ; and advance the clinical development of any future products or product candidates either currently in our pipeline , or that we may license or acquire in the future . as of december 31 , 2016 , we had approximately $ 31.0 million in cash and cash equivalents . we launched iluvien in germany and the united kingdom , in the second quarter of 2013 and in the u.s. and portugal in the first quarter of 2015. our distributor in the middle east launched iluvien in the united arab emirates in the fourth quarter of 2016. in italy , our distributor plans to launch iluvien in 2017. we do not expect to have positive cash flow from operations until 2017 , if at all . due to the limited revenue generated by iluvien to date , we may have to raise additional capital to fund the continued commercialization of iluvien . if we are unable to raise additional financing , we will need to adjust our commercial plans so that we can continue to operate with our existing cash resources or there may be substantial doubt about our ability to continue as a going concern . 44 in october 2016 , we entered into the fourth loan amendment ( as defined below ) with hercules capital , inc. ( hercules ) in order to modify certain terms of the term loan agreement ( as defined below ) and obtained additional loan amounts . if there is an event of default , all amounts may become due under the term loan agreement and there would continue to be substantial doubt about our ability to continue as a going concern . our agreement with psivida us , inc. we entered into an agreement with psivida us , inc. ( psivida ) for the use of fluocinolone acetonide ( fac ) in psivida 's proprietary delivery device in february 2005 , which was subsequently amended and restated in 2008. psivida is a global drug delivery company committed to the biomedical sector and the development of drug delivery products . story_separator_special_tag following the interest only period the 2014 term loan was due and payable to hercules in equal monthly payments of principal and interest through may 1 , 2018. the interest rate on the term loan agreement was 11.25 % as of december 31 , 2016. first loan amendment in november 2015 , limited and hercules amended the 2014 loan agreement to extend the interest only payments through may 2017. in connection with the first loan amendment , limited paid to hercules an amendment fee of $ 262,500 and agreed to make an additional payment of $ 1,050,000 , equal to 3 % of the 2014 term loan at the time of the final payment on may 1 , 2018 ( end of term payment ) . we and limited , on a consolidated basis with our other subsidiaries ( the consolidated group ) , agreed to customary affirmative and negative covenants and events of default in connection with these arrangements . the occurrence of an event of default could result in the acceleration of limited 's obligations under the term loan agreement and an increase to the applicable interest rate and would permit hercules to exercise remedies with respect to the collateral under the term loan agreement . in connection with the first loan amendment , limited agreed to covenants regarding certain revenue thresholds and a liquidity threshold . second loan amendment in january 2016 , the revenue threshold covenant was not met by the consolidated group and as a result , in march 2016 , limited and hercules entered into the second loan amendment , which further amended certain terms of the 2014 loan agreement . in conjunction with the second loan amendment , hercules waived this covenant violation . the second loan amendment adjusted the revenue covenant to a rolling three-month calculation , first measured for the three months ended may 31 , 2016. in addition , the second loan amendment increased the liquidity covenant . upon execution of the second loan amendment , limited paid hercules an amendment fee of $ 350,000 and agreed to increase the end of term payment to $ 1,400,000 from $ 1,050,000 , which was payable on the date that the 2014 term loan was to be paid in full . we concluded that the second loan amendment resulted in a substantial modification of the terms of debt when considered with the first loan amendment in accordance with the guidance in accounting standard codification ( asc ) 470-50 , debt . as a result , we accounted for the second loan amendment as an extinguishment and recognized a loss on early extinguishment of debt of approximately $ 2,564,000 within the consolidated statement of operations for the year ended december 31 , 2016. the loss on early extinguishment consisted primarily of the unamortized debt discount associated with the warrant and debt issuance costs incurred prior to the second loan amendment , the incremental fair value of the warrant as a result of modifying the terms of the warrant and the debt issuance costs of $ 360,000 paid to hercules for the second loan amendment . third loan amendment and july 2016 waiver in may 2016 , limited and hercules entered into the third loan amendment to expand the definition of liquidity to allow for the inclusion of cash of up to $ 2.0 million in bank accounts outside of the u.s. and the united kingdom . in july 2016 , limited obtained a waiver of the requirements of the liquidity covenant ( the waiver ) because the consolidated group was not in compliance with the liquidity covenant as of june 30 , 2016. the waiver cured the default of the liquidity covenant then existing under the term loan agreement and decreased the liquidity requirement . in addition , the waiver modified the three-month revenue covenant so that it was not measured at july 31 , 2016 and reduced the three-month revenue target to be measured at august 31 , 2016. following execution of the waiver , limited incurred a weekly ticking fee equal to 0.05 % multiplied by the outstanding principal amount through the closing of our public offering in august 2016 ( see note 12 common stock ) , totaling $ 65,000 . further , limited paid hercules a fee of $ 350,000 associated with the waiver . fourth loan amendment in october 2016 , limited entered into the fourth loan amendment with hercules , which further amended certain terms of the term loan agreement . pursuant to the terms of the fourth loan amendment , hercules agreed to provide up to an additional $ 10.0 million to limited with ( i ) the first $ 5.0 million available at limited 's option through june 30 , 2017 subject to ( a ) the consolidated group 's achievement of $ 12.0 million in trailing three month net product revenue and ( b ) no event of default having occurred since october 20 , 2016 ( the effective date ) and ( ii ) the second $ 5.0 million available at limited 's option through december 31 , 2017 subject to ( a ) the consolidated group 's achievement of $ 15.0 million in trailing three month net product revenue , ( b ) no event of default having occurred since the effective date and ( c ) the prior $ 5.0 million having been advanced to limited ( the additional advances and , together with the 2014 term loan , the term loan ) . the 46 fourth loan amendment provides for interest only payments through november 30 , 2018 ( the interest-only period ) . pursuant to the fourth loan amendment , interest on the term loan accrues at a floating per annum rate equal to the greater of ( i ) 11.0 % and ( ii ) the sum of ( a ) 11.0 % plus ( b ) the prime rate as reported in the wall street journal , or if not reported , the prime rate most recently reported in the wall street journal , minus 3.5 % .
| general and administrative expenses . general and administrative expenses increased by approximately $ 1.1 million , or 13 % , to approximately $ 9.3 million for the year ended december 31 , 2016 , compared to approximately $ 8.2 million for the year ended december 31 , 2015. the increase was primarily attributable to increases of $ 960,000 for certain one-time costs associated with pursuing alternative debt options , including contingent advisory fees , and $ 270,000 in costs incurred with our third party manufactures of iluvien . sales and marketing expenses . sales and marketing expenses increased by approximately $ 2.3 million , or 12 % , to approximately $ 22.1 million for the year ended december 31 , 2016 , compared to approximately $ 19.8 million for the year ended december 31 , 2015. the increase was primarily attributable to increases of approximately $ 880,000 in additional costs incurred in 2016 for the commercial team hired for the launch of iluvien in the u.s. , $ 750,000 for additional commissions paid to our u.s. sales force due to increased sales in 2016 and $ 480,000 in additional marketing costs including professional fees for the promotion of iluvien incurred during 2016 , medical marketing and an increased presence at certain regional and national meetings . depreciation and amortization . depreciation and amortization increased by approximately $ 200,000 , or 8 % , to approximately $ 2.7 million for the year ended december 31 , 2016 , compared to approximately $ 2.5 million for the year ended december 31 , 2015. the increase was primarily attributable to depreciation expense associated with capital leases entered into in march 2015 for automobiles for the u.s. commercial team . international segment replace_table_token_4_th year ended december 31 , 2016 compared to the year ended december 31 , 2015 net revenue .
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factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , but are not limited to : our inability to successfully grow our business and implement our strategic plan , including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan ; the impact of anticipated higher operating expenses in 2019 and beyond ; our inability to successfully integrate wealth management firm acquisitions ; our inability to manage our growth ; our inability to successfully integrate our expanded employee base ; an unexpected decline in the economy , in particular in our new jersey and new york market areas ; declines in our net interest margin caused by the interest rate environment and or our highly competitive market ; declines in value in our investment portfolio ; higher than expected increases in our allowance for loan and lease losses ; higher than expected increases in loan and lease losses or in the level of nonperforming loans ; changes in interest rates ; decline in real estate values within our market areas ; legislative and regulatory actions ( including the impact of the dodd-frank wall street reform and consumer protection act , basel iii and related regulations ) that may result in increased compliance costs ; successful cyberattacks against our it infrastructure and that of our it and third party providers ; higher than expected fdic insurance premiums ; adverse weather conditions ; our inability to successfully generate new business in new geographic markets ; our inability to execute upon new business initiatives ; our lack of liquidity to fund our various cash obligations ; reduction in our lower-cost funding sources ; our inability to adapt to technological changes ; claims and litigation pertaining to fiduciary responsibility , environmental laws and other matters ; our ability to retain key employees ; demands for loans and deposits in our market areas ; adverse changes in securities markets ; changes in accounting policies and practices ; effects related to a prolonged shutdown of the federal government which could impact sba and other government lending programs ; and other unexpected material adverse changes in our operations or earnings . except as may be required by applicable law or regulation , the company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company 's expectations . although we believe that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . overview : the following discussion and analysis is intended to provide information about the financial condition and results of operations of the company and its subsidiaries on a consolidated basis and should be read in conjunction with the consolidated financial statements and the related notes and supplemental financial information appearing elsewhere in this report . for the year ended december 31 , 2018 , the company recorded net income of $ 44.17 million , and diluted earnings per share of $ 2.31 compared to $ 36.50 million and $ 2.03 , respectively , for 2017 , reflecting increases of $ 7.67 million , or 21 percent , 23 and $ 0.28 per share , or 14 percent , respectively . during 2018 , the company continued to focus on executing its strategic plan โ known as โ expanding our reach โ โ which focuses on the client experience and organic growth across all lines of business . the strategic plan called for expansion of the company 's wealth management business , organically and through wealth business acquisitions , and also expansion of the company 's commercial and industrial ( โ c & i โ ) lending platform , through the use of private bankers , who lead with deposit gathering and wealth management discussions . the following are select highlights for 2018 : at december 31 , 2018 , the market value of assets under management and or administration at the private wealth management division of the bank was $ 5.8 billion , reflecting an increase of 5 percent from $ 5.5 billion at december 31 , 2017. fee income from the private wealth management division totaled $ 33.2 million for 2018 , growing from $ 23.2 million for 2017. loans at december 31 , 2018 totaled $ 3.93 billion . this reflected net growth of $ 227.4 million , or 6 percent , from $ 3.70 billion at december 31 , 2017. total c & i loans ( including equipment finance ) at december 31 , 2018 totaled $ 1.40 billion . this reflected net growth of $ 438.7 million , or 46 percent , from $ 958.3 million at december 31 , 2017. total โ customer โ deposits ( defined as deposits excluding brokered cds and brokered โ overnight โ interest-bearing demand deposits ) at december 31 , 2018 were $ 3.66 billion , reflecting an increase of $ 213.4 million , or 6 percent , when compared to $ 3.45 billion at december 31 , 2017. asset quality metrics continued to be strong at december 31 , 2018. nonperforming assets at december 31 , 2018 were $ 25.7 million , or 0.56 percent of total assets . total loans past due 30 through 89 days and still accruing were $ 1.10 million or 0.03 percent of total loans at december 31 , 2018. the company 's and bank 's capital ratios at december 31 , 2018 all increased compared to the december 31 , 2017 levels . critical accounting policies and estimates : management 's discussion and analysis of financial condition and results of operations is based upon the company 's consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . story_separator_special_tag 30 the effect of volume and rate changes on net interest income ( on a tax-equivalent basis ) for the periods indicated are shown below : replace_table_token_9_th 2018 compared to 2017 net interest income , on a fully tax-equivalent basis , grew $ 4.5 million , or 4 percent , in 2018 to $ 116.7 million from net interest income of $ 112.2 million in 2017. the net interest margin was 2.75 percent and 2.80 percent for the years ended december 31 , 2018 and 2017 , respectively , a decrease of 5 basis points year over year . the growth in net interest income was due to increases in the average balance and yield on the company 's interest-earning assets , especially c & i loans , which typically have higher yields . the increased interest income was partially offset by reduced prepayment premiums on multifamily loans in 2018 when compared to 2017. the interest income increase was also partially offset by increases in interest-bearing liabilities and the company 's cost of funds . the company continues to be impacted by competitive pressures in attracting new loans and deposits , as well as retaining deposits . on a fully tax-equivalent basis , interest income on earning assets increased $ 21.5 million , or 15 percent , to $ 161.3 million in 2018 from $ 139.8 million in 2017. average earning assets for the year ended december 31 , 2018 totaled $ 4.25 billion compared to $ 4.01 billion for 2017 , an increase of $ 242.4 million or 6 percent . the average rate earned on earning assets was 3.79 percent in 2018 , compared to 3.49 percent in 2017 , an increase of 30 basis points . for the year ended december 31 , 2018 , the average balance of the commercial portfolio increased $ 326.2 million , or 43 percent , from 2017. the increase in this portfolio was attributed to : the addition of seasoned bankers including an equipment finance team in 2017 ; a continued focus on client service and value-added aspects of the lending process ; and a continued focus on markets outside of the immediate branch service area , including markets around the teaneck and princeton private banking offices . for the year ended december 31 , 2018 , the average balance of the commercial mortgage portfolio ( which includes multifamily mortgage loans ) decreased $ 97.1 million to $ 1.98 billion from 2017. the company continued to manage its balance sheet such that lower yielding , primarily fixed rate multifamily loans , which included a loan sale of $ 131.3 million of multi-family mortgage loans during the fourth quarter of 2018 , declined as a percentage of the overall loan portfolio and higher yielding , primarily floating rate or short duration c & i loans became a larger percentage of the overall loan portfolio . average interest-bearing liabilities for the year ended december 31 , 2018 totaled $ 3.37 billion , an increase of $ 189.4 million , or 6 percent , from $ 3.18 billion for 2017. the average rate paid increased to 1.32 percent for 2018 from 0.87 percent for 2017. the increase in the average balance of interest-bearing liabilities was principally due to growth in customer deposits ( excluding brokered cds and brokered interest-bearing demand but including funds from reciprocal 31 deposits ) of $ 97.7 million for 2018 when compared to 2017 and growth in the average balance of borrowings of $ 83.0 million . average rates paid on interest-bearing deposits for 2018 were 114 basis points compared to 74 basis points for 2017 , reflecting an increase of 40 basis points . the increase in the average rate paid on deposits was principally due to growth in higher costing certificates of deposit and money market accounts and competitive pressures in attracting and retaining new deposits . the average balance of borrowings was $ 154.8 million for 2018 compared to $ 71.8 million during 2017 , an increase of $ 83.0 million . the average rates paid on total borrowings increased to 2.33 percent during 2018 compared to 1.90 percent during 2017 , an increase of 43 basis points , primarily due to an increase in market rates . the increase in the average balance of borrowings was due to an increase in the use of overnight borrowings and $ 105.0 million in fhlb advances used to fund loans , the maturity of fhlb advances and the replacement of $ 119.2 million of maturing listing service deposits . the company has chosen not to participate in listing service programs at this time , so maturing listing service deposits are not replaced with new listing service deposits . in december 2017 , the company issued $ 35.0 million of subordinated debt ( $ 34.1 million net of issuance costs ) bearing interest at an annual rate of 4.75 percent for the first five years , and thereafter at an adjustable rate until maturity in december 2027 or earlier redemption . in june 2016 , the company issued $ 50.0 million of subordinated debt ( $ 48.7 million net of issuance costs ) bearing interest at an annual rate of 6 percent for the first five years , and thereafter at an adjustable rate until maturity in june 2026 or earlier redemption . the average balance on capital lease obligations was $ 8.7 million and $ 9.4 million during 2018 and 2017 , respectively , while the average rate paid on capital lease obligations was 4.81 percent for both 2018 and 2017 . 2017 compared to 2016 net interest income , on a fully tax-equivalent basis , grew $ 14.9 million , or 15 percent , in 2017 to $ 112.2 million from net interest income of $ 97.4 million in 2016. the net interest margin was 2.80 percent and 2.74 percent for the years ended december 31 , 2017 and 2016 , respectively , an increase of 6 basis points year over year .
| earnings summary : the following table presents certain key aspects of our performance for the years ended december 31 , 2018 , 2017 and 2016. replace_table_token_4_th 2018 compared to 2017 the company recorded net income of $ 44.17 million and diluted earnings per share of $ 2.31 for the year ended december 31 , 2018 compared to net income of $ 36.50 million and diluted earnings per share of $ 2.03 for the year ended december 31 , 2017. these results produced a return on average assets of 1.02 percent and 0.89 percent in 2018 and 2017 , respectively , and a return on average shareholders ' equity of 10.13 percent and 10.12 percent in 2018 and 2017 , respectively . the increase in net income for 2018 was due to higher net interest income and wealth management income , offset by increased operating expenses when compared to 2017. in addition , 2018 net income benefitted from the reduced federal income tax rate due to the new tax law signed in december 2017. wealth management acquisitions in 2017 and 2018 26 contributed to higher wealth management income and higher operating expenses in 2018. higher operating expenses were also due to costs associated with the implementation of the strategic plan , described in the โ overview โ section above . 2017 compared to 2016 the company recorded net income of $ 36.50 million and diluted earnings per share of $ 2.03 for the year ended december 31 , 2017 compared to net income of $ 26.48 million and diluted earnings per share of $ 1.60 for the year ended december 31 , 2016. these results produced a return on average assets of 0.89 percent and 0.72 percent in 2017 and 2016 , respectively , and a return on average shareholders ' equity of 10.12 percent and 8.92 percent in 2017 and 2016 , respectively .
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the board of directors may take into account such matters as general business conditions , the company 's financial results , capital requirements , contractual , legal , and regulatory restrictions on the payment of dividends to the company 's stockholders or by the company 's subsidiaries to the parent and any such other factors as the board story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with ยselected financial dataย and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements relating to future events and the future performance of marketaxess that are based on our current expectations , assumptions , estimates and projections about us and our industry . these forward-looking statements involve risks and uncertainties . our actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors , as more fully described in this section , in ยitem 1a . ย risk factorsย and elsewhere in this annual report on form 10-k. we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . executive overview marketaxess operates a leading electronic trading platform that allows investment industry professionals to efficiently trade corporate bonds and other types of fixed-income instruments . our approximately 1,000 active institutional investor clients ( firms that executed at least one trade in u.s. or european fixed-income securities through our electronic trading platform during 2012 ) include investment advisers , mutual funds , insurance companies , public and private pension funds , bank portfolios , broker-dealers and hedge funds . our 87 broker-dealer market-maker clients provide liquidity on the platform and include most of the leading broker-dealers in global fixed-income trading . the company also executes certain bond transactions between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller in matching back-to-back trades , which then settle through a third-party clearing organization . through our corporate bondtickerย service , we provide fixed-income market data , analytics and compliance tools that help our clients make trading decisions . in addition , we provide fix ( financial information exchange ) message management tools , connectivity solutions and ancillary technology services that facilitate the electronic communication of order information between trading counterparties . our revenues are primarily generated from the trading of u.s. high-grade corporate bonds . our multi-dealer trading platform allows our institutional investor clients to simultaneously request competing , executable bids or offers from our broker-dealer clients and execute trades with the broker-dealer of their choice from among those that choose to respond . we offer our broker-dealer clients a solution that enables them to efficiently reach our institutional investor clients for the distribution and trading of bonds . in addition to u.s. high-grade corporate bonds , european high-grade corporate bonds and emerging markets bonds , including both investment-grade and non-investment grade debt , we also offer our clients the ability to trade crossover and high-yield bonds , agency bonds , asset-backed and preferred securities and credit default swaps . the majority of our revenues are derived from monthly distribution fees and commissions for trades executed on our platform that are billed to our broker-dealer clients on a monthly basis . we also derive revenues from technology products and services , information and user access fees , investment income and other income . our expenses consist of employee compensation and benefits , depreciation and amortization , technology and communication costs , professional and consulting fees , occupancy , marketing and advertising and other general and administrative expenses . our objective is to provide the leading global electronic trading platform for fixed-income securities , connecting broker-dealers and institutional investors more easily and efficiently , while offering a broad array of information , trading and technology services to market participants across the trading cycle . the key elements of our strategy are : to innovate and efficiently add new functionality and product offerings to the marketaxess platform that we believe will help to increase our market share with existing clients , as well as expand our client base ; to leverage our technology , as well as our strong broker-dealer and institutional investor relationships , to deploy our electronic trading platform into additional product segments within the fixed-income securities markets , deliver fixed-income securities-related technical services and products , and deploy our electronic trading platform into new client segments ; to continue building our existing service offerings so that our electronic trading platform is fully integrated into the workflow of our broker-dealer and institutional investor clients and to continue to add functionality to allow our clients to achieve a fully automated end-to-end straight-through processing solution ( automation from trade initiation to settlement ) ; -44- to add new content and analytical capabilities to corporate bondtickerย in order to improve the value of the information we provide to our clients ; and to continue to supplement our internal growth by entering into strategic alliances , or acquiring businesses or technologies that will enable us to enter new markets , provide new products or services , or otherwise enhance the value of our platform to our clients . on october 26 , 2012 , we entered into an agreement to acquire all of the outstanding shares of xtrakter limited ( ยxtrakterย ) from euroclear s.a./n.v . xtrakter is a u.k.-based provider of regulatory transaction reporting , financial market data and trade matching services to the european securities markets . the acquisition of xtrakter will provide us with an expanded set of technology solutions ahead of incoming regulatory mandates from the markets in financial instruments directive in europe . story_separator_special_tag our future success will depend on our ability to enhance our existing products and services , develop and or license new products and technologies that address the increasingly sophisticated and varied needs of our broker-dealer and institutional investor clients and prospective clients and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis . we have received 11 patents covering our most significant trading protocols and other aspects of our trading system technology and additional patents are pending . trends in our business the majority of our revenues are derived from monthly distribution fees and commissions for transactions executed on our platform between our institutional investor and broker-dealer clients . we believe that there are five key variables that impact the notional value of such transactions on our platform and the amount of commissions and distribution fees earned by us : the number of institutional investor clients that participate on the platform and their willingness to originate transactions through the platform ; the number of broker-dealer clients on the platform and the frequency and competitiveness of the price responses they provide to the institutional investor clients ; the number of markets for which we make trading available to our clients ; the overall level of activity in these markets ; and the level of commissions that we collect for trades executed through the platform . we believe that overall corporate bond market trading volume is affected by various factors including the absolute levels of interest rates , the direction of interest rate movements , the level of new issues of corporate bonds and the volatility of corporate bond spreads versus u.s. treasury securities . because a significant percentage of our revenue is tied directly to the volume of securities traded on our platform , it is likely that a general decline in trading volumes , regardless of the cause of such decline , would reduce our revenues and have a significant negative impact on profitability . -46- commission revenue commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on our platform and vary based on the type , size , yield and maturity of the bond traded . the commission rates are based on a number of factors , including fees charged by inter-dealer brokers in the respective markets , average bid-offer spreads in the products we offer and transaction costs through alternative channels including the telephone . under our transaction fee plans , bonds that are more actively traded or that have shorter maturities are generally charged lower commissions , while bonds that are less actively traded or that have longer maturities generally command higher commissions . u.s. high-grade corporate bond commissions . our u.s. high-grade corporate bond fee plans for fully electronic trades generally incorporate monthly distribution fees and variable transaction fees billed to our broker-dealer clients on a monthly basis . certain dealers participate in fee programs that do not contain monthly distribution fees and instead incorporate additional per transaction execution fees and minimum monthly fee commitments . under the fee plans , we electronically add the transaction fee to the spread quoted by the broker-dealer client . the u.s. high-grade transaction fee is generally designated in basis points in yield and , as a result , is subject to fluctuation depending on the duration of the bond traded . the average u.s. high-grade fees per million may vary in the future due to changes in yield and years-to-maturity of bonds traded on our platform . eurobond commissions . similar to the u.s. high-grade plans , our european fee plan incorporates monthly distribution fees as well as variable transaction fees . in june 2010 , we launched a click-to-trade protocol in the european market . click-to-trade is offered alongside our request-for-quote product and consists of streamed indicative pricing in credit and rates products . clients have the ability to request a trade at the displayed price with the indicated dealer . in connection with the launch , the eurobond fee plan was revised and a standard commission rate was established across most types of bonds . prior to this change , the variable transaction fee was dependent on the type of bond traded and the maturity of the issue . other commissions . commissions for other bond , asset-backed and preferred securities trades generally vary based on the type and the maturity of the instrument traded . we generally operate using standard fee schedules that may include both transaction fees and monthly distribution fees that are charged to the participating dealers . for trades that we execute between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller , we earn our commission through the difference in price between the two back-to-back trades . we anticipate that average fees per million may change in the future . consequently , past trends in commissions are not necessarily indicative of future commissions . other revenue in addition to the commissions discussed above , we earn revenue from technology products and services , information services fees paid by institutional investor and broker-dealer clients , income on investments and other income . technology products and services . technology products and services includes software licenses , maintenance and support services and professional consulting services . information and user access fees . we charge information services fees for corporate bondticker tm to our broker-dealer clients , institutional investor clients and data-only subscribers . the information services fee is a flat monthly fee , based on the level of service . we also generate information services fees from the sale of bulk data to certain institutional investor clients and data-only subscribers . institutional investor clients trading u.s. high-grade corporate bonds are charged a monthly user access fee for the use of our platform . the fee , billed quarterly , is charged to the client based on the number of the client 's users .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 overview total revenues increased by $ 17.1 million or 9.4 % to $ 198.2 million for the year ended december 31 , 2012 from $ 181.1 million for the year ended december 31 , 2011. this increase in total revenues was primarily due to an increase in commissions of $ 18.8 million . total expenses increased by $ 9.2 million or 8.9 % to $ 111.5 million for the year ended december 31 , 2012 from $ 102.4 million for the year ended december 31 , 2011. the increase was primarily due to higher professional and consulting fees of $ 2.9 million , technology and communications expense of $ 1.9 million , employee compensation and benefits expense of $ 1.6 million and amortization and depreciation expenses of $ 1.5 million . -50- income before taxes increased by $ 8.0 million or 10.1 % to $ 86.7 million for the year ended december 31 , 2012 from $ 78.7 million for the year ended december 31 , 2011. net income increased by $ 12.4 million or 25.9 % to $ 60.1 million for the year ended december 31 , 2012 from $ 47.7 million for the year ended december 31 , 2011. revenues our revenues for the years ended december 31 , 2012 and 2011 , and the resulting dollar and percentage changes , were as follows : replace_table_token_4_th commissions . our commission revenues for the years ended december 31 , 2012 and 2011 , and the resulting dollar and percentage changes , were as follows : replace_table_token_5_th due in part to the continuing sovereign debt concerns and the competitive environment in europe , trading volume in our eurobond product significantly decreased over the past several years . monthly distribution fees paid by most of our european broker-dealer market makers were reduced effective march 1 , 2012 , but the dealer variable fee schedule remained unchanged .
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we derive revenues primarily from activities associated with the collection of contractual rents and reimbursement payments from tenants at our properties . our operating results therefore depend materially on , among other things , the ability of our tenants to make required lease payments , the health and resilience of the united states retail sector , interest rate volatility , job growth and overall economic and real estate market conditions . 48 as of december 31 , 2017 , we owned interests in 117 operating and redevelopment properties totaling approximately 23.3 million square feet . we also owned two development projects under construction as of this date . portfolio update in evaluating acquisition , development , and redevelopment opportunities , we look for strong sub-markets where average household income is above the broader market average . we also focus on locations with population density , high traffic counts , and strong daytime workforce populations . household incomes in our largest sub-markets are significantly higher than the medians for those broader markets . in 2017 , we transitioned the parkside town commons โ phase ii development project to the operating portfolio . we completed construction on our expansion of holly springs towne center โ phase ii and began construction on eddy street commons โ phase ii , which includes an embassy suites hotel . the hotel is owned by a unconsolidated joint venture in which we own a 35 % interest . our 3-r initiative , which includes a total of 11 existing and potential projects , continued to progress in 2017 . seven of these projects are under construction with total estimated costs of $ 71 million to $ 77 million and estimated combined returns of 8 % to 9 % . there are four additional potential projects with estimated costs of $ 40 million to $ 56 million and potential estimated returns of 9.0 % to 11.0 % . we completed construction on seven 3-r projects in 2017 : bolton plaza , castleton crossing , centennial gateway , market street village , northdale promenade , portofino shopping center , and trussville promenade with total costs of $ 23.5 million and an estimated combined return of 12.3 % . in addition to targeting sub-markets with strong consumer demographics , we focus on having the most desirable tenant mix at each center . we have aggressively targeted and executed leases with notable grocers including kroger , aldi , publix and trader joe 's , expanding discount retailers such as hobby lobby , marshalls and ross dress for less , service and restaurant retailers such as starbucks , north italia and flower child and other retailers such as ulta , party city and tempurpedic . additionally , we have identified cost-efficient ways to relocate , re-tenant and renegotiate leases at several of our properties allowing us to attract more suitable tenants . in addition , many of our redevelopment and 3-r projects include consolidating small shop space to accommodate construction of new junior anchor space . capital and financing activities our ability to obtain capital on satisfactory terms and to refinance borrowings as they mature is affected by the condition of the economy in general and by the financial strength of properties securing borrowings . throughout 2017 , we were able to maintain our strong balance sheet , financial flexibility and liquidity to fund future growth . we ended the year with approximately $ 398 million of combined cash and borrowing capacity on our unsecured revolving credit facility . in addition , as of december 31 , 2017 , we have approximately $ 82.4 million of debt maturities through december 31 , 2020. the amount that we may borrow under our unsecured revolving credit facility is limited by the value of the assets in our unencumbered asset pool . as of december 31 , 2017 , the value of the assets in our unencumbered asset pool was $ 1.4 billion . the investment grade credit ratings we have received provide us with access to the unsecured public bond market , which we may continue to use in the future to finance acquisition activity , repay maturing debt and fix interest rates . summary of critical accounting policies and estimates our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in accordance with gaap requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the compilation of our financial condition and results of operations and require management 's most difficult , subjective , and complex judgments . valuation of investment properties management reviews operational and development projects , land parcels and intangible assets for impairment on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable . the review for possible impairment requires management to make certain assumptions and estimates and requires significant judgment . impairment losses for investment properties and intangible assets are measured when the undiscounted cash flows 49 estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets . impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset . our impairment review for land and development properties assumes we have the intent and the ability to complete the developments or projected uses for the land parcels . if we determine those plans will not be completed or our assumptions with respect to operating assets are not realized , an impairment loss may be appropriate . depreciation may be accelerated for a redevelopment project , including partial demolition of existing structures after the asset is assessed for impairment . story_separator_special_tag as a result of generating this revenue , we will routinely have accounts receivable due from tenants . we are subject to tenant defaults and bankruptcies that may affect the collection of outstanding receivables . to address the collectability of these receivables , we analyze historical write-off experience , tenant credit-worthiness and current economic trends when evaluating the adequacy of our allowance for uncollectible accounts and straight line rent reserve . although we estimate uncollectible receivables and provide for them through charges against income , actual experience may differ from those estimates . gains or losses from sales of real estate have historically been recognized when a sale has been consummated , the buyer 's initial and continuing investment is adequate to demonstrate a commitment to pay for the asset , we have transferred to the buyer the usual risks and rewards of ownership , and we do not have a substantial continuing financial involvement in the property . as part of our ongoing business strategy , we will , from time to time , sell land parcels and outlots , some of which are ground leased to tenants . fair value measurements we follow the framework established under accounting standard fasb asc 820 , fair value measurements and disclosures , for measuring fair value of non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain circumstances , such as a business combination or upon determination of impairment . assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows : level 1 fair value inputs are quoted prices in active markets for identical instruments to which we have access . level 2 fair value inputs are inputs other than quoted prices included in level 1 that are observable for similar instruments , either directly or indirectly , and appropriately consider counterparty creditworthiness in the valuations . level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an instrument at the measurement date . the inputs are unobservable in the market and significant to the valuation estimate . in instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy , the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety . our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability . as discussed in note 10 to the financial statements , we have determined that derivative valuations are classified in level 2 of the fair value hierarchy . cash and cash equivalents , accounts receivable , escrows and deposits , and other working capital balances approximate fair value . 51 note 7 to the financial statements includes a discussion of the fair values recorded for assets acquired and liabilities assumed . note 8 to the financial statements includes a discussion of the fair values recorded when we recognized impairment charges in 2017 and 2015. level 3 inputs to these transactions include our estimations of market leasing rates , tenant-related costs , discount rates , and disposal values . income taxes and reit compliance parent company the parent company , which is considered a corporation for federal income tax purposes , has been organized and intends to continue to operate in a manner that will enable it to maintain its qualification as a reit for federal income tax purposes . as a result , it generally will not be subject to federal income tax on the earnings that it distributes to the extent it distributes its โ reit taxable income โ ( determined before the deduction for dividends paid and excluding net capital gains ) to shareholders of the parent company and meets certain other requirements on a recurring basis . to the extent that it satisfies this distribution requirement , but distributes less than 100 % of its taxable income , it will be subject to federal corporate income tax on its undistributed reit taxable income . reits are subject to a number of organizational and operational requirements . if the parent company fails to qualify as a reit in any taxable year , it will be subject to federal income tax on its taxable income at regular corporate rates for a period of four years following the year in which qualification is lost . we may also be subject to certain federal , state and local taxes on our income and property and to federal income and excise taxes on our undistributed taxable income even if the parent company does qualify as a reit . the operating partnership intends to continue to make distributions to the parent company in amounts sufficient to assist the parent company in adhering to reit requirements and maintaining its reit status . we have elected to treat kite realty holdings , llc as a taxable reit subsidiary of the operating partnership , and we may elect to treat other subsidiaries as taxable reit subsidiaries in the future . this election enables us to receive income and provide services that would otherwise be impermissible for a reit . deferred tax assets and liabilities are established for temporary differences between the financial reporting bases and the tax bases of assets and liabilities at the tax rates expected to be in effect when the temporary differences reverse . deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized . operating partnership the allocated share of income and loss , other than the operations of our taxable reit subsidiary , is included in the income tax returns of the operating partnership 's partners .
| results of operations as of december 31 , 2017 , we owned interests in 117 operating and redevelopment properties and two development projects currently under construction . the following table sets forth the total operating and redevelopment properties and development projects that we owned as of december 31 , 2017 , 2016 and 2015 : 52 replace_table_token_19_th the comparability of results of operations is affected by our development , redevelopment , and operating property acquisition and disposition activities in 2015 through 2017 . therefore , we believe it is most useful to review the comparisons of our results of operations for these years ( as set forth below under โ comparison of operating results for the years ended december 31 , 2017 and 2016 โ and โ comparison of operating results for the years ended december 31 , 2016 and 2015 โ ) in conjunction with the discussion of these activities during those periods , which is set forth below . property acquisition activities during the three years ended december 31 , 2017 , we acquired the properties listed in the table below . replace_table_token_20_th operating property disposition activities during the three years ended december 31 , 2017 , we sold the operating properties listed in the table below . replace_table_token_21_th development activities during the three years ended december 31 , 2017 , the following development properties became operational and were transferred to the operating portfolio : property name msa transition to operating portfolio owned gla tamiami crossing naples , fl june 2016 121,705 holly springs towne center โ phase ii raleigh , nc june 2016 145,009 parkside town commons โ phase ii raleigh , nc june 2017 152,460 53 redevelopment activities during portions of the three years ended december 31 , 2017 , the following properties were under active redevelopment and removed from our operating portfolio : replace_table_token_22_th 1 transition date represents the date the property was transferred from our operating portfolio into redevelopment status .
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critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america and follow general practices within the banking industry . application of these principles requires the company to make certain estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions , and judgments . certain accounting policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when available . the most significant accounting policies followed by the company are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the other financial statement notes and in this discussion , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the allowance for loan losses accounting to be the accounting area requiring the most subjective or complex judgments , and as such could be most subject to revision as new information becomes available . a discussion of the factors affecting accounting for the allowance for loan losses and purchased loans is included in the โ loan portfolio credit risk โ discussion below . net income the company 's principal source of revenue is net interest income , which represents interest earned on loans and investment securities ( โ earning assets โ ) reduced by interest paid on deposits and other borrowings ( โ interest-bearing liabilities โ ) . the relatively low level of market interest rates during the five years ended december 31 , 2016 has reduced the spread between interest rates on earning assets and interest bearing liabilities . the company 's net interest margin and net interest income declined as market interest rates on newly originated loans remain below the yields earned on older-dated loans and on the overall loan portfolio . the company 's loan portfolio has declined from 2012 through 2016 ; management has been avoiding long-dated , low-yielding loans given historically low interest rates . management has also maintained , in their opinion , conservative loan underwriting , terms and conditions . during this period , the investment securities portfolio has grown . the company has been reducing its exposure to rising interest rates by purchasing shorter-duration investment securities , which have lower yields than longer-duration securities . the changing composition of interest earning assets and low market interest rates has pressured the net interest margin on a fully taxable equivalent ( โ fte โ ) basis . in 2016 the company 's average checking and savings deposits were 5 percent higher than in 2015. these lower-costing deposit products , which earn relatively low interest rates and are less volatile than time deposits during periods of rising market interest rates , represented 94 percent of average total deposits in 2016. credit quality improved with nonperforming assets declining to $ 12.0 million at december 31 , 2016 from $ 24.6 million at december 31 , 2015. reflecting management 's evaluation of losses inherent in the loan portfolio , including improvements in most credit metrics the company recorded a reversal of the provision for loan losses of $ 3.2 million in 2016. management is focused on controlling all noninterest expense levels , particularly due to market interest rate pressure on net interest income . noninterest expenses declined to $ 101.8 million in 2016 compared to $ 105.3 million in 2015. the company presents its net interest margin and net interest income on an fte basis using the current statutory federal tax rate , which is a non-generally accepted accounting principles ( gaap ) financial measure . management believes the fte basis is valuable to the reader because the company 's loan and investment securities portfolios contain a relatively large portion of municipal loans and securities that generate interest income which is exempt from federal income tax . the company 's tax exempt loans and securities composition may not be similar to that of other banks ; therefore in order to reflect the impact of the federally tax exempt loans and securities on the net interest margin and net interest income for comparability with other banks , the company presents its net interest margin and net interest income on an fte basis . story_separator_special_tag a $ 10 million term repurchase agreement was repaid in august 2014 and federal home loan bank ( โ fhlb โ ) advances were repaid in january 2015. average balances of time deposits declined $ 62 million in 2016 compared with 2015 while lower-cost checking and savings deposits grew 5 % in the same period . lower-cost checking and savings deposits accounted for 94.1 % of total average deposits in 2016 compared with 92.5 % in 2015 and 89.8 % in 2014 . [ the remainder of this page intentionally left blank ] - 21 - summary of average balances , yields/rates and interest differential the following tables present information regarding the consolidated average assets , liabilities and shareholders ' equity , the amounts of interest income earned from average interest earning assets and the resulting yields , and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates . average loan balances include nonperforming loans . interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and accretion of purchased loan discounts . yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the current statutory tax rate . distribution of assets , liabilities & shareholders ' equity and yields , rates & interest margin replace_table_token_7_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . ( 2 ) net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities . ( 3 ) net interest margin is computed by calculating the difference between interest income and expense , divided by the average balance of interest-earning assets . the net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits . - 22 - distribution of assets , liabilities & shareholders ' equity and yields , rates & interest margin replace_table_token_8_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . ( 2 ) net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities . ( 3 ) net interest margin is computed by calculating the difference between interest income and expense , divided by the average balance of interest-earning assets . the net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits . [ the remainder of this page intentionally left blank ] - 23 - distribution of assets , liabilities & shareholders ' equity and yields , rates & interest margin replace_table_token_9_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . ( 2 ) net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities . ( 3 ) net interest margin is computed by calculating the difference between interest income and expense , divided by the average balance of interest-earning assets . the net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits . [ the remainder of this page intentionally left blank ] - 24 - summary of changes in interest income and expense due to changes in average asset & liability balances and yields earned & rates paid the following tables set forth a summary of the changes in interest income and interest expense due to changes in average assets and liability balances ( volume ) and changes in average interest yields/rates for the periods indicated . changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components . summary of changes in interest income and expense replace_table_token_10_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . [ the remainder of this page intentionally left blank ] - 25 - story_separator_special_tag 0 '' > investment securities portfolio the company maintains an investment securities portfolio consisting of securities issued by u.s. government sponsored entities , agency and non-agency mortgage backed securities , state and political subdivisions , corporations , and asset-backed and other securities . investment securities are held in safekeeping by an independent custodian . management has increased the investment securities portfolio in response to deposit growth and loan volume declines . the carrying value of the company 's investment securities portfolio was $ 3.2 billion as of december 31 , 2016 , an increase of $ 351 million compared to december 31 , 2015. management continually evaluates the company 's investment securities portfolio in response to established asset/liability management objectives , changing market conditions that could affect profitability , liquidity , and the level of interest rate risk to which the company is exposed . these evaluations may cause management to change the level of funds the company deploys into investment securities and change the composition of the company 's investment securities portfolio . in 2016 management reduced securities of u.s. government sponsored entities to reduce call optionality and increased agency residential mbs to develop more reliable cash flows . as of december 31 , 2016 , substantially all of the company 's investment securities continue to be investment grade rated by one or more major rating agencies . in addition to monitoring credit rating agency evaluations , management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities . the company 's procedures for evaluating investments in securities are in accordance with guidance issued by the board of governors of the federal reserve system , โ investing in securities without reliance on nationally recognized statistical rating agencies โ ( sr 12-15 ) and other regulatory guidance .
| summary of changes in interest income and expense replace_table_token_11_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . provision for loan losses the company manages credit costs by consistently enforcing conservative underwriting and administration procedures and aggressively pursuing collection efforts with debtors experiencing financial difficulties . the provision for loan losses reflects management 's assessment of credit risk in the loan portfolio during each of the periods presented . the company recorded a reversal of the provision for loan losses of $ 3.2 million in 2016. the company provided no provision for loan losses in 2015 compared with $ 2.8 million in 2014. during 2016 , classified loans declined $ 17.1 million ( which included nonperforming loans of $ 8.9 million ) . the company 's net losses of prior loan losses decreased from $ 3.0 million in 2014 and $ 1.7 million in 2015 to $ 617 thousand in 2016 ; these developments were reflected in management 's evaluation of credit quality , the level of the provision for loan losses , and the adequacy of the allowance for loan losses at december 31 , 2016. management 's evaluation of credit quality includes originated and purchased loans . the company recorded purchased loans at estimated fair value upon the acquisition dates . such estimated fair values were recognized for individual loans , although small balance homogenous loans were pooled for valuation purposes . the valuation discounts recorded for purchased loans included management 's assessment of the risk of principal loss under economic and borrower conditions prevailing on the dates of purchase . the purchased county bank loans secured by single-family residential real estate are โ covered โ through february 6 , 2019 by loss-sharing agreements the company entered with the fdic which mitigates losses during the term of the agreements .
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we sell our products in national and international retailers and direct-to-consumer channels . we believe the combination of our affordable price points and on-trend , innovative product assortment encourages trial , offers a strong value proposition and appeals to a broad base of consumers . our largest customers , walmart and target , accounted for 30 % and 21 % , respectively , of our net sales in 2018 . no other individual customer accounted for 10 % or more of the company 's net sales in 2018 . national and international retailers comprised 87 % of our net sales in 2018. the remaining 13 % came from our direct-to-consumer channels , the majority of which was from e-commerce , with the balance from e.l.f . stores . the primary market for our products is the united states , which accounted for 90 % of our net sales in 2018 . the remaining 10 % was attributable to international markets , primarily canada , the united kingdom and australia . for additional information regarding our business , see item 1 โ business. โ components of our results of operations and trends affecting our business net sales we develop , market and sell beauty products under the e.l.f . brand . our net sales are derived from sales of beauty products , net of provisions for sales discounts and allowances , product returns , markdowns and price adjustments . our growth in net sales is driven by a number of trends , including the broader economic environment , levels of consumer spending , and increasing awareness of and demand for our products . within our existing national retailers , we are able to drive growth by growing space allocation and increasing sales per linear foot , supported by our continued innovation , including our ability to introduce new first-to-mass products in our existing categories and new products in adjacent categories . while we have distribution with a number of key retail accounts , we expect to continue to grow through increased penetration into additional stores within existing retail accounts as well as the addition of new retail customers . our results of operations and business face challenges and uncertainties , including our ability to introduce new products that will appeal to a broad consumer base , our ability to service demand , the ability of our major retail customers to drive traffic and keep products in stock , our ability to continue to grow our customer base and competitive threats from other beauty companies . gross profit gross profit is our net sales less cost of sales . cost of sales includes the aggregate costs to procure our products , including the amounts invoiced by our third-party contract manufacturers for finished goods as well as costs related to transportation to our distribution center , customs and duties . cost of sales also includes the effect of changes in the balance of reserves for excess and obsolete inventory and the write-off of inventory not previously reserved . gross margin measures our gross profit as a percentage of net sales . we have an extensive network of third-party manufacturers in china where we purchase substantially all of our finished goods . over the past three years , we have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales . historically , we have improved our gross margin largely through changes in our product mix , pricing , purchasing efficiencies and cost reductions in our supply chain , and expect to continue leveraging our innovation and sourcing capabilities 38 in future periods . other drivers of changes in gross margin include fluctuations in exchange rates , changes in customer mix , and changes in the balance of reserves for excess and obsolete inventory , among other things , which may offset the benefit of changes in pricing , product mix and cost reductions . selling , general and administrative our selling , general and administrative ( โ sg & a โ ) expenses primarily consist of personnel-related expenses , including salaries , bonuses , fringe benefits and stock-based compensation , warehousing and distribution costs , depreciation of property and equipment , amortization of retail product displays and amortization of intangible assets . see โ critical accounting policies and estimatesโstock-based compensation โ below for more detail regarding stock-based compensation . in the near term , we expect to continue to invest in our growth initiatives , including investments in the e.l.f . brand and infrastructure . over time , we expect our sg & a expenses to grow at a slower rate than our net sales growth as we leverage our past investments , including those made in 2015 and 2016 to support the reporting and compliance requirements associated with being a public company . interest expense , net interest expense primarily consists of cash interest and fees on our outstanding indebtedness . see โ financial condition , liquidity and capital resources โ below and a description of our indebtedness in note 8 to the notes to consolidated financial statements in item 15 โ exhibits , financial statement schedules โ . other income ( expense ) , net our purchases are largely in chinese renminbi ( โ rmb โ ) , and , as such , we are exposed to periodic fluctuations in that currency . while we do not have an active hedging program , we had a number of legacy exchange rate forward contracts that matured during the year ended december 31 , 2016. we did not apply hedge accounting , and therefore the periodic impact of these legacy hedging activities was calculated on a mark-to-market basis . other income ( expense ) , net is primarily a result of changes in the notional value of exchange rate forward contracts outstanding in prior periods , as well as fluctuations in the exchange rate in the rmb to the u.s. dollar . income tax benefit ( provision ) the provision for income taxes represents federal , foreign , state and local income taxes . story_separator_special_tag fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products , expansion of space within our existing retailer base and the general seasonality of our business . as of december 31 , 2018 , we had working capital , excluding cash , of $ 47.5 million , compared to $ 62.2 million as of december 31 , 2017 . working capital , excluding cash and debt , was $ 57.4 million and $ 70.9 million as of december 31 , 2018 and december 31 , 2017 , respectively . we believe that our operating cash flow , cash on hand and available financing under our revolving credit facility will be adequate to meet our operating , investing and financing needs for the next 12 months . if necessary , we can borrow funds under our revolving credit facility to finance our liquidity requirements , subject to customary borrowing conditions . to the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy , we anticipate that they will be obtained through the incurrence of additional indebtedness , additional equity financings or a combination of these potential sources of funds ; however , such financing may not be available on favorable terms , or at all . our ability to meet our operating , investing and financing needs depends to a significant extent on our future financial performance , which will be subject in part to general economic , competitive , financial , regulatory and other factors that are beyond our control , including those described elsewhere in item 1a โ risk factors โ . in addition to these general economic and industry factors , the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will be our ability to provide innovative products to our customers and manage production and our supply chain . the e.l.f . store closing will require a use of cash to settle outstanding liabilities , which we expect to fund out of cash on hand as of december 31 , 2018. the amount and timing of this cash outflow is uncertain . the substantial majority of the future minimum lease payments disclosed in note 9 to our consolidated financial statements in item 15 โ exhibits , financial statement schedules โ under the heading โ commitments and contingencies โ relates to e.l.f . store leases . cash flows replace_table_token_6_th cash provided by operating activities for the year ended december 31 , 2018 , net cash provided by operating activities was $ 55.6 million . this included net income , before deducting depreciation , amortization and other non-cash items , of $ 50.5 million and decreases in net working capital of $ 5.0 million . the decreases in net working capital were largely driven by a $ 10.3 million decrease in accounts payable and accrued expenses , primarily due to payments for inventory ordered at the end of fiscal year 2017. this was offset by a $ 16.3 million decrease in inventory and a $ 7.6 million decrease in accounts receivable . 43 for the year ended december 31 , 2017 , net cash provided by operating activities was $ 12.4 million . this included net income , before deducting depreciation , amortization and other non-cash items , of $ 50.6 million offset by a $ 25.5 million decrease in accounts payable and accrued expenses primarily due to payments for inventory ordered at the end of fiscal year 2016 and an $ 11.2 million increase in prepaid expenses and other assets primarily due to investment in retail product displays . for the year ended december 31 , 2016 , net cash provided by operating activities was $ 2.1 million . this included net income , before deducting depreciation , amortization and other non-cash items , of $ 11.6 million offset by increases in net working capital of $ 9.5 million during the period . the increases in net working capital were largely driven by a $ 38.0 million increase in inventory to support growth in the business and a $ 15.4 million increase in accounts receivable driven by growth in revenue , partially offset by a $ 43.1 million increase in accounts payable and accrued expenses due to the increase in inventory purchases and the overall growth in the business . cash used in investing activities for the year ended december 31 , 2018 , net cash used in investing activities was $ 8.9 million , compared to $ 10.4 million for the year ended december 31 , 2017 . the decrease was primarily attributable to a $ 2.9 million investment in a social media analytics company in the period ended december 31 , 2017 . this was partially offset by an increase in purchases of property and equipment including the implementation costs of a new e-commerce platform . for the year ended december 31 , 2017 , net cash used in investing activities was $ 10.4 million , compared to $ 9.1 million for the year ended december 31 , 2016. the increase was primarily attributable to the investment in the social media analytics company referenced above , partially offset by lower purchases of property and equipment . for the year ended december 31 , 2016 , net cash used in investing activities was $ 9.1 million , consisting primarily of purchases of property and equipment related to the build-out of new e.l.f . stores that opened in 2016 , as well as fixtures to support new distribution at national retailers . cash provided by ( used in ) financing activities for the year ended december 31 , 2018 , net cash used in financing activities was $ 5.6 million , primarily driven by $ 8.3 million in mandatory principal payments under our term loan facility ( as defined under the heading โ description of indebtedness โ ) . this was partially offset by $ 3.2 million of proceeds from the exercise of options to purchase common stock .
| results of operations the following table sets forth our consolidated statements of operations data in dollars and as a percentage of net sales for the periods presented : replace_table_token_4_th 40 replace_table_token_5_th comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 net sales net sales decreased $ 2.5 million , or 1 % , to $ 267.4 million in the year ended december 31 , 2018 , from $ 269.9 million in the year ended december 31 , 2017 . the decrease was primarily driven by declining trends at select national retailers and a $ 4.9 million decrease in sales to discount channel customers . these impacts were mostly offset by increases in shelf space and distribution in new accounts . gross profit gross profit decreased $ 2.0 million , or 1 % , to $ 162.7 million in the year ended december 31 , 2018 , compared to $ 164.7 million in the year ended december 31 , 2017 . lower volume accounted for $ 1.5 million of the decrease in gross profit , with the remaining $ 0.5 million decrease primarily driven by unfavorable movements in foreign exchange rates , partially offset by changes in customer mix and margin accretive innovation . gross margin remained consistent at 61 % in the years ended december 31 , 2018 and 2017 , as unfavorable movements in foreign exchange rates were offset by changes in customer mix and margin accretive innovation . selling , general and administrative expenses sg & a expenses were $ 136.6 million in the year ended december 31 , 2018 , an increase of $ 5.1 million , or 4 % , from $ 131.4 million in the year ended december 31 , 2017 . sg & a expenses as a percentage of net sales increased to 51 % for the year ended december 31 , 2018 from 49 % in the year ended december 31 , 2017 .
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โ we begin management 's discussion and analysis of financial condition and results of operations with an overview of the business , including our strategy to give the reader a summary of the goals of our business and the direction in which our business is moving . this is followed by a discussion of the critical accounting policies and estimates that we believe are important to 19 understanding the assumptions and judgments incorporated in our reported financial results . in the next section , we discuss our results of operations for the year ended february 29 , 2012 compared to the years ended february 28 , 2011 and february 28 , 2010 . we then provide an analysis of changes in our balance sheet and cash flows , and discuss our financial commitments in the sections entitled โ liquidity and capital resources , including contractual and commercial commitments . '' we conclude this md & a with a discussion of โ related party transactions โ and โ recent accounting pronouncements. โ segment we have determined that we operate in one reportable segment , the electronics group , based on review of asc 280 โ segment reporting โ ( โ asc 280 โ ) . the characteristics of our operations that are relied on in making and reviewing business decisions include the similarities in our products , the commonality of our customers , suppliers and product developers across multiple brands , our unified marketing and distribution strategy , our centralized inventory management and logistics , and the nature of the financial information used by our executive officers . management reviews the financial results of the company based on the performance of the electronics group . outlook the company 's domestic and international business is subject to retail industry conditions and the sales of new and used vehicles . the recent worldwide economic condition had an adverse impact on consumer spending and vehicle sales . if the global macroeconomic environment does not continue to improve or if it deteriorates further , this could have a negative effect on the company 's revenues and earnings . in an attempt to offset the recent market conditions , the company continues to explore strategies and alternatives to reduce its operating expenses , such as consolidation of facilities and it systems , and has been introducing new product to obtain a greater market share . the company continues to focus on cash flow and anticipates having sufficient resources with its recently amended credit agreement , to operate during fiscal 2013 and 2014 . business overview and strategy effective december 1 , 2011 , audiovox corporation changed its name to voxx international corporation ( โ voxx , '' โ we , '' `` our , '' `` us '' or โ company '' ) . the company believes that the name voxx international would be a name that better represents the widely diversified interests of the company , and the more than 30 global brands it has acquired and grown throughout the years , achieving a powerful international corporate image and creating a vehicle for each of these respective brands to emerge with its own identity . voxx is a leading international distributor and value added service provider in the accessory , mobile and consumer electronics industries . we conduct our business through eighteen wholly-owned subsidiaries . voxx has a broad portfolio of brand names used to market our products as well as private labels through a large domestic and international distribution network . we also function as an oem ( โ original equipment manufacturer โ ) supplier to several customers . over the last several years , we have focused on our intention to acquire synergistic businesses with the addition of eight new subsidiaries . these subsidiaries helped us to expand our core business and broaden our presence in the accessory and oem markets . our acquisitions of klipsch and invision have provided the opportunity to enter the manufacturing arena . our intention is to continue to pursue business opportunities which will allow us to further expand our business model while leveraging overhead and exploring specialized niche markets in the electronics industry . although we believe our product groups have expanding market opportunities , there are certain levels of volatility related to domestic and international markets , new car sales , increased competition by manufacturers , private labels , technological advancements , discretionary consumer spending and general economic conditions . also , all of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future . acquisitions we have acquired and integrated several acquisitions which are outlined in the acquisitions section of part i and presented in detail in note 2 . net sales growth net sales over a five-year period have increased 19.6 % from $ 591,355 for the year ended february 29 , 2008 to $ 707,062 for the year ended february 29 , 2012 . during this period , our sales were impacted by the following items : the introduction of new products and lines such as digital antennas and mobile multi-media devices , acquisition of klipsch 's high-end speaker business , 20 acquisition of invision 's mobile entertainment business , acquisition of schwaiger 's accessory business , acquisition of thomson 's audio/video business , acquisition of technuity 's accessory business , acquisition of incaar 's oem business , acquisition of oehlbach 's accessory business partially offset by : the discontinuance of various high volume/low margin product lines such as navigation , gmrs radios and flat-panel tv 's , volatility in core mobile , consumer and accessories sales due to increased competition , lower selling prices and the decline in the national and global economy . critical accounting policies and estimates general our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . story_separator_special_tag reversals of unearned sales incentives for the years ended february 29 , 2012 , february 28 , 2011 and february 28 , 2010 amounted to $ 2,200 , $ 977 and $ 1,369 , respectively . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . reversals of unclaimed sales incentives for the years ended february 29 , 2012 , february 28 , 2011 and february 28 , 2010 amounted to $ 1,462 , $ 748 and $ 1,190 , respectively . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . we record charges for estimated credit losses against operating expenses and charges for price adjustments against net sales in the consolidated financial statements . the reserve for estimated credit losses at february 29 , 2012 and february 28 , 2011 were $ 5,737 and $ 6,179 , respectively . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . inventories we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost ) and or the current estimated market value of the inventory less expected costs to sell the inventory . we regularly review inventory quantities on-hand and record a provision , in cost of sales , for excess and obsolete inventory based primarily from selling price reductions subsequent to the balance sheet date , indications from customers based upon current negotiations , and purchase orders . a significant sudden increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand . in addition , our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . during the years ended february 29 , 2012 , february 28 , 2011 and february 28 , 2010 , we recorded inventory write-downs of $ 2,942 , $ 3,911 and $ 2,972 , respectively . estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of 22 future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . goodwill and other intangible assets goodwill and other intangible assets , which consists of the excess cost over fair value of assets acquired ( goodwill ) and other intangible assets ( patents , contracts , trademarks and customer relationships ) amounted to $ 262,715 at february 29 , 2012 and $ 106,562 at february 28 , 2011 . goodwill and other intangible assets are determined in accordance with asc 805 โ business combinations โ ( โ asc 805 โ ) and asc 350 โ intangibles โ goodwill and other โ ( โ asc 350 โ ) , ( see goodwill and other intangible assets ( note 1 ( k ) ) . goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . the company has used the discounted future cash flow method ( dcf ) as the principle method to determine the fair value ( โ fv โ ) of acquired businesses . the discount rate used for our analysis was 13.3 % . a five-year period was analyzed using a risk adjusted discount rate . the value of potential intangible assets separate from goodwill are evaluated and assigned to the respective categories using certain methodologies ( see note 1 ( k ) ) . certain estimates and assumptions are used in applying these methodologies , including projected sales , which include incremental revenue to be generated from the product markets that the company has not been previously exposed to , disclosed future contracts and adjustments for declines in existing core sales ; ongoing market demand for the relevant products ; and required returns on tangible and intangible assets . in the event that actual results or market conditions deviate from these estimates and assumptions used , the future fv may be different than that determined by management and may result in an impairment loss . the company categorizes its intangible assets between goodwill and intangible assets . goodwill and other intangible assets that have an indefinite useful life are not amortized . intangible assets that have a definite useful life are amortized over their estimated useful life . on an annual basis , or as needed for a triggering event , we test goodwill and other indefinite lived intangible assets for impairment ( see note 1 ( k ) ) . to determine the fair value of these intangible assets , there are many assumptions and estimates used that directly impact the results of the testing . we have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose .
| results of operations included in item 8 of this annual report on form 10-k are the consolidated balance sheets at february 29 , 2012 and february 28 , 2011 and the consolidated statements of operations , consolidated statements of stockholders ' equity and consolidated statements of cash flows for the years ended february 29 , 2012 , february 28 , 2011 and february 28 , 2010 . in order to provide the reader meaningful comparison , the following analysis provides comparison of the audited year ended february 29 , 2012 with the audited years ended february 28 , 2011 , and february 28 , 2010 . we analyze and explain the differences between periods in the specific line items of the consolidated statements of operations . year ended february 29 , 2012 compared to the years ended february 28 , 2011 and february 28 , 2010 continuing operations the following table sets forth , for the periods indicated , certain statement of operations data for the years ended february 29 , 2012 ( โ fiscal 2012 โ ) , february 28 , 2011 ( โ fiscal 2011 โ ) and february 28 , 2010 ( โ fiscal 2010 โ ) . net sales replace_table_token_3_th 24 fiscal 2012 electronics sales , which include both mobile and consumer electronics , represented 79.3 % of the net sales for the year ended february 29 , 2012 , compared to 73.9 % in the prior year . for the year ended february 29 , 2012 , approximately $ 169,500 of our sales from this product group was the result of our recent acquisition of klipsch . in addition , the electronics group experienced increases in its oem manufacturing lines due to increases in domestic automotive sales and the launch of new programs , both domestically and internationally .
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in addition , we are evaluating our lead molecular imaging agent , 124i-pgn650 ( โ pgn650 โ ) , in an exploratory clinical trial for the imaging of multiple solid tumor types . our pipeline of novel drug candidates in clinical trials is based on our first-in-class phosphatidylserine ( โ ps โ ) -targeting technology platform . the ps-targeting platform includes monoclonal antibodies that target and bind to ps , a highly immunosuppressive molecule usually located inside the membrane of healthy cells , but โ flips โ and becomes exposed on the outside of cells that line tumor blood vessels , causing the tumor to evade immune detection . ps-targeting antibodies target and bind to ps and block this immunosuppressive signal , thereby enabling the immune system to recognize and fight the tumor . bavituximab is our lead immunotherapeutic ps-targeting antibody , which has demonstrated broad therapeutic potential and represents a new approach to treating cancer . in addition to the potential for our ps-targeting antibodies to treat cancer , we believe these antibodies may have broad potential for the imaging and diagnosis of multiple diseases , including cancer . pgn650 is our lead ps-targeting imaging agent that represents a potential new approach to imaging cancer . the following represents a summary of our company and investigator-sponsored clinical trials under our first-in-class ps-targeting technology platform with respect to our oncology and imaging programs in clinical-stage development . additional information pertaining to each clinical trial is further discussed below . product candidate indication ; trial design phase status bavituximab ps-targeting monoclonal antibody ( oncology ) second-line non-small cell lung cancer ( โ nsclc โ ) ; randomized , double blind , placebo-controlled , combined with docetaxel ( sunrise trial ) iii trial initiated in december 2013 ; patient enrollment ongoing . front-line nsclc ; randomized , open-label , combined with carboplatin and pemetrexed ib patient enrollment complete ; interim data described below . her2-negative metastatic breast cancer ( mbc ) ; single arm , open-label , combined with paclitaxel i patient enrollment complete ; interim data described below . advanced liver cancer ( hepatocellular carcinoma or hcc ) ; single arm , open-label , combined with sorafenib i/ii patient enrollment ongoing in phase ii portion of trial ; interim safety data described below . front-line rectal adenocarcinoma ; single arm , open-label , combined with capecitabine and radiation therapy i patient enrollment ongoing . advanced melanoma ; randomized , open label , combined with ipilimumab ib trial initiated in april 2014 ; patient enrollment ongoing . pgn650 ps-targeting f ( ab ' ) 2 fully human monoclonal antibody ( imaging ) imaging agent i * patient enrollment ongoing . * filed under an exploratory investigational new drug application ( โ ind โ ) . 42 bavituximab for the treatment of solid tumors we believe our novel immunotherapy candidate bavituximab may have broad potential for the treatment of multiple types of cancer . we have recently initiated a randomized phase iii trial for bavituximab in combination with docetaxel in second-line nsclc , our sunrise trial . in addition , we have investigator-sponsored trials evaluating different treatment combinations and additional oncology indications for bavituximab . the following represents an overview of our company and investigator-sponsored bavituximab clinical trials by indication : bavituximab in second-line nsclc bavituximab is our lead immunotherapy investigational candidate in phase iii development for the treatment of second-line nsclc . in may 2013 , we reached an agreement with the u.s. food and drug administration ( โ fda โ ) on the design of the phase iii sunrise trial ( s timulating imm u ne respo n se th r ough bav i tuximab in a pha se iii lung cancer study ) . the design of the sunrise trial was supported by promising data from our prior phase iib second-line nsclc trial in the same indication , which final data was presented at the 2013 american society of clinical oncology annual meeting . in december 2013 , we initiated the phase iii sunrise trial and patient enrollment is ongoing . in addition , in january 2014 , we announced that bavituximab received fda fast track designation for combination with docetaxel in patients with previously-treated non-squamous nsclc . the phase iii sunrise trial is a randomized , double-blind , placebo-controlled trial evaluating bavituximab plus docetaxel versus docetaxel plus placebo in approximately 600 patients at clinical sites worldwide . the trial is enrolling patients with stage iiib/iv non-squamous nsclc who have progressed after standard front-line treatment . patients are randomized into one of two treatment arms . one treatment arm receives docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with bavituximab ( 3 mg/kg ) weekly until progression or toxicity . the other treatment receives docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with placebo weekly until progression or toxicity . the primary endpoint of the trial is overall survival . bavituximab in front-line nsclc this investigator-sponsored phase ib trial is designed to assess bavituximab with pemetrexed and carboplatin in up to 25 patients with locally advanced or metastatic nsclc . interim data conducted on a small number of patients showed encouraging response rates with the combination of carboplatin , pemetrexed and bavituximab . patient enrollment is complete and additional data is expected during fiscal year 2015. bavituximab in her2-negative metastatic breast cancer ( mbc ) this investigator-sponsored phase i trial was designed to assess bavituximab combined with paclitaxel in up to 14 patients with her2-negative metastatic breast cancer . interim data presented at asco in june 2013 , reported that , from 13 evaluable patients , 85 % of patients achieved an objective tumor response , including 15 % of patients achieving a complete response measured in accordance with recist criteria . story_separator_special_tag these projections include a number of uncertainties , including but not limited to ( i ) the uncertainty of the rate at which patients will be enrolled in any current or future clinical trials , including , our phase iii sunrise trial , ( ii ) the uncertainty of future clinical and preclinical studies , which are dependent upon the results of current clinical and preclinical studies , ( iii ) the uncertainty of obtaining regulatory approval to advance our current exploratory ind clinical program to phase i or to commence any future trials , and ( iv ) the uncertainty of terms related to any potential future partnering or licensing arrangement . during fiscal year 2015 , we expect to continue to direct the majority of our research and development expenses towards our ps-targeting technology platform as we are seeking potential partners to further advance the cotara clinical program . year ended april 30 , 2013 compared to the year ended april 30 , 2012 : the decrease in research and development expenses of $ 11,382,000 ( or 32 % ) during the year ended april 30 , 2013 compared to fiscal year 2012 was due to the following changes associated with each of the following technologies under development : replace_table_token_7_th 47 o ps-targeting โ the decrease in ps-targeting program expenses of $ 11,025,000 during the year ended april 30 , 2013 compared to fiscal year 2012 was primarily due to decreases in third-party vendor costs regarding our three separate company-sponsored phase ii bavituximab trials in oncology . in addition , the fiscal year 2013 decrease was supplemented with a decrease in third-party vendor costs associated with a prior completed phase ii bavituximab trial using bavituximab for the treatment of patients with previously untreated genotype-1 hepatitis c virus ( hcv ) infection that completed enrollment in september 2011. these decreases in clinical trial expenses were further supplemented with a decrease in manufacturing costs incurred in fiscal year 2013 associated with preparing bavituximab for potential later-stage clinical trials combined with a decrease in sponsored research fees associated with our preclinical anti-viral program . these decreases in ps-targeting program expenses were offset by increases in payroll and related expenses associated with our lead ps-targeting molecular imaging agent , pgn650 , combined with an increase in share-based compensation expense . o cotara โ the decrease in cotara related expense of $ 357,000 during the year ended april 30 , 2013 , compared to fiscal year 2012 was primarily due to a decrease in third-party vendor costs associated with our phase ii trial for the treatment of recurrent glioblastoma multiforme ( โ gbm โ or brain cancer ) , which trial completed patient enrollment during fiscal year 2011 combined with the fiscal year 2013 decrease in payroll and related expenses as our in-house development efforts were focused primarily on our ps-targeting program . these decreases in cotara related expenses were offset by an increase in manufacturing costs associated with preparing cotara for potential later-stage clinical trials for the treatment of gbm . looking beyond the next twelve months , we expect to continue to direct the majority of our research and development expenses towards our ps-targeting technology platform although it is extremely difficult for us to reasonably estimate all future research and development costs associated with each of our technologies due to the number of unknowns and uncertainties associated with preclinical and clinical trial development . these unknown variables and uncertainties include , but are not limited to : ยท the uncertainty of the progress and results of our ongoing preclinical and clinical studies , and any additional preclinical and clinical studies we may initiate in the future based on their results ; ยท the uncertainty of the ultimate number of patients to be treated in any current or future clinical study ; ยท the uncertainty of the fda allowing our non-lead indication oncology studies to move forward from phase i clinical studies to phase ii clinical studies or phase ii clinical studies to phase iii clinical studies ; ยท the uncertainty of the fda allowing our lead molecular imaging agent , pgn650 , to move forward from an exploratory study to a phase i or phase ii clinical study ; ยท the uncertainty of the rate at which patients are enrolled into any current or future study . any delays in clinical trials could significantly increase the cost of the study and would extend the estimated completion dates ; ยท the uncertainty of terms related to potential future partnering or licensing arrangements ; ยท the uncertainty of protocol changes and modifications in the design of our clinical trial studies , which may increase or decrease our future costs ; and ยท the uncertainty of our ability to raise additional capital to support our future research and development efforts beyond the next twelve months . 48 selling , general and administrative expenses year ended april 30 , 2014 compared to the year ended april 30 , 2013 : selling , general and administrative ( โ sg & a โ ) expenses consist primarily of payroll and related expenses , including share-based compensation expense , for personnel in executive , finance , accounting , business development , legal , human resources and other internal support functions . in addition , sg & a expenses include legal fees , audit and accounting fees , patent fees , investor relation expenses , director fees , insurance expense , and other expenses relating to the general management , administration , and business development activities of the company .
| results of operations the following table compares the consolidated statements of operations and comprehensive loss for the fiscal years ended april 30 , 2014 , 2013 and 2012. this table provides you with an overview of the changes in the statements of operations and comprehensive loss for the comparative periods , which are further discussed below . replace_table_token_5_th contract manufacturing revenue year ended april 30 , 2014 compared to the year ended april 30 , 2013 : contract manufacturing revenue is derived from our wholly owned subsidiary , avid . the increase in contract manufacturing revenue of $ 961,000 ( or 5 % ) during the year ended april 30 , 2014 compared to prior year is primarily due to an increase in process development related services combined with an increase in pricing associated with manufacturing runs . based on the current commitments for manufacturing services from avid 's third-party customers and the anticipated completion of in-process third-party customer manufacturing runs , we expect contract manufacturing revenue for fiscal year 2015 to be in-line with fiscal year 2014. year ended april 30 , 2013 compared to the year ended april 30 , 2012 : the increase in contract manufacturing revenue of $ 6,550,000 ( or 44 % ) during the year ended april 30 , 2013 compared to fiscal year 2012 was primarily due to an increase in the number of completed manufacturing runs in the year ended april 30 , 2013 compared to fiscal year 2012 , which can be attributed to an increase in demand for manufacturing services . 45 license revenue years ended april 30 , 2014 and 2013 compared to the years ended april 30 , 2013 and 2012 : the changes in license revenue in fiscal years 2014 and 2013 compared to fiscal years 2013 and 2012 , respectively , were directly related to revenue recognized in accordance with the terms of our existing license agreements .
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the review includes an analysis of various factors , such as future reversals of existing taxable temporary differences , the capacity for the carryback or carryforward of any losses , the expected occurrence of future income or loss and available tax planning strategies . the company applies the fasb 's guidance relating to uncertainty in income taxes recognized in a company 's financial statements . under this story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this form 10-k. historical results and percentage relationships set forth in the consolidated statements of income contained in the consolidated financial statements , including trends which might appear , should not be taken as indicative of future operations . story_separator_special_tag outstanding 18,400,000 depositary shares of the company 's 7.75 % class g cumulative redeemable preferred stock and all of its outstanding 7,000,000 depositary shares of the company 's 6.65 % class f cumulative redeemable preferred stock resulting in aggregate payments of $ 635.0 million . ยท also during 2012 , the company ( i ) repaid the $ 17.0 million outstanding on its 5.98 % medium-term notes , which matured in july 2012 and ( ii ) repaid the $ 198.9 million outstanding on its 6.00 % senior unsecured note , which matured in november 2012 . ยท the company also obtained a new $ 400.0 million unsecured term loan with a consortium of banks , which accrues interest at libor plus 105 basis points . the term loan is scheduled to mature in april 2014 , with three additional one-year options to extend the maturity date , at the company 's discretion , to april 17 , 2017. impairments : ยท real estate market conditions , including capitalization rates , discount rates and vacancies had continued to improve throughout 2012 ; however , declines in certain real estate markets continued to have a negative effect on transactional activity as it related to dispositions of select real estate assets . this factor , in addition to the company 's efforts to market certain assets and management 's assessment as to the likelihood and timing of such potential transactions caused the company to recognize impairment charges of $ 59.6 million ( including $ 22.5 million which is classified within discontinued operations ) , before income tax benefit and noncontrolling interests . potential future adverse market and economic conditions could cause the company to recognize additional impairments in the future ( see footnote 2 of the notes to consolidated financial statements included in this annual report on form 10-k ) . ยท in addition to the impairment charges above , various unconsolidated joint ventures in which the company holds noncontrolling interests recognized impairment charges relating to certain properties during 2012. the company 's share of these charges was $ 11.1 million , before income taxes ( see footnotes 2 and 8 of the notes to consolidated financial statements included in this annual report on form 10-k ) . critical accounting policies the consolidated financial statements of the company include the accounts of the company , its wholly-owned subsidiaries and all entities in which the company has a controlling interest , including where the company has been determined to be a primary beneficiary of a variable interest entity in accordance with the consolidation guidance of the financial accounting standards board 's ( โ fasb โ ) accounting standards codification ( โ asc โ ) . the company applies these provisions to each of its joint venture investments to determine whether the cost , equity or consolidation method of accounting is appropriate . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has made its best estimates and assumptions that affect the reported amounts of assets and liabilities . these estimates are based on , but not limited to , historical results , industry standards and current economic conditions , giving due consideration to materiality . the most significant assumptions and estimates relate to revenue recognition and the recoverability of trade accounts receivable , depreciable lives , valuation of real estate and intangible assets and liabilities , valuation of joint venture investments and other investments , realizability of deferred tax assets and uncertain tax positions . application of these assumptions requires the exercise of judgment as to future uncertainties , and , as a result , actual results could materially differ from these estimates . the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties , investments in joint ventures , marketable securities and other investments . the company 's reported net earnings are directly affected by management 's estimate of impairments and or valuation allowances . 17 revenue recognition and accounts receivable base rental revenues from rental property are recognized on a straight-line basis over the terms of the related leases . certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee . these percentage rents are recorded once the required sales level is achieved . operating expense reimbursements are recognized as earned . rental income may also include payments received in connection with lease termination agreements . in addition , leases typically provide for reimbursement to the company of common area maintenance , real estate taxes and other operating expenses . the company makes estimates of the uncollectability of its accounts receivable related to base rents , straight-line rent , expense reimbursements and other revenues . the company analyzes accounts receivable and historical bad debt levels , customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims . story_separator_special_tag capitalization rates , discount rates and credit spreads utilized in these models are based upon rates that the company believes to be within a reasonable range of current market rates for each respective property . realizability of deferred tax assets and uncertain tax positions the company is subject to federal , state and local income taxes on the income from its activities relating to its trs activities and subject to local taxes on certain non-u.s. investments . the company accounts for income taxes using the asset and liability method , which requires that deferred tax assets and liabilities be recognized based on future tax consequences of temporary 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 apply in the years in which temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted . a reduction of the carrying amounts of deferred tax assets by a valuation allowance is required , if based on the evidence available , it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized . the company considers all available evidence , both positive and negative , to determine whether , based on the weight of that evidence , a valuation allowance is needed . information about an enterprise 's current financial position and its results of operations for the current and preceding years is supplemented by all currently available information about future years . the company must use judgment in considering the relative impact of negative and positive evidence . the company believes , when evaluating deferred tax assets within its taxable reit subsidiaries , special consideration should be given to the unique relationship between the company as a reit and its taxable reit subsidiaries . this relationship exists primarily to protect the reit 's qualification under the code by permitting , within certain limits , the reit to engage in certain business activities in which the reit can not directly participate . as such , the reit controls which and when investments are held in , or distributed or sold from , its taxable reit subsidiaries . this relationship distinguishes a reit and taxable reit subsidiary from an enterprise that operates as a single , consolidated corporate taxpayer . the company primarily utilizes a twenty year projection of pre-tax book income and taxable income as positive evidence to overcome any negative evidence . although items of income and expense utilized in the projection are objectively verifiable there is also significant judgment used in determining the duration and timing of events that would impact the projection . based upon the company 's analysis of negative and positive evidence the company will make a determination of the need for a valuation allowance against its deferred tax assets . if future income projections do not occur as forecasted , the company will reevaluate the need for a valuation allowance . in addition , the company can employ additional strategies to realize its deferred tax assets , including transferring a greater portion of its property management business to the trs , sale of certain built-in gain assets , and reducing intercompany debt . the company recognizes and measures benefits for uncertain tax positions , which requires significant judgment from management . although the company believes it has adequately reserved for any uncertain tax positions , no assurance can be given that the final tax outcome of these matters will not be different . the company adjusts these reserves in light of changing facts and circumstances , such as the closing of a tax audit or the refinement of an estimate . changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in the company 's income tax expense in the period in which a change is made , which could have a material impact on operating results ( see footnote 22 of the notes to consolidated financial statements included in this form 10-k ) . 19 results of operations comparison 2012 to 2011 replace_table_token_5_th ( 1 ) revenues from rental property increased primarily from the combined effect of ( i ) the acquisition of operating properties during 2012 and 2011 , providing incremental revenues for the year ended december 31 , 2012 of $ 50.9 million , as compared to the corresponding period in 2011 , ( ii ) an increase in revenues relating to the company 's latin american portfolio of $ 8.0 and ( iii ) the completion of certain development and redevelopment projects , tenant buyouts and overall growth in the current portfolio , providing incremental revenues of $ 0.9 million , for the year ended december 31 , 2012 , as compared to the corresponding period in 2011 , partially offset by ( iv ) a decrease in revenues of $ 0.7 million for the year ended december 31 , 2012 , as compared to the corresponding period in 2011 , primarily resulting from the partial sale of certain properties during 2012 and 2011 . ( 2 ) rental property expenses include ( i ) rent expense relating to ground lease payments for which the company is the lessee ; ( ii ) real estate tax expense for consolidated properties for which the company has a controlling ownership interest and ( iii ) operating and maintenance expense , which consists of property related costs including repairs and maintenance costs , roof repair , landscaping , parking lot repair , snow removal , utilities , property insurance costs , security and various other property related expenses .
| executive summary kimco realty corporation is one of the nation 's largest publicly-traded owners and operators of neighborhood and community shopping centers . as of december 31 , 2012 , the company had interests in 896 shopping center properties ( the โ combined shopping center portfolio โ ) , aggregating 131.3 million square feet of gross leasable area ( โ gla โ ) and 829 other property interests , primarily through the company 's preferred equity investments , other real estate investments and non-retail properties , totaling 26.6 million square feet of gla , for a grand total of 1,725 properties aggregating 157.9 million square feet of gla , located in 44 states , puerto rico , canada , mexico , chile , brazil and peru . the executive officers are engaged in the day-to-day management and operation of real estate exclusively with the company , with nearly all operating functions , including leasing , asset management , maintenance , construction , legal , finance and accounting , administered by the company . the company 's vision is to be the premier owner and operator of shopping centers with its core business operations focusing on owning and operating neighborhood and community shopping centers through investments in north america . this vision has entailed a shift away from non-retail assets that the company currently holds . these investments include non-retail preferred equity investments , marketable securities , mortgages on non-retail properties and several urban mixed-use properties . the company has been actively selling its non-retail assets and investments . as of december 31 , 2012 , these investments had a book value of $ 398.4 million , which represents less than 3.5 % of the company 's total assets , before depreciation . in addition , the company has an active capital recycling program of selling retail assets deemed non-strategic . if the company accepts sales prices for these non-retail and or non-strategic assets that are less than their net carrying values , the company would be required to take impairment charges .
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based on evaluation of available evidence , including recent changes in market interest rates , credit rating information and information obtained from regulatory filings , management believes the declines in fair value for these securities are temporary . should the impairment of any of these securities become other than temporary , the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified . the following tables present securities with unrealized losses at december 31 , 2018 and 2017 : replace_table_token_38_th replace_table_token_39_th the unrealized loss on the securities portfolio has increased by $ 0.4 million as of december 31 , 2018 , from the prior year . management reviews these securities on a quarterly basis and has determined that no impairment exists . management evaluates securities for other-than-temporary impairment at least on a quarterly basis , and more frequently when economic or market concern warrants such evaluation . when the company does not intend to sell a debt security , and it is more likely than not the company will not have to sell the security before recovery of its cost basis , it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income . f- 15 note 4 : loans and allowance for loan losses the following tables present the categories of loans at december 31 , 2018 and 2017 : replace_table_token_40_th the company makes commercial , agri-business , consumer and residential loans to customers throughout its defined market area . commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee . since a portion of the commitments may expire without being drawn upon , the total commitment amounts do not necessarily represent future cash requirements . each customer 's creditworthiness is evaluated on a case-by-case basis . the amount of collateral obtained , if deemed necessary , is based on management 's credit evaluation of the customer . collateral held varies , but may include accounts receivable , inventory , property , plant and equipment , commercial real estate and residential real estate . standby letters of credit are conditional commitments issued by the company to guarantee the performance of a customer to a third party . those guarantees are primarily issued to support public and private borrowing arrangements , including commercial paper , bond financing and similar transactions . the credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers . forward sale commitments are commitments to sell groups of residential mortgage loans that the company originates or purchases as part of its mortgage banking activities . the company commits to sell the loans at specified prices in a future period , typically within forty-five days . these commitments are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held-for-sale since the company is exposed to interest rate risk during the period between issuing a loan commitment and the sales of the loan into the secondary market . listed below is a summary of loan commitments , unused lines of credit and standby letters of credit as of december 31 , 2018 and 2017. replace_table_token_41_th there are various contingent liabilities that are not reflected in the consolidated financial statements , including claims and legal actions arising in the ordinary course of business . in the opinion of management , after consultation with legal counsel , the ultimate disposition of these matters is not expected to have a material effect on the company 's consolidated financial condition or results of operations . f- 16 the risk characteristics of each loan portfolio segment are as follows : commercial and agricultural commercial and agricultural loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower . the cash flows of borrowers , however , may not be as expected and the collateral securing these loans may fluctuate in value . most commercial loans are secured by the assets being financed or other business assets , such as accounts receivable or inventory , and may include a personal guarantee . short-term loans may be made on an unsecured basis . in the case of loans secured by accounts receivable , the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers . commercial real estate including construction commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate . commercial real estate lending typically involves higher loan principal amounts story_separator_special_tag sb financial group , inc. ( โ sb financial โ ) , is a financial holding company registered with the federal reserve board and subject to regulation under the bank holding company act of 1956 , as amended . through its direct and indirect subsidiaries , sb financial is engaged in commercial and retail banking , wealth management and private client financial services . the following discussion provides a review of the consolidated financial condition and results of operations of sb financial and its subsidiaries ( collectively , the โ company โ ) . this discussion should be read in conjunction with the company 's consolidated financial statements and related footnotes as of and for the years ended december 31 , 2018 and 2017 . story_separator_special_tag regardless of the extent of the company 's analysis of customer performance , portfolio trends or risk management processes , certain inherent , but undetected , losses are probable within the loan portfolio . this is due to several factors including inherent delays in obtaining information regarding a customer 's financial condition or changes in their unique business conditions , the subjective nature of individual loan valuations , collateral assessments and the interpretation of economic trends . volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors . the company estimates a range of inherent losses related to the existence of these exposures . the estimates are based upon the company 's evaluation of imprecise risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment . goodwill and other intangibles : the company records all assets and liabilities acquired in purchase acquisitions , including goodwill and other intangibles , at fair value as required . goodwill is subject , at a minimum , to annual tests for impairment . other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods , and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount . the initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future . events and factors that may significantly affect the estimates include , among others , customer attrition , changes in revenue growth trends , specific industry conditions and changes in competition . deferred tax liability : the company has evaluated its deferred tax liability to determine if it is more likely than not that the liability will be realized in the future . the company 's most recent evaluation has determined that the company will more likely than not be able to realize the remaining deferred tax liability . income tax accounting : the company files a consolidated federal income tax return . the provision for income taxes is based upon income in the consolidated financial statements , rather than amounts reported on our income tax return . 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 bases . 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 rates on the deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date . changes in financial condition total assets at december 31 , 2018 , were $ 986.8 million , compared to $ 876.6 million at december 31 , 2017. loans ( excluding loans held for sale ) were $ 771.9 million at december 31 , 2018 , compared to $ 696.6 million at december 31 , 2017. total deposits were $ 802.6 million at december 31 , 2018 , compared to $ 729.6 million at december 31 , 2017 . 31 total equity was $ 130.4 million at december 31 , 2018 , up from $ 94.0 million at december 31 , 2017. the $ 36.4 million increase in equity , which reflected a 38.8 percent increase over 2017 , was primarily the result of a common capital raise completed in february 2018 , which netted $ 28.0 million . in addition , net income less dividends increase retained earnings by $ 8.6 million for 2018. replace_table_token_18_th replace_table_token_19_th loans held for investment increased $ 75.3 million , or 10.8 percent , to $ 771.9 million at december 31 , 2018. the largest component of this increase was in residential real estate loans , which rose $ 36.3 million , followed by commercial loans , which rose $ 25.6 million . deposits increased $ 73.0 million , or 10.0 percent , to $ 802.6 million at december 31 , 2018. deposit growth for the year included $ 9.0 million in noninterest demand deposits and $ 39.6 million in money market deposits . stockholders ' equity at december 31 , 2018 , was $ 130.4 million or 13.2 percent of total assets compared to $ 94.0 million or 10.7 percent of total assets at december 31 , 2017 . 32 replace_table_token_20_th nonperforming assets consisting of loans , other real estate owned ( โ oreo โ ) and accruing tdrs totaled $ 4.0 million , or 0.40 percent of total assets at december 31 , 2018 , an increase of $ 0.1 million or 2.7 percent from 2017. net charge offs were up during 2018 , at $ 0.36 million , which was a $ 0.17 million increase compared to 2017. the company 's loan loss allowance at december 31 , 2018 , now covers nonperforming loans at 213 percent , up from 207 percent at december 31 , 2017. regulatory capital reporting is required for state bank only , as the company is now exempt from quarterly regulatory capital level measurement pursuant to the small banking holding company policy statement . as of december 31 , 2018 , state bank met all regulatory capital levels required to be considered well-capitalized ( see note 15 to the consolidated financial statements ) .
| results of operations replace_table_token_21_th net interest income net interest income years ended december 31 , ( $ in thousands ) 2018 2017 % change total net interest income $ 33,267 $ 28,386 17.2 % net interest income was $ 33.3 million for 2018 compared to $ 28.4 million for 2017 , an increase of $ 4.9 million or 17.2 percent . average earning assets increased to $ 845.7 million in 2018 , compared to $ 759.7 million in 2017 , an increase of $ 86.0 million or 11.3 percent due to higher loan volume . the consolidated 2018 full year net interest margin ( fte ) increased 17 basis points to 3.95 percent compared to 3.78 percent for the full year of 2017. provision for loan losses of $ 0.6 million was taken in 2018 compared to $ 0.4 million taken for 2017. the $ 0.2 million increase was due to the higher level of net charge offs . for 2018 , net charge offs totaled $ 0.4 million , or 0.05 percent of average loans . this charge off level was higher than 2017 , in which net charge offs were $ 0.2 million or 0.03 percent of average loans . replace_table_token_22_th total noninterest income was $ 16.6 million for 2018 compared to $ 17.2 million for 2017 , representing a decline of $ 0.6 million , or 3.5 percent , year-over-year . this decrease was driven by a 3.7 percent decrease in gains on sale of residential real estate loans and the sale of our item processing business . the company sold $ 260.7 million of originated mortgages into the secondary market , which allowed our serviced loan portfolio to grow to $ 1,084.7 million at december 31 , 2018 from $ 994.9 million at december 31 , 2017. the higher servicing balance of the portfolio led to the 9.1 percent increase in mortgage loan serving income .
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includes 7,017,290 shares of common stock underlying warrants with an exercise price of $ 11.50 per share ( โ private placement warrants โ ) , 856,561 shares of common stock underlying warrants issued in april 2020 with an exercise price of $ 0.01 per share ( โ penny warrants โ ) and 2,482,786 shares of common stock underlying debentures issued in april 2020 with a conversion price of $ 3.45 per share ( โ april debentures โ ) , in the original principal amount of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements ( including the notes thereto ) contained elsewhere in this report . certain information contained in this discussion and analysis includes forward-looking statements that involve risk and uncertainties . you are therefore encouraged to read the section in this annual report on form 10-k titled , โ cautionary note regarding forward-looking statements. โ overview we are a delaware-incorporated entity with operating locations in minnesota , michigan , florida , texas , ottawa , north carolina and mexico city . on april 7 , 2020 , avct ( formerly known as pensare acquisition corp. ) , consummated the computex business combination in which it acquired computex , a private operating company that does business as computex technology solutions . in connection with the computex business combination , the company changed its name to american virtual cloud technologies , inc. the purchase price consisted primarily of the issuance of 20,000 units ( consisting of ( i ) $ 1,000 in principal amount of the company 's series a convertible debentures ( the โ debentures โ ) and ( ii ) a warrant to purchase 100 shares of common stock at an exercise price of $ 0.01 per whole share ( the โ warrants โ ) , assumed debt of $ 16.6 million and 8.2 million shares of common stock . on december 1 , 2020 , we acquired kandy from ribbon , by acquiring certain assets , assuming certain liabilities and acquiring all of the outstanding interests of kandy communications llc . the purchase price consisted of 43,778 units substantially similar to the units issued in the computex business combination . in connection with the purchase of kandy , the company also sold 10,000 units to spac opportunity partners , llc and 1,000 units to a director , both related parties , with plans to sell additional units . the consolidated financial statements of the company include the accounts of avct and its wholly owned subsidiaries . the financial position , results of operations and cash flows described herein for the dates and periods prior to april 7 , 2020 relate to the operations of computex . the historical financial information of avct prior to the business combination ( a special purpose acquisition company , or โ spac โ ) has not been reflected in the predecessor financial statements as these historical amounts have been determined to be not useful information to a user of the financial statements . we are a leading multi-brand technology solutions provider to large global customers , providing a comprehensive and integrated set of technology solutions to our customers , through our extensive hardware , software , value-added service offerings and cloud subscription services . the breadth of our offerings enables us to offer our customers a complete technology solution . covid-19 commencing in december 2019 , covid-19 began spreading throughout the world , including the first outbreak in the us in february 2020. on march 11 , 2020 , the world health organization declared covid-19 a global pandemic and recommended containment and mitigation measures worldwide . covid-19 has disrupted and continues to significantly disrupt local , regional , and global economies and businesses . the covid-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries . the extent of the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , impact on our customers , employees and vendors , all of which are uncertain and can not be predicted . at this point , the extent to which covid-19 may impact our financial condition and or results of operations is uncertain . in response to covid-19 , we have put into place certain restrictions , requirements and guidelines , to protect the health of our employees and clients , including requiring certain conditions to be met before employees return to the company 's offices . also , to protect the health and safety of our employees , our daily execution has evolved into a largely virtual model and we continue to endeavor to find innovative ways to engage with customers and prospects as we , our customers and prospects endeavor to navigate the current environment . between april 1 , 2020 and september 1 , 2020 , computex reduced the salaries of its employees and we are endeavoring to reduce other operating expenses . we plan to continue to monitor the current environment and may take further actions that may be required by federal , state or local authorities or that we determine are in the interests of our employees , customers , and partners . 24 our business our hardware offerings are sourced from a network of leading manufacturers , and include , data storage , desktops , servers , and other hardware . third party software and maintenance offerings include licensing , licensing management , software solutions and other services . we offer a full suite of value-added services , which typically are delivered as part of a complete technology solution , to help our customers meet their specific needs . our solutions range from configuration services for computer devices to fully integrated solutions such as virtualization , collaboration , security , mobility , data center optimization and cloud computing . we also offer complementary services including installations , warranty services and certain managed services such as remote network and data center monitoring . story_separator_special_tag our other growth strategies include a focus on the following areas : โ organic growth , by seeking to become our customers ' primary it solutions provider โ investment in scalable managed services โ the building of our geographic footprint โ operational efficiencies , through investment in internal technology infrastructure and software platforms . story_separator_special_tag lines . total revenue , cost of revenue and gross margin aggregate revenues for the five product lines together was $ 87.6 million in the s/p combined 2020 year , an increase of $ 1.9 million , or 2.2 % , compared with $ 85.7 million in fy 2019. the increase is primarily due to revenues from the kandy acquisition which contributed $ 1.7 million to the increase . aggregate gross profit was also up , increasing 14.2 % ( or $ 3.5 million ) in the s/p combined 2020 year , to $ 27.9 million ( including $ 0.4 million related to kandy ) , compared to $ 24.4 million in fiscal 2019. gross margin was also up , increasing 330 basis points as the 2.2 % increase in aggregate revenues was accompanied by a 2.5 % decrease in aggregate cost of revenues . 28 selling , general and administrative expenses selling , general and administrative expenses ( including transaction costs ) for the s/p combined 2020 year and fiscal 2019 consisted of the components in the following table ( in thousands ) : replace_table_token_2_th selling , general and administrative expenses increased 44.1 % in the s/p combined 2020 year compared with fiscal 2019 , primarily as a result of an increase in personnel-related costs , professional fees , insurance expenses and depreciation and amortization . personnel-related expenses increased primarily as a result of the inclusion of avct corporate salaries in the successor period , which were not included in the predecessor period , an increase in commissions due to improved margins , and an increase in share-based compensation expenses related to awards issued in the successor periods , partially offset by a reduction in salaries for employees of computex , that was effected between april 1 , 2020 and september 1 , 2020. the increased insurance expenses are related to the company 's expanded public company activities . increased professional fees are also related to the company 's expanded public company activities as well as to fees related to the acquisition of kandy . the increase in depreciation and amortization was due to increased amortization expense related to intangible assets recognized as of the computex closing date and the kandy closing date . meals , entertainment and travel decreased as a result of less travel and meetings with clients due to covid-19 restrictions . to a lesser extent , the increase was also impacted by selling , general and administrative expenses related to the kandy acquisition , which contributed $ 0.7 million to the increase ( primarily sales and marketing ) . interest expense interest expense in the s/p combined 2020 year was up compared with fiscal 2019 , primarily as a result of interest on the debentures which were issued in connection with the computex business combination and in connection with the acquisition of kandy . the debentures bear interest at the rate of 10.00 % per annum . interest expense also includes amortization of the discount on the debentures . the discount related to the debentures that were issued in connection with the acquisition of kandy include the impact of a beneficial conversion feature . see note 10 for further discussion of the debentures . benefit/provision for income taxes for all periods presented , the provision for income taxes consists of provisions for state taxes , and reflect effective tax rates that differ from the federal statutory rate as a result of certain expenses being deductible for financial reporting purposes that are not deductible for tax purposes , the existence of research and development tax credits , operating loss carryforwards , and adjustments to previously recorded deferred tax assets and liabilities related to the enactment of the tax cuts and jobs act in 2017. for the successor periods , the benefit for income taxes also reflects the impact of amortization of intangible assets recognized as of the computex closing date and the kandy closing date . 29 liquidity and capital resources overview historically , the company 's primary sources of liquidity have been cash and cash equivalents , cash flows from operations ( when available ) and cash flows from financing activities , including funding under its credit agreement . the credit agreement is more fully discussed in note 9. from time to time , the company may also choose to access the debt and equity markets to fund acquisitions to diversity its capital sources . the company 's current principal capital requirements are to fund working capital and make investments in line with its business strategy . the credit agreement matures on june 30 , 2021 , and , as amended , provides for maximum borrowings of $ 16.5 million on the line of credit portion with a scheduled reduction of $ 3.5 million in availability under the line of credit as of april 1 , 2021. as amended , the credit agreement provides for a minimum monthly liquidity ( defined as unrestricted cash plus availability under the line of credit ) of $ 3.0 million commencing january 31 , 2021. as of december 31 , 2020 , amounts outstanding under the term loan and the line of credit with comerica bank were $ 5.7 million and $ 7.4 million , respectively . in addition , at december 31 , 2020 , the company had unrestricted and restricted cash of $ 9.9 million and $ 0.6 million , respectively , in its operating bank accounts , and had availability under its line of credit of $ 6.5 million . total equity at december 31 , 2020 was $ 52.5 million .
| results of operations to distinguish between the different bases of accounting due to the computex business combination that occurred on april 7 , 2020 , the tables below separate the company 's results using a black line presentation that separates : ( 1 ) the periods prior to the closing date of april 7 , 2020 ( โ predecessor โ ) and ( 2 ) the period that started on april 7 , 2020 ( โ successor โ ) . we refer to the periods before april 7 , 2020 as the โ predecessor โ periods and refer to the periods that started on april 7 , 2020 as the โ successor โ periods . as discussed more fully above , the historical financial information of avct prior to the computex business combination ( a spac ) has not been reflected in the predecessor financial statements as these historical amounts have been determined not to be useful information to a user of the financial statements . accordingly , all activity reported for periods prior to april 7 , 2020 ( the predecessor period ) reflect only the operations of computex . as a result , the financial results of the successor and predecessor entities , presented herein are expected to be largely consistent , excluding any impact of the computex business combination . for the reasons discussed above , management believes it remains useful to review the operating results for the year ended december 31 , 2020 with the operating results for the year ended december 31 , 2019 ( fiscal year 2019 or fy 2019 ) . accordingly , in the discussion below , for purposes of a year over year comparison , the financial information for the period january 1 , 2020 through april 6 , 2020 is combined with the financial information for the period april 7 , 2020 through december 31 , 2020 and , together , is referred to as the โ s/p combined 2020 year.
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accordingly , the consolidated financial statements have been prepared on a basis that assumes the company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business . 2. significant accounting policies use of estimates the preparation of financial statements in conformity with gaap requires story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the ยrisk factorsย section of this annual report on form 10-k. unless the context otherwise requires , for purposes of this section , the terms ยwe , ย ยus , ย ยthe company , ย ยorganogenesisย or ยour companyย refer to organogenesis holdings inc. and its subsidiaries as they currently exist . overview organogenesis is a leading regenerative medicine company focused on the development , manufacture , and commercialization of solutions for the advanced wound care and surgical & sports medicine markets . our products have been shown through clinical and scientific studies to support and in some cases accelerate tissue healing and improve patient outcomes . we are advancing the standard of care in each phase of the healing process through multiple breakthroughs in tissue engineering and cell therapy . our solutions address large and growing markets driven by aging demographics and increases in comorbidities such as diabetes , obesity , smoking , and cardiovascular and peripheral vascular disease . we offer our differentiated products and in-house customer support to a wide range of health care customers including hospitals , wound care centers , government facilities , ascs , and physician offices . our mission is to provide integrated healing solutions that substantially improve medical outcomes and the lives of patients while lowering the overall cost of care . we offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care . we have and intend to continue to generate data from clinical trials , real-world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products . several of the existing and pipeline products in our portfolio have pma approval , bla approval or 510 ( k ) clearance from the fda . given the extensive time and cost required to conduct clinical trials and receive fda approvals , we believe that our data and regulatory approvals provide us a strong competitive advantage . our product development expertise and multiple technology platforms provide a robust product pipeline , which we believe will drive future growth . historically we have concentrated our efforts in the advanced wound care market . in 2017 , we acquired nutech medical which further expanded our wound care portfolio and broadened our addressable market to include the surgical & sports medicine market . we believe the expanded product portfolio facilitated by this acquisition is enhancing the ability of our sales representatives to reach and penetrate customer accounts , contributing to strong growth over time . in the advanced wound care market , we focus on the development and commercialization of advanced wound care products for the treatment of chronic and acute wounds , primarily in the outpatient setting . we have a comprehensive portfolio of regenerative medicine products , capable of supporting patients from early in the wound healing process through to wound closure regardless of wound type . our advanced wound care products include apligraf for the treatment of venous leg ulcers ( ยvlusย ) and diabetic foot ulcers ( ยdfusย ) ; dermagraft for the treatment of dfus ; puraply am to address biofilm across a broad variety of wound types ; and affinity and nushield to address a variety of wound sizes and types . we have a highly trained and specialized direct wound care sales force paired with exceptional customer support services . in the surgical & sports medicine market , we focus on products that support the healing of musculoskeletal injuries , including degenerative conditions such as osteoarthritis and tendonitis . we are leveraging our regenerative medicine capabilities in this attractive , adjacent market . our surgical & sports medicine products include renu for in-office joint and tendon applications ; nucel for bony fusion in the spine and extremities ; nushield and affinity for surgical application in targeted soft tissue repairs ; and puraply am for surgical treatment of open wounds . we currently sell these products through independent agencies and our growing direct sales force . we generated net revenue of $ 261.0 million , $ 193.4 million and $ 198.5 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . we had a net loss of $ 40.5 million , $ 64.8 million and $ 8.4 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . we expect to incur operating losses for the foreseeable future as we expend resources as part of our efforts to grow our organization to support the 59 planned expansion of our business . as of december 31 , 2019 , we had an accumulated deficit of $ 171.0 million . our primary sources of capital to date have been from sales of our products , borrowings from related parties and institutional lenders and proceeds from the sale of our common stock . we operate in one segment of regenerative medicine . items affecting comparability nutech medical acquisition . story_separator_special_tag some of these limitations are : adjusted ebitda excludes stock-based compensation expense as it has recently been , and will continue to be for the foreseeable future , a significant recurring non-cash expense for our business and an important part of our compensation strategy ; adjusted ebitda excludes depreciation and amortization expense and , although these are non-cash expenses , the assets being depreciated may have to be replaced in the future ; adjusted ebitda excludes net interest expense , or the cash requirements necessary to service interest , which reduces cash available to us ; adjusted ebitda excludes the impact of the changes in the fair value of our warrant liability , our contingent consideration forfeiture asset , and the fair value of interest rate swaps ; adjusted ebitda excludes the write-off of the costs in connection with an abandoned public offering and the costs incurred in connection with the avista merger ; adjusted ebitda excludes costs incurred in connection with the company 's warrant exchange transaction ; adjusted ebitda excludes loss on the extinguishment of debt ; adjusted ebitda excludes income tax expense ( benefit ) ; and other companies , including companies in our industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . because of these limitations , we consider , and you should consider , adjusted ebitda together with other operating and financial performance measures presented in accordance with gaap . a reconciliation of adjusted ebitda from net loss attributable to organogenesis holdings inc. , the most directly comparable financial measure calculated in accordance with gaap , has been included herein . components of and key factors influencing our results of operations in assessing the performance of our business , we consider a variety of performance and financial measures . we believe the items discussed below provide insight into the factors that affect these key measures . revenue we derive our net revenue from our portfolio of advanced wound care and surgical & sports medicine products . we primarily sell our advanced wound care products through direct sales representatives who manage and maintain the sales relationships with hospitals , wound care centers , government facilities , ascs and physician offices . we primarily sell our surgical & sports medicine products through third party agencies . we recognize revenue from sales of our advanced wound care and surgical & sports medicine products when the customer obtains control of our product , which occurs at a point in time and may be upon procedure date , shipment or delivery , based on the contractual terms of a contract . we record revenue net of a reserve for returns , discounts and gpo rebates , which represent a direct reduction to the revenue we recognize . several factors affect our reported revenue in any period , including product , payer and geographic sales mix , operational effectiveness , pricing realization , marketing and promotional efforts , the timing of orders and shipments , regulatory actions including healthcare reimbursement scenarios , competition and business acquisitions . included within our advanced wound care revenue is our puraply product portfolio that consists of puraply and puraply am . we launched puraply in mid-2015 and introduced puraply am in 2016. in order to encourage the development of innovative medical devices , drugs and biologics , the center for medicare & medicaid services , or cms , can grant new products an additional ยpass through paymentย in addition to the bundled payment amount for a limited period of no more than three years . our puraply products were granted pass-through status from launch through december 31 , 2017 , which created an economic incentive for practitioners to use puraply over other skin substitutes . as a result , we saw increases in revenue related to our puraply portfolio in the reported periods . beginning january 1 , 2018 , puraply am and puraply transitioned to the bundled payment structure for skin substitutes , which provides for a two-tiered payment system in the hospital outpatient and asc setting . the two-tiered medicare payment system bundles payment for our advanced wound care products ( and all skin substitutes ) into the payment for the procedure for applying the skin substitute , resulting in a single payment to the provider that includes reimbursement for both the procedure and the product itself . 61 as a result of the transition to the bundled payment structure , total medicare reimbursement for procedures using our puraply am and puraply products decreased substantially . this reduction in reimbursement resulted in a substantial decrease in revenue from our puraply am and puraply products during the first nine months of 2018 and had a negative effect on our business , results of operations and financial condition . on march 23 , 2018 , congress passed , and the president signed into law , the consolidated appropriations act of 2018 , or the act . the act restored the pass-through status of puraply and puraply am effective october 1 , 2018. as a result , effective october 1 , 2018 , medicare resumed making pass-through payments to hospitals using puraply and puraply am in the outpatient hospital setting and in ascs . puraply and puraply am retain pass-through reimbursement status until september 30 , 2020. our other skin substitute products remain in the bundled payment structure . cost of goods sold , gross profit and gross profit margin cost of goods sold includes personnel costs , product testing costs , quality assurance costs , raw materials and product costs , manufacturing costs , and the costs associated with our manufacturing and warehouse facilities . the increases in our cost of goods sold correspond with the increases in sales units driven by the expansion of our sales force and sales territories , expansion of our product portfolio offerings , and the number of healthcare facilities that offer our products . we expect our cost of goods sold to increase due primarily to increased sales volumes .
| results of operations the following table sets forth , for the periods indicated , our results of operations : replace_table_token_1_th ebitda and adjusted ebitda the following table presents a reconciliation of net loss attributable to organogenesis holdings inc. , to adjusted ebitda , for each of the periods presented : replace_table_token_2_th ( 1 ) amounts reflect the change in fair value of the common shares associated with the shares issued in connection with the acquisition of nutech medical that were forfeitable upon the occurrence of the fda requiring approval of certain products acquired from nutech medical . ( 2 ) amount reflects the change in fair value of our interest rate swaps that the real estate entities entered into to manage the economic impact of fluctuations in interest rate . the interest rate swaps were not designated as hedging instruments and as such , the fair value of these instruments was recorded as an asset or liability on the consolidated balance sheet with the change in the fair value of the instruments recognized as a component of other expense , net in the consolidated statement of operations . upon deconsolidation of the real estate entities in june , 2017 , the assets and liabilities associated with the interest rate swaps were derecognized . 64 ( 3 ) in connection with our 2016 loans , we classified the warrants issued to purchase our common stock to the lenders , who are affiliates of ours , as a liability on our consolidated balance sheet . amounts reflect the change in the fair value of the warrant liability . ( 4 ) amount reflects a one-time write-off in the quarter ended june 30 , 2018 of costs accumulated in connection with an abandoned public offering which was replaced with the avista merger transaction .
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fasb asc topic 820 โ fair value measurement disclosure โ prioritizes inputs used in measuring fair value into a hierarchy of three levels : level 1- unadjusted quoted prices for identical assets or liabilities traded in active markets ; level 2- inputs story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes which appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth in part i , item 1a , โ risk factors , โ and elsewhere in this annual report on form 10-k. overview we are a global provider of industrial iot solutions , including network connectivity , devices , device management and web reporting applications . these solutions enable optimal business efficiencies , increased asset utilization and reduced asset write-offs , helping customers realize benefits on a worldwide basis . our industrial iot products and services are designed to track , monitor , control and enhance security for a variety of assets , such as trailers , trucks , rail cars , sea containers , power generators , fluid tanks , marine vessels , diesel or electric powered generators ( โ gensets โ ) , oil and gas wells , pipeline monitoring equipment , irrigation control systems , and utility meters , in the transportation and supply chain , heavy equipment , fixed asset monitoring and maritime industries , as well as for governments . additionally , we provide satellite ais data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide . through two acquisitions in 2017 , we added vehicle fleet management , as well as in-cab and vehicle fleet solutions to our transportation solution portfolio . we provide our services using multiple network platforms , including our own constellation of low-earth orbit satellites and our accompanying ground infrastructure , as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular ( tier one ) wireless providers . we also offer customer solutions utilizing additional satellite network service options that we obtain through service agreements we have entered into with third-party mobile satellite providers . our satellite-based customer solution offerings use small , low power , mobile satellite subscriber communicators for remote asset connectivity , and our terrestrial-based solutions utilize cellular data modems with sims . we also resell service using the two-way inmarsat plc satellite network to provide higher bandwidth , low-latency satellite products and services , leveraging our isatdatapro technology . our customer solutions provide access to data gathered over these systems through connections to other public or private networks , including the internet . we are dedicated to providing what we believe are the most versatile , leading-edge industrial iot solutions in our markets that enable our customers to run their businesses more efficiently . 2019 strategic transactions during 2019 , we completed the following strategic transactions that had an impact and will continue to have an impact on our results of operations : stock repurchase program on august 5 , 2019 , our board of directors authorized a stock repurchase program under which we may repurchase up to $ 25.0 million of our outstanding shares of common stock through open market transactions and privately negotiated transactions , until august 5 , 2020. in addition , open market repurchases of common stock may be made pursuant to applicable securities laws and regulations , including rule 10b-18 , as well as rule 10b5-1 under the securities exchange act of 1934 , as amended . 2018 strategic transactions during 2018 , we completed the following strategic transactions that had an impact and will continue to have an impact on our results of operations : public offering on april 10 , 2018 , we completed a public offering of 3,450,000 shares of our common stock , including 450,000 shares sold upon exercise in full of the underwriters ' option to purchase additional shares , at a price of $ 8.60 per share . we received net proceeds of approximately $ 28.0 million after deducting underwriters ' discounts and commissions and offering costs . shelf registration on april 13 , 2018 , we filed a shelf registration statement with the sec , registering an unspecified amount of debt and or equity securities that we may offer in one or more offerings on terms to be determined at the time of sale . the shelf registration statement was automatically effective upon filing and superseded and replaced our previous shelf registration statement declared effective on april 14 , 2015 , which was due to expire on april 14 , 2018 . 39 2017 strategic transactions during 2017 , we completed the following strategic transactions that had an impact and will continue to have an impact on our results of operations : acquisition of blue tree systems limited on october 2 , 2017 , we purchased all of the issued share capital of blue tree for an aggregate consideration of ( i ) $ 34.3 million in cash ; ( ii ) issuance of 191,022 shares of our common stock , valued at $ 10.47 per share , which reflected our common stock closing price one business day prior to the closing date ; and ( iii ) additional consideration of up to $ 5.8 million , subject to certain operational milestones . the blue tree acquisition solidified our transportation product portfolio by adding truck in-cab and refrigerated fleet vehicle solutions to our cargo solution . story_separator_special_tag revenues generated from leasing arrangements of subscriber communicators are recognized using the estimated selling price for each deliverable in the arrangement . product and installation revenues associated with these arrangements are recognized upon shipment or installation of the subscriber communicator , depending on the specific contractual terms . service and warranty revenues are recognized on an accrual basis , as services are rendered , or on a cash basis , if collection from the customer is not reasonably assured at the time the service is provided . amounts received prior to the performance of services under customer contracts are recognized as deferred revenues and revenue recognition is deferred until such time that all revenue recognition criteria have been met . costs and expenses direct costs we operate a proprietary leo satellite network and accompanying ground equipment , including fifteen gess , three ais data reception earth stations , and three regional gateway control centers . our proprietary satellite-based communications system is typically characterized by high initial capital expenditures and relatively low marginal costs for providing service . we use as part of our solution , as well as resell , network connectivity for two other satellite networks and seven terrestrial network partners . reselling network connectivity typically involves a cost for each device connected to the network system and the amount paid to each provider will vary . in addition , we incur costs associated with the installation services provided to our customers . we primarily sell industrial iot telematics devices and modems that we design and build using contract manufacturers . for each industrial iot device and modem , we incur engineering costs , manufacturing costs , warehousing and shipping costs and inventory management costs . operating expenses we incur expenses associated with sales , marketing and administrative expenses related to the operation of our business , including significant charges for depreciation and amortization of our satellite communications system and other acquired intellectual property and intangible assets we acquired or developed . we also incur engineering expenses developing and supporting the operation of our communications system and the early stage engineering work on new products and services that are not yet determined to be technologically feasible . acquisition-related and integration costs acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to our acquisitions . these costs were expensed as incurred and are reflected in acquisition-related and integration costs on our consolidated statements of operations . 41 story_separator_special_tag style= '' background-color : # ffffff ; padding-left:0pt ; padding-right:0.75pt ; padding-top:0.75pt ; width:1 % ; white-space : nowrap ; '' valign= '' bottom '' > 2018 dollars % selling , general and administrative expenses $ 69,590 $ 66,988 $ 2,602 3.9 % sg & a expenses relate primarily to expenses for general management , sales and marketing , finance , audit and legal fees and general operating expenses . the increase in sg & a expenses for the year ended december 31 , 2019 , compared to the prior year period , was primarily due to reductions in contingent liabilities in 2018 to a larger extent than in the 2019 period . product development expenses year ended december 31 , change ( in thousands ) 2019 2018 dollars % product development $ 14,720 $ 13,405 $ 1,315 9.8 % product development expenses consist primarily of the expenses associated with our engineering efforts to establish technical feasibility , and the cost of third parties and internal staff to support our current applications . product development expenses for the year ended december 31 , 2019 , compared to the prior year period , reflects increases in employee-related and outside labor costs , as well as other expenses as we continue to research new solutions and services for our customers . depreciation and amortization year ended december 31 , change ( in thousands ) 2019 2018 dollars % depreciation and amortization $ 50,702 $ 49,684 $ 1,018 2.0 % the increase in depreciation and amortization for the year ended december 31 , 2019 , compared to the prior year period , was primarily due to higher depreciation associated with our capitalized costs attributable to the design , development and enhancements of our products and services sold to our customers and our internally developed software . 43 acquisition-related and integration costs replace_table_token_8_th acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to our acquisitions . the decrease in acquisition-related and integration costs reflected lower acquisition and integration activity for the year ended december 31 , 2019 , compared to the prior year period . other income ( expense ) other income ( expense ) is comprised primarily of interest expense , foreign exchange gains and losses and interest income related to capital leases and from our cash and cash equivalents , which can consist of u.s. treasuries and interest-bearing instruments . replace_table_token_9_th the increase in other expense for the year ended december 31 , 2019 , compared to the prior year , was primarily due to an increase in other income ( expense ) in 2019 , related to foreign currency losses . we believe our foreign exchange exposure is limited as a majority of our revenue is collected in u.s. dollars . income taxes in 2019 , we recorded income taxes of $ 4.4 million , which primarily included foreign income taxes of $ 4.1 million from income generated by our international operations and $ 0.3 million of income tax benefit related to amortization of tax goodwill generated from acquisitions . in 2018 , we recorded income taxes of $ 4.7 million , which primarily included foreign income taxes of $ 4.0 million from income generated by our international operations and $ 0.7 million of income tax benefit related to amortization of tax goodwill generated from acquisitions . net loss for the year ended december 31 , 2019 , we had a net loss of $ 18.1 million compared to a net loss of $ 25.9 million for the year ended december 31 , 2018 , primarily due to decreased costs associated with our products and services .
| results of o perations for the years ended december 31 , 2019 and 2018 revenue the table below presents our revenues for the years ended december 31 , 2019 and 2018 , together with the percentage of total revenue represented by each revenue category ( in thousands ) : replace_table_token_5_th total revenues for the year ended december 31 , 2019 decreased $ 4.1 million , or 1.5 % , to $ 272.0 million in 2019 from $ 276.1 million in 2018. service revenues replace_table_token_6_th the increase in service revenue for the year ended december 31 , 2019 , compared to the prior year period , was primarily due to revenue generated from growth in billable subscriber communicators across our services . as of december 31 , 2019 , including the communicator devices issued by maersk lines , we had approximately 2,657,000 billable subscriber communicators compared to approximately 2,374,000 billable subscriber communicators as of december 31 , 2018 , an increase of 11.9 % . as of december 31 , 2019 , excluding the billable subscriber communicators issued by maersk lines described below , we had approximately 2,231,000 billable subscriber communicators . separately , at year-end 2019 , we deactivated approximately 85,000 non-revenue generating device communicators that were not actively transmitting data or were in a suspend/test mode . this action was performed in connection with our platform convergence project .
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all securities not included in trading securities are classified as available-for-sale . trading and available-for-sale securities are recorded at fair value . unrealized holding gains and losses on trading securities are included in the net income . unrealized holding gains and losses , net of the related tax effect , on available for sale securities are excluded from net income and are reported as a separate component of other comprehensive income until realized . realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis . a decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value . the impairment is charged as an expense to the statement of income and comprehensive income and a new cost basis for the security is established . to determine whether impairment is other-than-temporary , the company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary . evidence considered in this assessment includes the reasons for the impairment , the severity and duration of the impairment , changes in value subsequent to year end , and forecasted performance of the investee . premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method . dividend and interest income are recognized when earned . trade receivables trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts . an estimate for doubtful accounts is made when collection of the full amount is no longer probable . bad debts are written off as incurred . inventories inventories consist of raw materials and finished goods which are stated at the lower of cost or market value . finished goods are comprised of direct materials , direct labor , inbound shipping costs , and allocated overhead . the company applies the weighted average cost method to its inventory . f-9 american lorain corporation notes to financial statements advances and prepayments to suppliers the company makes advance payment to suppliers and vendors for the procurement of raw materials . upon physical receipt and inspection of the raw materials from suppliers the applicable amount is reclassified from advances and prepayments to story_separator_special_tag overview we are an integrated food manufacturing company headquartered in shandong province , china . we develop , manufacture and sell the following types of food products : chestnut products , convenience foods ( including ready-to-cook , or rtc , foods , ready-to-eat , or rte , foods ) ; and frozen food products . we conduct our production activities in china . our products are sold in the chinese domestic markets as well as exported to foreign countries and regions such as japan and south korea . we have developed brand equity for our chestnut products in china , japan and south korea over the past 18 years . we produced 214 products in 2016. we derive most of our revenues from sales in china , south korea and japan . in 2017 , our primary strategy is to continue building our brand recognition in china through consistent marketing efforts towards supermarkets , wholesalers , and significant customers , enhancing the cooperation with other manufacturers and factories , and enhancing the turnover for our existing chestnut , convenience and frozen food products . in addition , we are working to expand our marketing efforts in asia and europe . we currently have limited sales and marketing activity in the united states , although our long-term plan is to significantly expand our activities there . in addition , we are working to developing new products and developing new sales channels . production factors that affect our financial and operational condition our business depends on obtaining a reliable supply of various agricultural products , including chestnuts , vegetables , fruits , red meat , fish , eggs , rice , flour and packaging products . during 2016 , the cost of our raw materials decreased from $ 143,226,607 to $ 85,249,363.35 for a decrease of approximately 40.48 % . we may have to increase the number of our suppliers of raw materials and expand our own agricultural operations in the future to meet growing production demands . despite our efforts to control our supply of raw materials and maintain good relationships with our suppliers , we could lose one or more of our suppliers at any time . the loss of several suppliers may be difficult to replace and could increase our reliance on higher cost or lower quality suppliers , which could negatively affect our profitability . in addition , if we have to increase the number of our suppliers of raw materials in the future to meet growing production demands , we may not be able to locate new suppliers who could provide us with sufficient materials to meet our needs . any interruptions to , or decline in , the amount or quality of our raw materials supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects . the average price that we paid for chestnuts in the china domestic market in 2016 and 2015 was approximately $ 1,765 metric ton and $ 1,600 per metric ton , respectively , excluding value added taxes . in the past few years , increasing inflation pressures weighed on the chinese economy which reflected on agricultural product prices . we do not have effective means and do not currently hedge against changes in our raw material prices . story_separator_special_tag the decrease of approximately $ 48.0 million in net cash flows provided by operating activities resulted primarily from the increase in trade and other receivables of approximately $ 13.0 million in 2016 . 30 investing activities net cash used in investing activities for 2016 and 2015 were $ 8.9 million and $ 9.1 million , respectively , with the increase of approximately $ 18.0 million cash provided in investing activities primarily from a decrease in restricted cash of $ 7.1 million and disposition of an investment for $ 1.9 million in 2016. financing activities net cash used in financing activities for 2016 and 2015 were $ 3.0 million and $ 14.7 million , respectively , with the increase of $ 17.7 million cash provided in financing activities from loan proceeds from bank borrowings and debentures for approximately $ 3.1 million and no repayment long-term borrowings and notes payable in 2016. loan facilities as of december 31 , 2016 and 2015 , we carried $ 22.7 million and $ 21.4 million short term bank loans from foreign and chinese domestic banks . critical accounting policies the preparation of financial statements in conformity with united states generally accepted accounting principles requires our management to make assumptions , estimates and judgments that affect the amounts reported in the financial statements , including the notes thereto , and related disclosures of commitments and contingencies , if any . we consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements , including the following : restatement of prior financial statements -- the company has discovered errors in the timing of revenues recognized during the year ended december 31 , 2015. the company recognizes revenue upon shipping of products to its customers where title of the goods passes upon departure from the company 's facilities ; however , in certain instances , contractual terms dictate that the customers are afforded seven days after the receipt of goods at their premises to inspect the goods for defects or spoilage and notify the company . if the company is not contacted within those seven days , the company 's obligation to the customer are considered fully discharged and revenue should be recognized . given the timing of these seven days , the company believes that certain sales transactions have been erroneously recognized during the year ended december 31 , 2015. the company has rectified this error and the impact of the company 's financial position and result of operations . method of accounting -- we maintains its general ledger and journals with the accrual method accounting for financial reporting purposes . the financial statements and notes are representations of management . accounting policies adopted by the company conform to generally accepted accounting principles in the united states of america and have been consistently applied in the presentation of financial statements , which are compiled on the accrual basis of accounting . use of estimates -- the preparation of the financial statements in conformity with generally accepted accounting principles 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 periods . management makes these estimates using the best information available at the time the estimates are made ; however , actual results could differ materially from those estimates . the use of estimates is critical to the carrying value of asset accounts such as accounts receivable , inventory , fixed assets , and intangible assets . we use estimates to account for the related bad debt allowance , inventory impairment charges , depreciation and amortization of our assets . in the food processing industry , these accounts have a significant impact on the valuation of our balance sheet and the results of our operations . principles of consolidation -- the consolidated financial statements are presented in us dollars and include the accounts of the company and its commonly controlled entity . all significant inter-company balances and transactions are eliminated in combination . as of december 31 , 2016 , the particulars of the commonly controlled entities are as follows : 31 replace_table_token_7_th in 2014 , the company invested $ 2,100,000 in athena/minerve group whereby the company controlling shareholder of minerve . minerve conducted operations in manufacturing , packaging and sales activities in france and import and storage operations in portugal . during the years ended december 31 , 2015 , the financial position and results of operations of minerve were accounted for as subsidiaries in the company 's financial statements ; however , during the year ended december 31 , 2016 , minerve became insolvent and compelled into bankruptcy by creditors , and , ultimately liquidation . accordingly , the company lost control of minerve and written of the value of its investment in minerve . all receivables due by minerve to subsidiaries still controlled by the company have been written off . the company 's consolidated financial statements at december 31 , 2015 have been recast to provide improved comparability for the company 's continuing operations . management has eliminated all significant inter-company balances and transactions in preparing the accompanying consolidated financial statements . ownership interests of subsidiaries that the company does not wholly-own are accounted for as non-controlling interests . shandong economic development investment corporation , which is a prc state-owned entity , holds 19.8 % equity interest in shandong lorain . accounting for the impairment of long-lived assets -- the long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable .
| results of operations the following tables set forth key components of our results of operations for the periods indicated , and the differences between the two periods expressed in dollars and percentages . replace_table_token_5_th 27 year ended december 31 , 2016 compared to year ended december 31 , 2015 revenue net revenues . net revenues decreased by $ 61.0 million , or approximately 43.4 % , to $ 79.7 million in 2016 from $ 140.7 million in 2015. since 2015 , more competitors entered the convenience food industry that develop more types of products . our current products have not met customers ' demand in the most recent year due to our failure to invest in research and development . in addition , we have faced significant competition from chinese online ordering platforms since 2015 , which platforms offer convenient and efficient meals directly from restaurants . in addition , dongguan lorain ceased operations in october 2016 due to its high cost of environmental compliance cost , the overlap of products and market with luotian lorain , both of which focus on the southern market of china , and poor performance of sales revenue . 28 cost of revenues . our cost of revenues decreased $ 45.6 million , or approximately 39.7 % , to $ 69.2 million in 2016 from $ 114.7 million in 2015 , as a result of decrease of net revenue . gross profit . our gross profit decreased $ 15.5 million , or 59.6 % , to $ 10.5 million in 2016 from $ 26.0 million in 2015 , mainly attributed to the fact that revenues decreased by $ 79.2 million . the gross profit ratio decreased from 12.6 % to 7.1 % in 2016 , it is mainly attributes to the reason that we ceased to sell convenience foods products since 2016 , shut athena group and dongguan lorain , the cost of chestnuts slightly increased and the sales of chestnuts in china declined . operating expenses selling and marketing expenses .
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as of january 30 , 2016 , we had approximately $ 176 of fee interest in land , which is expected to convert to the condominium interest once the store is constructed . we have committed to make future installment payments based on the developer meeting pre-established construction and development milestones . story_separator_special_tag dollar , share and square footage amounts in millions except percentages , per share and per square foot amounts overview nordstrom is a leading fashion specialty retailer offering apparel , shoes , cosmetics and accessories for women , men , young adults and children . we offer an extensive selection of high-quality brand-name and private label merchandise through our various channels , including nordstrom u.s. and canada full-line stores , nordstrom.com , nordstrom rack stores , nordstromrack.com/hautelook , trunk club clubhouses and trunkclub.com , our jeffrey boutiques and our last chance clearance store . as of january 30 , 2016 , our stores are located in 39 states throughout the united states and in three provinces in canada . in addition , we offer our customers a nordstrom rewards loyalty program along with a variety of payment products and services , including credit and debit cards . in 2015 , we continued to grow our business despite a more challenging retail environment in the second half of the year . we added nearly $ 1 billion to our top line , delivering total net sales growth of 7.5 % and a comparable sales increase of 2.7 % . during the year , we achieved the following milestones in executing our customer strategy : opened our first international flagship store in vancouver , british columbia , the most successful opening in our company history grew nordstromrack.com/hautelook by 47 % , reaching over $ 500 in sales expanded our fulfillment network with our third fulfillment center in elizabethtown , pennsylvania , located within two-day delivery of approximately half the u.s. population returned $ 2.4 billion to shareholders through share repurchase and dividends , of which $ 1.8 billion resulted from the sale of our credit card receivables from a merchandising perspective , we 're constantly pursuing newness and fashion to increase our relevance with customers . brands like topshop , madewell , brandy melville and charlotte tilbury have contributed to the strength of our younger customer-focused departments and attracted new customers to nordstrom . additionally , we saw continued momentum in beauty , which has been among our top-performing categories for the fourth straight year . on october 1st , we completed the sale of our credit card portfolio to td . our mutual commitment to having nordstrom employees serve our customers directly was paramount to this partnership . we are able to retain all aspects of customer-facing activities , aligning with our strategy of enhancing the customer experience while allowing for improvement in capital efficiency . in addition , we consider our loyalty program as an enabler of growth to increase our engagement with customers and attract new customers . with sales to rewards members representing 40 % of our sales volume , we look forward to expanding our program with a tender-neutral offer in 2016. over the past several years , we 've made significant investments to enable customers to shop seamlessly across stores and online as well as to grow our business through new markets . our investments in hautelook , canada and trunk club added over $ 400 to our top-line growth in 2015 , while nordstrom rack 's expansion of 27 new stores contributed nearly $ 230 to our top-line growth . these investments have resulted in market share gains , but also represent an evolution of our business resulting in expenses growing faster than sales in recent years . as we look ahead to 2016 , we continue to view 2015 as our peak investment year . while we have successfully increased market share , we are also committed to increasing efficiency , lowering costs while increasing effectiveness and gaining profitability . with our investments moderating , we expect 2016 to represent an inflection point of earnings growth improvement . as our business evolves , our focus continues to be guided by customer expectations around speed , convenience and personalization . we believe that we are well positioned with the right strategies in place to successfully serve our customers , which will in turn lead to long-term profitable growth and top-quartile total shareholder return . nordstrom , inc. and subsidiaries 17 results of operations our reportable segments are retail and credit . we analyze our results of operations through earnings before interest and income taxes for our retail business and credit , while interest expense , income taxes , earnings per share and return on invested capital are discussed on a total company basis . retail business our retail business includes our nordstrom-branded u.s. and canada full-line stores and nordstrom.com , nordstrom rack stores , nordstromrack.com/hautelook , trunk club , jeffrey and our last chance clearance store . for purposes of discussion and analysis of our results of operations of our retail business , we combine our retail segment results with revenues and expenses in the โ corporate/other โ column of note 17 : segment reporting in item 8 ( collectively , the โ retail business โ ) . certain metrics we use to evaluate the retail business may not be calculated in a consistent manner among industry peers . provided below are definitions of metrics we present within our analysis of the retail business : comparable sales โ sales from stores that have been open at least one full year at the beginning of the year . total company comparable sales include sales from our online channels ( nordstrom.com and nordstromrack.com/hautelook ) because of the integration with our stores . gross profit โ net sales less cost of sales and related buying and occupancy costs . inventory turnover rate โ annual cost of sales and related buying and occupancy costs ( for all segments ) divided by the trailing 4-quarter average inventory . story_separator_special_tag this increase in ending inventory per square foot outpaced our increase in sales per square foot of 3.9 % primarily due to planned inventory growth related to nordstrom rack and nordstromrack.com/hautelook . retail business selling , general and administrative expenses retail business selling , general and administrative expenses ( โ retail sg & a โ ) are summarized in the following table : replace_table_token_10_th 20 selling , general and administrative expenses ( 2015 vs. 2014 ) our retail sg & a rate increased 112 basis points in 2015 compared with 2014 due to growth initiatives related to trunk club and canada , higher fulfillment costs supporting online growth and asset impairment charges ( see note 1 : nature of operations and summary of significant accounting policies in item 8 ) . our retail sg & a increased $ 428 in 2015 due primarily to increased sales and growth initiatives related to canada and trunk club . selling , general and administrative expenses ( 2014 vs. 2013 ) our retail sg & a rate increased 48 basis points in 2014 compared with 2013 due to expenses related to the acquisition of trunk club and ongoing fulfillment and technology investments . our retail sg & a expenses increased $ 316 in 2014 compared with 2013 due primarily to growth-related investments in fulfillment and technology . credit segment the nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits , valuable services and payment products . we believe our credit business allows us to build deeper relationships with our customers by fully integrating the nordstrom rewards program with our retail stores and providing better service , which in turn fosters greater customer loyalty . nordstrom cardholders tend to visit our stores more frequently and spend more with us than non-cardholders . nordstrom private label credit and debit cards can be used only at our nordstrom full-line stores in the u.s. , nordstrom rack stores and online at nordstrom.com and nordstromrack.com/hautelook ( โ inside volume โ ) , while nordstrom visa credit cards also may be used for purchases outside of nordstrom ( โ outside volume โ ) . cardholders participate in the nordstrom rewards program through which cardholders accumulate points based on their level of spending . upon reaching a certain points threshold , cardholders receive nordstrom notes ยฎ , which can be redeemed for goods or services at nordstrom full-line stores in the u.s. and canada , nordstrom rack stores and at nordstrom.com . nordstrom rewards customers receive reimbursements for alterations , get personal triple points days and have early access to sales events . with increased spending , they can receive additional amounts of these benefits as well as access to exclusive fashion and shopping events . on october 1 , 2015 , we completed the sale of a substantial majority of our u.s. visa and private label credit card portfolio to td ( see note 2 : credit card receivable transaction in item 8 ) . summary the table below provides a detailed view of the operational results of our credit segment , consistent with note 17 : segment reporting in item 8. in order to better reflect the economic contribution of our credit and debit card program , intercompany merchant fees are also included in the table below , which represent the estimated costs that would be incurred if cardholders used non-nordstrom-branded cards instead of our cards in store and online . prior to october 1 , 2015 , interest expense at the credit segment was equal to the amount of interest related to securitized debt plus an amount assigned to the credit segment in proportion to the estimated debt and equity needed to fund our credit card receivables . based on our research , debt as a percentage of credit card receivables for other credit card companies ranges from 70 % to 90 % . as such , we considered a mix of 80 % debt and 20 % equity to be appropriate , and therefore assigned interest expense to the credit segment as if it carried debt of up to 80 % of the credit card receivables . subsequent to the sale , we no longer allocate interest expense to the credit segment as we do not fund the accounts receivable now owned by td . replace_table_token_11_th 1 volume represents sales plus applicable taxes . nordstrom , inc. and subsidiaries 21 credit card revenues , net the following is a summary of our credit card revenues , net : replace_table_token_12_th prior to the close of the credit card receivable transaction , credit card revenues included finance charges , interchange fees , late fees and other revenue , recorded net of estimated uncollectible finance charges and fees . finance charges represent interest earned on unpaid balances while interchange fees are earned from the use of nordstrom visa credit cards at merchants outside of nordstrom . late fees are assessed when a credit card account becomes past due . we continue to recognize revenue in this manner for the credit card receivables retained subsequent to the close of the credit card receivable transaction . following the close of the transaction and pursuant to the program agreement with td , we receive our portion of the ongoing credit card revenue , net of credit losses , from both the sold and newly generated credit card receivables , which is recorded in credit program revenues , net . revenue earned under the program agreement is impacted by the credit quality of receivables , both owned and serviced , and factors such as deteriorating economic conditions , declining creditworthiness of cardholders and the success of account management and collection activities may heighten the risk of credit losses . asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also recorded in credit program revenues , net .
| fourth quarter results the following are our results for the fourth quarters of 2015 and 2014 : replace_table_token_19_th net earnings for the fourth quarter of 2015 were $ 180 , or $ 1.00 per diluted share , compared with $ 255 , or $ 1.32 per diluted share , in 2014 . net sales total net sales increased in the fourth quarter by 5.2 % , driven by a comparable sales increase of 1.0 % and sales from 32 new stores opened in 2015 . 24 nordstrom net sales , which consist of u.s. full-line stores and nordstrom.com , increased $ 21 , or 0.7 % , compared with 2014 , while comparable sales increased 0.2 % . these increase s were primarily driven by an increase from nordstrom.com of $ 77 , or 11 % , while u.s. full-line net sales for the quarter decreased $ 56 , or 2.5 % . on a comparable basis , we experienced an increased volume of transactions partially offset by a decrease in the average number of items sold per transaction . category leaders for the quarter were beauty and shoes . u.s. full-line comparable sales for the quarter decreased 3.2 % . southern california was the top-performing u.s. full-line geographic region . nordstrom rack net sales increased $ 61 , or 7 % , primarily driven by 27 nordstrom rack new store openings since the fourth quarter of 2014 , while comparable sales decreased 3.0 % . on a comparable basis , the average retail price per item sold increased , partially offset by a decrease in the total number of items sold . shoes and cosmetics were the category leaders , while the south was the top-performing geographic region .
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the properties acquired in the acquisition are the properties that have generated the majority of the rental income for nhc for the years ended december 31 , 2014 , 2013 , and 2012. the health care properties currently owned and leased to third party operators include nine skilled nursing facilities and story_separator_special_tag overview national healthcare corporation , which we also refer to as nhc or the company , is a leading provider of post-acute care and senior health care services . at december 31 , 2014 we operate or manage 74 skilled nursing facilities with 9,462 licensed beds , 18 assisted living centers , five independent living centers , and 36 homecare programs located in ten states . these operations are provided by separately funded and maintained subsidiaries . we have a non-controlling ownership interest in a hospice care business that services nhc owned health care centers and others . in addition , we provide management services , accounting services and insurance services to third party owners of skilled nursing facilities . we also own the real estate of thirteen healthcare properties and lease these properties to third party operators . executive summary earnings to monitor our earnings , we have developed budgets and management reports to monitor labor , census , and the composition of revenues . inflationary increases in our costs may cause net earnings from patient services to decline . medicare reimbursement rate changes on april 1 , 2013 , the automatic 2 % cuts ( known as `` sequestration '' ) began for medicare providers . the resulting decrease in revenue on our consolidated statement of income was approximately $ 5,700,000 for the 2014 calendar year , or $ 1,425,000 per quarter ( for both snf 's and homecare ) . we are unable to predict the financial impact of other cuts congress may implement . however , such impact may be adverse and material to our future results of operations and cash flows . in july 2013 , cms released its skilled nursing facility pps update for the fiscal year 2014 , which began october 1 , 2013. the notice provided for a 1.3 % rate update , which reflects a 2.3 % market basket increase less a 0.5 % multifactor productivity adjustment and a 0.5 % adjustment to correct market basket forecasting errors in fiscal year 2012. cms estimated the update increased overall payments to skilled nursing facilities in fiscal year 2014 by $ 470 million compared to fiscal year 2013 levels . in august 2014 , cms released its skilled nursing facility pps update for the fiscal year 2015 , which began october 1 , 2014. the final rule provides for a 2.0 % rate update , which reflects a 2.5 % market basket increase less a 0.5 % multifactor productivity adjustment as required by the aca . cms estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2015 by $ 750 million compared to fiscal year 2014 levels . the 2015 final rule also includes wage index updates , revisions to the change of therapy ( cot ) other medicare required assessment ( omra ) policy , and comments pertaining to cms ' observations on therapy utilization trends . the effect of the 2015 pps rate update on our revenues will be dependent upon our census and the mix of our patients at the pps payment rates . occupancy a primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities . the overall average census in owned and leased skilled nursing facilities for 2014 was 88.9 % compared to 89.2 % and 90.1 % in 2013 and 2012 , respectively . increased availability of assisted living facilities , as well as the rapid growth of home and community based services , has amplified the challenge of maintaining desirable patient census levels . management has undertaken a number of steps in order to best position our current and future health care facilities . this includes working internally to examine and improve systems to be most responsive to referral sources and payors . additionally , nhc is in various stages of partnerships with hospital systems , payors , and other post-acute alliances in positioning ourselves to be an active participant in the health delivery systems as they develop . development and growth we are undertaking to expand our long-term care operations while protecting our existing operations and markets . the following table lists our recent construction and purchase activities . replace_table_token_8_th for the development projects under construction at december 31 , 2014 , we anticipate the 92-bed skilled nursing facility and 60-unit assisted living facility located in sumner county , tennessee to begin operations during the first quarter of 2015 ; the 60-bed memory care facility located in st. peters , missouri to begin operations during the fourth quarter of 2015 ( we have a 25 % ownership interest in this partnership ) , and the 90-bed skilled nursing facility and 80-unit assisted living facility located in nashville , tennessee to begin operations in the second or third quarter of 2016. construction on both an 80-unit assisted living community in garden city , south carolina and a 76-unit assisted living community in bluffton , south carolina are scheduled to begin in the first quarter of 2015. during the second quarter of 2015 , we anticipate beginning construction on a replacement center ( snf ) that will combine the 92 beds of nhc hillview in columbia , tennessee with 20 beds from the existing skilled nursing unit at maury regional medical center . the resulting replacement center will be a partnership between nhc and maury regional medical center . during 2015 , we plan to apply for certificates of need for additional beds in certain of our markets . we also will evaluate the feasibility of expansion into new markets by building private pay health care centers or assisted living communities . story_separator_special_tag our policy with respect to a significant portion of our workers ' compensation and professional and general liability claims is to use an actuary to estimate our exposure for claims obligations ( for both asserted and unasserted claims ) . our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid . we reassess our accrued risk reserves on a quarterly basis . professional liability remains an area of particular concern to us . the entire health care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to residents . as of december 31 , 2014 , we and or our managed centers are defendants in 34 such claims inclusive of years 2006 through 2014. it remains possible that those pending matters plus potential unasserted claims could exceed our reserves , which could have a material adverse effect on our financial position , results of operations and cash flows . it is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period . we maintain insurance coverage for incidents occurring in all healthcare facilities owned or leased by us , and most healthcare facilities managed by us . the coverages include both primary policies and excess policies . in all years , settlements , if any , in excess of available insurance policy limits and our own reserves would be expensed by us . credit losses certain of our accounts receivable from private paying patients and certain of our notes receivable are subject to credit losses . we have attempted to reserve for expected accounts receivable credit losses based on our past experience with similar accounts receivable and believe our reserves to be adequate . we continually monitor and evaluate the carrying amount of our notes receivable in accordance with asc topic 310 , receivables . it is possible , however , that the accuracy of our estimation process could be materially impacted as the composition of the receivables changes over time . we continually review and refine our estimation process to make it as reactive to these changes as possible . however , we can not guarantee that we will be able to accurately estimate credit losses on these balances . it is possible that future events could cause us to make significant adjustments or revisions to these estimates and cause our reported net income to vary significantly from period to period . uncertain tax positions uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment . we believe we have made adequate provision for unrecognized tax benefits related to uncertain tax positions including related penalties and interest . the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with limited need for management 's judgment in their application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . see our audited consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by generally accepted accounting principles . story_separator_special_tag style= '' margin:0px '' > medicaid ย skilled nursing facilities effective july 1 , 2013 and for the fiscal year 2014 , the state of tennessee implemented specific individual nursing facility rate increases . the resulting increase in revenue beginning july 1 , 2013 and ending june 30 , 2014 was approximately $ 1,800,000 annually , or $ 450,000 per quarter . effective july 1 , 2014 and for the fiscal year 2015 , the state of tennessee implemented individual skilled nursing facility rate changes . with new state legislation being passed for the 2015 fiscal year , there are four components that impact tennessee medicaid reimbursement for skilled nursing facilities : a level i or level ii per diem , a quarterly acuity payment , a quarterly quality improvement in long-term services and supports ( `` quiltss '' ) payment ( which are incentives based on qualifying criteria in several categories ) , and an assessment fee ( expense ) . effective july 1 , 2014 , each facility will now be charged an assessment fee based on 4.5 % of net patient revenues . the assessment fee is replacing the former bed tax fee . in summary and for the 2015 fiscal year , we expect the tennessee medicaid reimbursement changes to increase income before income taxes by approximately $ 3,000,000 annually , or $ 750,000 per quarter . effective october 1 , 2013 and for the fiscal year 2014 , south carolina implemented specific individual nursing facility rate increases . the resulting increase in revenue beginning october 1 , 2013 was approximately $ 1,540,000 annually , or $ 385,000. effective october 1 , 2014 and for the fiscal year 2015 , south carolina implemented specific individual nursing facility rate increases . we estimate the resulting increase in revenue beginning october 1 , 2014 will be approximately $ 1,800,000 annually , or $ 450,000. during the first quarter of 2014 , the state of missouri paid a retroactive rate increase back to july 1 , 2013. in the first quarter of 2014 , the company recorded approximately $ 533,000 of additional net patient revenues for the july 1 , 2013 through december 31 , 2013 retroactive period . the resulting increase in revenue was approximately $ 250,000 per quarter for the 2014 year . overall our average medicaid per diem increased 2.4 % in 2014 compared to 2013. we face challenges with respect to states ' medicaid payments , because many currently do not cover the total costs incurred in providing care to those patients .
| results of operations the following table and discussion sets forth items from the consolidated statements of income as a percentage of net revenues for the audited years ended december 31 , 2014 , 2013 and 2012. percentage of net revenues replace_table_token_9_th the following table sets forth the increase or ( decrease ) in certain items from the consolidated statements of income as compared to the prior period . period to period increase ( decrease ) replace_table_token_10_th approximately 65 % of our net patient revenues are derived from medicare , medicaid , and other government programs . as discussed above in the application of critical accounting policies section , amounts earned under these programs are subject to review by the medicare and medicaid intermediaries . see application of critical accounting policies for discussion of the effects that this revenue concentration and the uncertainties related to such revenues have on our revenue recognition policies . government program financial changes cost containment will continue to be a priority for federal and state governments for health care services , including the types of services we provide . government reimbursement programs such as medicare and medicaid prescribe , by law , the billing methods and amounts that health care providers may charge and be reimbursed to care for patients covered by these programs . congress has passed a number of laws that have effected major changes in the medicare and medicaid programs . the balanced budget act of 1997 sought to achieve a balanced federal budget by , among other things , reducing federal spending on medicare and medicaid to various providers .
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revenue recognition the company story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this annual report on form 10-k. this management 's discussion and analysis contains forward-looking statements that involve risks and uncertainties . please see โ special note regarding forward-looking statements โ for additional factors relating to such statements , and see โ risk factors โ in part i , item 1a of this report for a discussion of certain risk factors applicable to our business , financial condition and results of operations . past operating results are not necessarily indicative of operating results in any future periods . refer to item 7. of our form 10-k issued on february 24 , 2020 for prior year discussion related to fiscal 2018. overview we are an ophthalmic pharmaceutical company focused on the discovery , development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma , ocular surface diseases , retinal diseases and potentially other diseases of the eye . u.s. commercial products our strategy is to successfully commercialize our fda-approved products , rhopressa ยฎ and rocklatan ยฎ , which are sold in the united states and comprise our glaucoma franchise . our commercial team responsible for sales of rhopressa ยฎ and rocklatan ยฎ is targeting eye-care professionals throughout the united states , and with the addition of a contract sales organization and a separate telesales team , we are able to reach over 16,000 eye-care professionals . rhopressa ยฎ is a once-daily eye drop designed to reduce elevated iop in patients with open-angle glaucoma or ocular hypertension . rhopressa ยฎ is taken in the evening and has shown in preclinical and clinical trials to be effective in reducing iop , with a favorable safety profile . the active ingredient in rhopressa ยฎ , netarsudil , is an aerie-owned rock inhibitor . using this moa , rhopressa ยฎ increases the outflow of aqueous humor through the tm , which accounts for approximately 80 % of fluid drainage from the healthy eye and is the diseased tissue responsible for elevated iop in glaucoma . we believe that rhopressa ยฎ represents the first of a new drug class for reducing iop in patients with glaucoma in over 20 years . rocklatan ยฎ is a once-daily fixed-dose combination of rhopressa ยฎ and latanoprost , the most commonly prescribed drug for the treatment of patients with open-angle glaucoma . rocklatan ยฎ is also taken in the evening , and similar to rhopressa ยฎ , has shown in preclinical and clinical trials to be effective in reducing iop , with a favorable safety profile . based on our clinical data , we believe that rocklatan ยฎ has the potential to provide a greater iop-reducing effect than any glaucoma medication currently marketed in the united states . we also believe that rocklatan ยฎ competes with both pga and non-pga therapies and may over time become the product of choice for patients requiring maximal iop reduction , including those with higher iops and those who present with significant disease progression despite using currently available therapies . outside the united states our st rategy also includes developing business opportunities outside of the united states , including successfully commercializing rhopressa ยฎ and rocklatan ยฎ in europe and obtaining regulatory approval in japan and other countries in asia , and our globalization plan is well underway . in europe , rhokiinsa ยฎ was granted a centralised ma by the ec in november 2019 and roclanda ยฎ was granted a centralised ma by the ec in january 2021 , which followed the ema 's chmp adopting a positive opinion recommending approval of the maa for roclanda ยฎ in november 2020. we reported positive interim topline 90-day efficacy data in september 2020 for our phase 3b clinical trial for roclanda ยฎ , named mercury 3 , which we believe is important to the execution of our strategy in europe . as a result of the positive mercury 3 results and the roclanda ยฎ approval in europe , th ird parties expressed interest in a potential commercialization partnership in 81 and potentially beyond europe . we are currently engaged in discussions with potential partners , while we are simultaneously preparing on our own for pricing discussions in germany . in japan , we entered into the santen agreement in october 2020 to advance our clinical development and ultimately commercialize rhopressa ยฎ and rocklatan ยฎ in japan and eight other countries in asia . we initiated a rhopressa ยฎ phase 3 clinical trial in december 2020 , the first of three expected phase 3 clinical trials in japan . clinical trials for rocklatan ยฎ have not yet begun . glaucoma product manufacturing we have a sterile fill production facility in athlone , ireland , for the production of our fda approved products and clinical supplies with the goal of having the athlone manufacturing plant supply our ophthalmic products in all markets for which we received regulatory approval and are commercialized . the athlone manufacturing plant began manufacturing commercial supplies of rocklatan ยฎ in the first quarter of 2020 and rhopressa ยฎ in the third quarter of 2020 for distribution to the united states . shipments of commercial supply of rocklatan ยฎ and rhopressa ยฎ from the athlone manufacturing plant to the united states commenced in the third quarter of 2020 and in the fourth quarter of 2020 , respectively . the athlone manufacturing plant has also manufactured clinical supplies of rhopressa ยฎ for the phase 3 clinical trials in japan . as the athlone manufacturing plant commenced operations in 2020 , it has not yet reached full capacity . we expect that the athlone manufacturing plant will have adequate capacity to produce rhopressa ยฎ and rocklatan ยฎ in the united states as well as for both the european and japanese commercial markets , if approved for commercial distribution in those markets . story_separator_special_tag from a pipeline perspective , the early stage retina implant trials remain on track , and we initiated our phase 2b clinical trial for dry eye product candidate ar-15512 , named comet-1 , in october 2020 and a topline readout is expected in the third quarter of 2021 , as discussed in โ โ product candidates and pipeline โ above . our cash and cash equivalents and investments totaled $ 240.4 million as of december 31 , 2020. we believe that our cash and cash equivalents and investments and projected cash flows from revenues will continue to provide sufficient resources for our current ongoing needs through at least the next twelve months , as discussed in โ โliquidity and capital resources โ below . financial overview our cash and cash equivalents and investments totaled $ 240.4 million as of december 31 , 2020. we believe that our cash and cash equivalents and investments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through at least the next twelve months , though there may be need for additional financing activity as we continue to grow . see โ โliquidity and capital resources โ below and note 10 to our consolidated financial statements included elsewhere in this report for further discussion . we have incurred net losses since our inception in june 2005. until 2018 , when we commenced commercial operations , our business activities were primarily limited to developing product candidates , raising capital and performing research and development activities . as of december 31 , 2020 , we had an accumulated deficit of $ 1,079.1 million . we recorded net losses of $ 183.1 million , $ 199.6 million and $ 232.6 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . our capital resources and business efforts are largely focused on activities relating to the commercialization of rhopressa ยฎ and rocklatan ยฎ , advancing our product candidates and pipeline , international expansion and operating our manufacturing plant in athlone , ireland . we expect to continue to incur operating losses until our products generate adequate commercial revenue to render aerie profitable . if we do not successfully commercialize rhopressa ยฎ , rocklatan ยฎ or any product candidates or future product candidates , if approved , we may be unable to generate adequate product revenues to achieve such profitability . we may be required to obtain further funding through debt or equity offerings or other sources . adequate additional funding may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on acceptable terms , we may be forced to delay , reduce or eliminate our research and development programs or commercialization or manufacturing efforts . product revenues , net we launched rhopressa ยฎ in the united states in april 2018 and commenced generating product revenues from sales of rhopressa ยฎ during the second quarter of 2018. we launched rocklatan ยฎ in the united states in may 2019 and commenced generating product revenues from sales of rocklatan ยฎ in the second quarter of 2019. product affordability for the patient drives 83 consumer acceptance , and this is generally managed through coverage by third-party payers and such product may be subject to rebates and discounts payable directly to those third-party payers . our product revenues are recorded net of provisions relating to estimates for ( i ) trade discounts and allowances , such as discounts for prompt payment and distributor fees , ( ii ) estimated rebates to third-party payers , estimated payments for medicare part d prescription drug program coverage gap ( commonly called the โ donut hole โ ) , patient co-pay program coupon utilization , chargebacks and other discount programs and ( iii ) reserves for expected product returns . these estimates reflect current contractual and statutory requirements , known market events and trends , industry data , forecasted customer mix and lagged claims . actual amounts may ultimately differ from these estimates . if actual results vary , estimates may be adjusted in the period such change in estimate becomes known , which may have an impact on earnings in the period of adjustment . we will not generate any revenue from any product candidates or future product candidates unless and until we obtain regulatory approval and commercialize such products . cost of goods sold cost of goods sold consists of direct and indirect costs to procure and manufacture product sold , including third-party manufacturing costs . prior to receiving fda approval , these costs for rhopressa ยฎ and rocklatan ยฎ were expensed as pre-approval commercial manufacturing expenses ( as defined below ) . we began capitalizing inventory costs for rhopressa ยฎ and rocklatan ยฎ after receipt of fda approval . in january 2020 and september 2020 , we received fda approval to produce rocklatan ยฎ and rhopressa ยฎ , respectively , at the athlone manufacturing plant for commercial distribution in the united states . shipments of commercial supply of rocklatan ยฎ from the athlone manufacturing plant to the united states commenced in the third quarter of 2020. the athlone manufacturing plant has manufactured clinical supplies of rhopressa ยฎ for the phase 3 clinical trials in japan and has commenced shipping commercial supply of rhopressa ยฎ to the united states in the fourth quarter of 2020. production costs related to idle or underutilized capacity at the manufacturing plant in athlone , ireland , are not included in the cost of inventory but are charged directly to cost of goods sold on the consolidated statements of operations and comprehensive loss in the period incurred .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes the results of our operations for the years ended december 31 , 2020 and 2019 : replace_table_token_5_th * percentage not meaningful product revenues , net product revenues , net was $ 83.1 million and $ 69.9 million for the years ended december 31 , 2020 and 2019 , respectively . revenues recorded during the year ended december 31 , 2020 relate to sales of rhopressa ยฎ and rocklatan ยฎ . the year-over-year revenue increase is primarily attributable to volume growth of rocklatan ยฎ , which we launched in the united states in may 2019. this increase is partially offset by the impact of higher rebates largely driven by government sponsored programs , which contributed to a lower net sales per unit . although there was a decline in total prescription volumes in april 2020 , as seen within the entire pharmaceutical market according to iqvia data primarily due to the impact of the covid-19 pandemic , our sales volumes have increased each successive quarter in 2020 as compared to the volumes during the first quarter of 2020 for both rhopressa ยฎ and rocklatan ยฎ . cost of goods sold cost of goods sold was $ 25.3 million and $ 4.8 million , and our gross margin percentage was 69.5 % and 93.1 % for the year ended december 31 , 2020 and 2019 , respectively . our cost of goods sold and gross margin percentage for the year ended december 31 , 2020 were unfavorably impacted by idle capacity costs due to underutilization at the athlone manufacturing plant due to the startup of the facility and inventory write-offs , which increased the cost of goods sold by $ 17.0 million and $ 2.3 million , respectively , and lowered the gross margin percentage by 20.4 % and 2.8 % , respectively .
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the amendments in this asu do not change gaap and , therefore , are not expected to result in a significant change in practice . story_separator_special_tag management 's discussion and analysis of financial condition and results of operations is intended to assist the reader in the understanding and assessment of significant changes and trends related to our results of operations . the discussion and analysis presented below refers to , and should be read in conjunction with , the consolidated financial statements and accompanying notes included in item 8 of part ii of this annual report on form 10-k. overview owens & minor , inc. , along with its subsidiaries , ( we , us , our or the company ) is a leading global healthcare solutions company . on june 18 , 2020 ( the divestiture date ) , we completed the divestiture of our european logistics business , movianto ( the divestiture ) , as well as certain support functions in our dublin , ireland office , to walden group sas ( the buyer ) and ehdh ( as buyer 's guarantor ) for cash consideration of $ 133 million . the divestiture provides us with a greater ability to focus on and invest in our differentiated products , services and u.s. distribution businesses . the net proceeds were used to repurchase our 2021 notes ( see note 10 , โ debt โ ) . we recorded a loss of $ 65.5 million in connection with the divestiture for the year ended december 31 , 2020 . 19 as a result of the divestiture , the results of operations from our movianto business are reported as โ loss from discontinued operations , net of tax โ through the divestiture date and the related assets and liabilities were classified as โ held- for-sale โ in the consolidated balance sheet as of december 31 , 2019. see note 3 , โ discontinued operations , โ of the notes to consolidated financial statements for further information . unless otherwise indicated , the following information relates to continuing operations . income from continuing operations per diluted share was $ 1.39 for the year ended december 31 , 2020 , an increase of $ 1.76 compared to 2019. global solutions segment operating income was $ 30.9 million for the year ended december 31 , 2020 , compared to $ 83.6 million for 2019. the decline was due to lower distribution revenues as a result of customer non-renewals that occurred in 2019 and a reduction in elective surgical procedures primarily due to the impact of covid-19 . global products segment operating income was $ 260 million for the year ended december 31 , 2020 , compared to $ 65.1 million for 2019. the increase was a result of higher revenues from greater market demand for personal protective equipment and favorable product mix combined with continued operating efficiencies compared to 2019. covid-19 update we are closely monitoring the impact of covid-19 on all aspects of our business , including how it impacts our customers , teammates , suppliers , vendors and distribution channels . we have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities or that we determine are in the best interests of our teammates , customers , suppliers and shareholders . revenue in 2020 of $ 8.5 billion includes a significant overall impact from covid-19 related to the reduction of surgical procedures beginning in mid-march , which was partially offset by a greater demand for ppe . operating income also benefited from improved productivity and increased manufacturing output related to ppe , favorable product mix and operating efficiencies . we have expanded our ppe production operations to 24 hours a day , 7 days a week , and have taken measures to increase and improve our production such as retooling existing equipment , installing and optimizing new production lines and ramping up our new non-woven fabric machinery . we have delivered over 12 billion units of ppe to healthcare workers in the fight against covid-19 , of which approximately 5 billion units were produced with materials manufactured in our american factories or owens & minor owned facilities , since january 2020. we expect that we will continue servicing our customers ' needs related to the heightened demand for our ppe as a result of various factors , including the implementation of new regulations and healthcare protocols calling for increased use of ppe , healthcare professional preference for medical grade ppe , stockpile ppe demand and the creation of new channels for ppe demand in healthcare , non-healthcare and international markets . we are evaluating various government-sponsored covid-response stimulus , relief , and production initiatives such as under the dpa and recent cares act . in march 2020 , under the dpa , we were awarded a contract with the u.s. department of health and human services ( hhs ) to produce n-95 respirator masks in an effort to replenish the strategic national stockpile . in april 2020 , also under the dpa , the u.s. department of defense initiated a technology investment agreement with us involving up to $ 30.0 million of anticipated funding of assets to expand capacity to supply n-95 respirator masks . through december 31 , 2020 , approximately $ 27.0 million had been expended and $ 20.8 million had been reimbursed in accordance with this arrangement . in addition , as allowed under the cares act , we filed for $ 13.7 million and $ 17.6 million income tax refunds with the internal revenue service ( irs ) related to the carryback of net operating losses ( nol ) incurred in 2018 and 2019. as of december 31 , 2020 , we have received substantially all of the refunds . story_separator_special_tag the interest rate on our revolving credit facility and term a loans is based on 1 ) either the eurocurrency rate or the base rate plus 2 ) an applicable percentage which varies depending on consolidated total leverage ratio ( each as defined in the credit agreement ) . our interest rate on the revolving credit facility at december 31 , 2020 was eurocurrency rate plus 2.75 % . our term b loan accrues interest based on 1 ) either the eurocurrency rate or the base rate plus 2 ) an applicable percentage of 3.50 % per annum for base rate loans and 4.50 % per annum for eurocurrency rate loans ( each as defined in the credit agreement ) . our interest rate on the term b loan at december 31 , 2020 was eurocurrency rate plus 4.50 % . we are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility . at december 31 , 2020 and 2019 , we had borrowings of $ 103 million and $ 178 million , and letters of credit of $ 13.9 million and $ 11.7 million , outstanding under the revolving credit facility . at december 31 , 2020 and 2019 , we had $ 283 million and $ 209 million , available for borrowing . the december 31 , 2019 availability reflected letters of credit associated with discontinued operations of $ 1.1 million . we also had letters of credit and bank guarantees outstanding for $ 1.6 million and $ 1.5 million as of december 31 , 2020 and 2019 , which supports certain leased facilities as well as other normal business activities in the united states and europe . these letters of credit and guarantees were issued independent of the credit agreement . we have a security and pledge agreement ( the security agreement ) pursuant to which we granted collateral on behalf of the holders of the 2021 notes and the holders of the 2024 notes and the parties secured under the credit agreement ( the secured parties ) including first priority liens and security interests in ( a ) all present and future shares of capital stock owned by the credit parties ( as defined ) in the credit parties ' present and future subsidiaries and ( b ) all present and future personal property and assets of the credit parties , subject to certain exceptions . the fifth amendment to the credit agreement included additional collateral requirements of the credit parties , including an obligation to pledge our owned u.s. real estate and the remaining equity interests in foreign subsidiaries . our credit agreement has a โ springing maturity date โ with respect to the term b loan . if the outstanding balance of the 2024 notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 notes , the termination date of the term b loan shall be the date that is 91 days prior to the maturity date of the 2024 notes . the revolving credit facility matures in july 2022 and the term b loan matures in april 2025. on february 19 , 2020 , we entered into an accounts receivable securitization program ( the receivables securitization program ) . pursuant to the receivables securitization program the aggregate principal amount of the loans made by the lenders ( as defined ) will not exceed $ 325 million outstanding at any time . the interest rate under the receivables securitization program is based on a spread over the london interbank offered rate ( libor ) dependent on the tranche period thereto and any breakage fees accrued . under the receivables securitization program , certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity , o & m funding llc . the receivables securitization program matures on february 17 , 2023. in february 2020 , we drew $ 150 million from the receivables securitization program to repay portions of the term a loans , consistent with the terms of the fifth amendment to the credit agreement . the fifth amendment to the credit agreement requires that any additional draws on the receivables securitization program are restricted for use to repay the 2021 notes or term a loans to the extent those instruments are outstanding.the credit agreement , receivables securitization program , and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement . the terms of the credit agreement also require us to maintain ratios for leverage and interest coverage , including on a pro forma basis in the event of an acquisition or divestiture . we were in compliance with our debt covenants at december 31 , 2020. current maturities include $ 34.4 million of the remaining term a-2 loan principal balance , which was repaid in full on january 4 , 2021 , scheduled principal payments within the next 12 months of $ 5.0 million for our term b loan , and $ 1.1 million in short-term finance leases . in may 2020 , we entered into an equity distribution agreement , pursuant to which we may offer and sell , from time to time , shares of our common stock having an aggregate offering price of up to $ 50.0 million . we intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and or for general corporate and working capital purposes . as of december 31 , 2020 no shares were issued and $ 50.0 million of common stock remained available under the at-the-market equity financing program .
| results of operations 2020 compared to 2019 replace_table_token_4_th the change in net revenue for the year ended december 31 , 2020 reflected the impact of lower distribution revenues as a result of customer non-renewals that occurred in 2019 and a reduction in elective surgical procedures primarily due to the impact of covid-19 . these were partially offset by revenue growth in global products from increased demand for ppe and growth in byram , our home healthcare business . foreign currency translation had a $ 2.6 million favorable impact on net revenue for the year ended december 31 , 2020 as compared to the prior year . cost of goods sold . for the years ended december 31 , change ( dollars in thousands ) 2020 2019 $ % cost of goods sold $ 7,199,343 $ 8,082,448 $ ( 883,105 ) ( 10.9 ) % 21 cost of goods sold includes the cost of the product ( net of supplier incentives and cash discounts ) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory loss . these are sometimes referred to as distribution contracts . cost of goods sold also includes direct and certain indirect labor , material and overhead costs associated with our global products business . there is no cost of goods sold associated with our fee-for-service arrangements . cost of goods sold compared to prior year reflects changes in sales activity , including sales mix . replace_table_token_5_th gross margin for the year ended december 31 , 2020 was impacted by improved sales mix and productivity , operating efficiencies in global products and a favorable impact from foreign currency translation of $ 7.3 million . we value distribution inventory held in the united states under the lifo method .
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for incentive options granted to employees , the company accounts for the expected life in accordance with the โ simplified โ method , which is used for โ plain-vanilla โ options , as defined in the accounting standards codification . the risk-free interest rate was determined from the implied yields of u.s. treasury zero-coupon bonds with a remaining life consistent with the expected term of the options . the fair value of stock-based story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations includes a number of forward-looking statements that reflect management 's current views with respect to future events and financial performance . you can identify these statements by forward-looking words such as โ may , โ โ will , โ โ expect , โ โ anticipate , โ โ believe , โ โ estimate โ and โ continue , โ or similar words . those statements include statements regarding the intent , belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . important factors currently known to management could cause actual results to differ materially from those in forward-looking statements . we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time . we believe that our assumptions are based upon reasonable data derived from and known about our business and operations . no assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions . factors that could cause differences include , but are not limited to , expected market demand for our products , fluctuations in pricing for materials , and competition . business overview we were formed in august 2015 to expand upon the successful implementation of a hydrogen energy system used to completely power a residence or commercial property with clean energy so that it can run independent of the utility grid and also provide energy to the utility grid for monetary credits . this system uses renewable energy as its source for hydrogen production . it functions as a self-sustaining clean energy system using hydrogen and fuel cell technology . its production of electricity is truly eco-friendly , as it is not produced by the use of fossil fuels . it is a revolutionary green-energy concept that is safe , renewable , self-sustaining and cost effective . there are great benefits to hydrogen energy . the use of hydrogen as an energy source produces no carbon dioxide or other greenhouse gases . unlike fossil fuels , the only emission from hydrogen is chemically pure water . hydrogen can be extracted from water using renewable energy from the sun and unlike batteries , hydrogen can be stored indefinitely . there is no drilling , fracking or mining required to produce hydrogen . we believe it is safe and the most abundant and cleanest energy source on the planet . in addition to offering this self-sustaining clean energy system using hydrogen and fuel cell technology , we offer a number of renewable energy services , such as audits of energy consumption , review of energy/tax credits available , feasibility studies , solar/battery system installation , zoning/permitting analysis , site design/preparation and restoration , system startup , testing , commissioning , maintenance and interconnection applications . we have succeeded in developing and installing hydrogen energy systems that are combined with renewable solar energy to produce clean electricity . we call the hydrogen energy system the hc-1 . the hc-1 system functions as a self-sustaining renewable energy system . it can be configured as an off grid solution for all your electricity needs or it can be connected to the grid to generate energy credits . it is a system comprised of solar , batteries , a hydrogen generator , a fuel cell and a hydrogen storage tank . when there is sunlight , the solar produce renewable energy that charges a bank of batteries . after the batteries are fully charged , the excess electricity is then combined with water through a hydrogen generator that extracts the hydrogen from the water in a gasified state , which is safely transferred to a tank and stored for later use . if the tank is full , excess electricity is sent from the batteries to the utility grid , which results in energy credits for the system owner . the electricity for the end user is always provided by the charged batteries . if there is no solar power to charge the batteries , the system keeps the batteries fully charged by using the hydrogen gas stored in the tank , which processed through a fuel cell , creates the electricity to charge the batteries . as the system is able to produce its own hydrogen gas , which keeps the tank full , it provides a continuous supply of clean energy and sustainability that is independent from the grid . each hc-1 system is custom designed to accommodate the electrical loads for an end user . the system is completely scalable . if a customer wishes to connect the system to the electrical grid in order to generate renewable energy credits , we obtain interconnection agreements from the local electric utility company . if the customer obtains authorization for interconnection to the utility grid , once the hc-1 system is operational , the hc-1 system owner can eliminate their electric bill and , if in a permissible state , can begin generating energy credits . story_separator_special_tag for the year ended december 31 , 2018 , we had $ 24,755 of cash , provided by investing activities relating to the purchase of fixed assets of $ 46,690 and security deposits of $ 26,922 , offset by $ 30,408 of cash acquired in business acquisition and $ 67,959 of proceeds from the disposition of property and equipment . 20 for the year ended december 31 , 2018 , we had $ 276,443 of cash provided by financing activities , which represented $ 395,000 of proceeds from the issuance of convertible debt , $ 27,175 of net proceeds from a line of credit and $ 1,000 from the exercise of stock options , offset by $ 51,048 in repayments on capital leases , $ 47,684 of repayments of notes payable and $ 48,000 in payments of related party interest . for the year ended december 31 , 2017 , we used $ 69,898 of cash in operating activities , which represented our net income of $ 8,897 , $ 5,128 of changes in accounts payable , $ 51,625 of stock-based compensation , $ 44,257 of increased deferred tax assets , $ 40,373 of costs in excess of billings , $ 32,585 of depreciation and amortization , $ 3,668 of billings in excess of cost , $ 420 of prepaid expenses and $ 77 gain on fixed asset sales , offset by $ 157,164 of changes in accounts receivables . for the year ended december 31 , 2017 , we used $ 24,974 in investing activities relating to the purchase of fixed assets of $ 36,943 , offset by $ 11,969 of proceeds from the disposition of property and equipment . for the year ended december 31 , 2017 , we received $ 1,000 from financing activities , which represented proceeds from the exercise of stock options . in the future we expect to incur expenses related to compliance for being a public company and travel related to visiting potential customer sites . we expect that our general and administrative expenses will increase as we expand our business development , add infrastructure and incur additional costs related to being a public company , including incremental audit fees , investor relations programs and increased professional services . our future capital requirements will depend on a number of factors , including the progress of our sales and marketing of our services , the timing and outcome of potential acquisitions , the costs involved in operating as a public reporting company , the status of competitive services , the availability of financing and our success in developing markets for our services . when we enter into contacts with customers , they will be required to make payments in tranches , including a payment after a contract is executed but prior to commencement of the project . we believe our existing cash , together with revenue generated by operations , will be sufficient to fund our operating expenses and capital equipment requirements for at least the next 12 months . other than a line of credit from thermo communications funding , llc ( โ thermo โ ) and an equity purchase agreement with the investor discussed below , we presently do not have any available credit , bank financing or other external sources of liquidity . we did not achieve net income from operations for the year ended december 31 , 2018 and our operations historically have not been a source of liquidity and we can not be assured they will be in the near future . we may need to obtain additional capital in order to expand operations and fund our activities . future financing may include the issuance of equity or debt securities , obtaining credit facilities , or other financing mechanisms . even if we are able to raise the funds if required , it is possible that we could incur unexpected costs and expenses , fail to collect significant amounts owed to us , or experience unexpected cash requirements that would force us to seek alternative financing . furthermore , if we issue additional equity or debt securities , stockholders may experience additional dilution or the new equity securities may have rights , preferences or privileges senior to those of existing holders of our common stock . if additional financing is not available or is not available on acceptable terms , we may be required to delay , reduce the scope of or eliminate our marketing and business development services . credit facility on august 21 , 2018 , pvbj entered into a loan and security agreement ( the โ credit agreement โ ) with thermo . the credit agreement provides for a revolving line of credit in an amount not to exceed $ 350,000 , which is evidenced by a promissory note issued by pvbj to thermo ( the โ note โ ) . pursuant to the credit agreement , pvbj granted a security interest to thermo in all of its assets . in addition , pursuant to a limited recourse guaranty , andrew hidalgo , our chief executive officer , personally guaranteed the repayment of the credit agreement under certain conditions . pursuant to the terms of the credit agreement , we are permitted to borrow up to $ 350,000 under the revolving credit line , under a borrowing base equal to the lesser of ( i ) or 85 % of eligible accounts ( as defined in the credit agreement ) . borrowings under the credit agreement may be used for working capital and to refinance certain existing debt of pvbj . the credit agreement contains certain customary representations and warranties , affirmative and negative covenants , and events of default . principal covenants include a debt service coverage ratio of not less than 1.15 to 1.0 , a fixed charge coverage ratio of not less than 1.15 to 1.0 , and maintaining a tangible net worth of at least $ 150,000 , excluding intercompany loans . as of december 2018 , we were in compliance with these covenants .
| results of operations for the years ended december 31 , 2018 and 2017 revenue and cost of revenue for the year ended december 31 , 2018 , we had $ 7,546,437 of revenue and $ 5,532,983 of cost of revenue , of which $ 40,548 and $ 40,376 , respectively , was related party . revenues increased from 2017 to 2018 due to the acquisition of pvbj in february of 2018. for the year ended december 31 , 2017 , we had $ 6,352,886 of revenue and $ 4,329,070 of cost of revenue , of which $ 85,919 and $ 87,649 , respectively , was related party . pride revenues for year ended december 31 , 2018 were $ 5,073,533 , down from $ 6,266,967 for year ended december 31 , 2017. this was due in large part to two larger contract jobs that pride completed in 2017 year that were in excess of one million dollars . replace_table_token_1_th 19 general and administrative expenses during the year ended december 31 , 2018 , our general and administrative expenses were $ 2,446,860 . $ 565,700 was related to the renewable systems integration segment , including corporate expenses comprised of $ 150,000 of gross payroll , $ 87,560 of accounting fees related to audit , consulting and tax costs , $ 78,000 in management disbursements , $ 68,293 of stock-based compensation , $ 63,050 of legal fees , $ 30,343 of dues and subscription fees , which pertained to transfer agent , press release , edgar fees and otc market annual listing fees , $ 18,063 of directors and officers insurance liability , $ 16,877 of amortization , $ 12,545 of investor relations , $ 12,221 of travel , $ 10,168 of payroll taxes , and $ 18,580 of miscellaneous expenses .
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this guidance is effective for fiscal years and interim periods within those fiscal years beginning after december 15 , 2019 , which is the first quarter of fiscal 2021 for sysco , story_separator_special_tag our discussion below of our results includes certain non-gaap financial measures that we believe provide important perspective with respect to underlying business trends . other than free cash flow , any non-gaap financial measures will be denoted as adjusted measures and are impacted by restructuring and transformational project costs consisting of : ( 1 ) expenses associated with our various transformation initiatives ; ( 2 ) severance and facility closure charges ; and ( 3 ) restructuring charges . our results of operations for fiscal 2019 and 2018 are also impacted by the following acquisition-related items : ( 1 ) intangible amortization expense and ( 2 ) integration costs . fiscal 2019 results of operations were impacted by a gain on the sale of iowa premium , llc ( iowa premium ) in the fourth quarter of fiscal 2019. in addition , fiscal 2018 results of operations were impacted 20 by multiemployer pension plan ( mepp ) withdrawal charges and debt extinguishment charges . sysco 's results of operations for fiscal 2019 and 2018 were also impacted by the changes to the united states ( u.s. ) tax code resulting from the tax cuts and jobs act of 2017 ( tax act ) enacted on december 22 , 2017. the impact for fiscal 2019 and 2018 includes a transition tax on certain unrepatriated earnings of foreign subsidiaries , and the impact for fiscal 2019 also includes the recognition of a foreign tax credit applicable to repatriated earnings . additionally , the impact for fiscal 2018 includes : ( 1 ) a net benefit from remeasuring sysco 's accrued income taxes , deferred tax liabilities and deferred tax assets due to the changes in tax rates ; and ( 2 ) a benefit from contributions made to fund the u.s. retirement plan ( pension plan ) . all acquisition-related costs in fiscal 2019 and 2018 that have been designated as certain items relate to the fiscal 2017 acquisition of cucina lux investments limited ( the brakes acquisition ) . the fiscal 2019 and fiscal 2018 items described above and excluded from our non-gaap measures are collectively referred to as โ certain items. โ management believes that adjusting its operating expenses , operating income , net earnings and diluted earnings per share to remove these certain items , provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that ( 1 ) is indicative of the performance of the company 's underlying operations , ( 2 ) facilitates comparisons on a year-over-year basis , and ( 3 ) removes those items that are difficult to predict and are often unanticipated and that , as a result , are difficult to include in analysts ' financial models and our investors ' expectations with any degree of specificity . the company uses these non-gaap measures when evaluating its financial results , as well as for internal planning and forecasting purposes . these financial measures should not be used as a substitute for gaap measures in assessing the company 's results of operations for periods presented . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . as a result , in the table below , each period presented is adjusted for the impact described above . in the table below , individual components of diluted earnings per share may not add to the total presented due to rounding . adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding . any metric within this section referred to as โ adjusted โ will reflect the applicable impact of certain items . more information on the rationale for the use of these measures and reconciliations to gaap numbers can be found under โ non-gaap reconciliations. โ the following discussion includes a comparison of our results of operations and liquidity and capital resources for fiscal 2019 and fiscal 2018. a discussion of changes in our results of operations from fiscal 2017 to fiscal 2018 has been omitted from this form 10-k , but may be found in โ item 7. management 's discussion and analysis of financial condition and results of operations โ of our form 10-k for the fiscal year ended june 30 , 2018 , filed with the securities and exchange commission on august 24 , 2018. overview sysco distributes food and related products to restaurants , healthcare and educational facilities , lodging establishments and other foodservice customers . our primary operations are located in north america and europe . the company has aggregated certain operating segments into three reportable segments . โ other โ financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds . u.s. foodservice operations - primarily includes u.s. broadline operations , which distribute a full line of food products , including custom-cut meat , seafood , specialty produce , specialty imports and a wide variety of non-food products ; international foodservice operations - includes operations in the americas and europe , which distribute a full line of food products and a wide variety of non-food products . the americas primarily consists of operations in canada , bahamas , mexico , costa rica and panama , as well as our operations that distribute to international customers . our european operations primarily consist of operations in the united kingdom ( u.k. ) , france , ireland and sweden ; sygma - our u.s. customized distribution subsidiary ; and other - primarily our hotel supply operations and sysco labs , which includes our suite of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs . story_separator_special_tag periods of high inflation , either overall or in certain product categories , can have an unfavorable effect on us and our customers , as high food costs can be difficult to pass on to our customers . changes in exchange rates can impact our foreign sales as we convert them to u.s. dollars . in fiscal 2019 , foreign exchange rates reduced our total sales by 0.8 % . we experienced higher operating expenses in fiscal 2019 , as compared to fiscal 2018 , due to investments we made in our business , particularly in our international segment , such as our integration of brake france and davigel into sysco france , from increased investments in technology for our business transformation initiatives and from increased supply chain costs in both transportation and warehouse , primarily in our u.s. operations . strength in the labor markets is a positive factor contributing to sales growth in the u.s. and canada ; however , the tightening labor market in these geographies has an adverse effect on our operating expenses , including increased overtime expense and higher costs associated with hiring . we are addressing these challenges by continuing to drive productivity and focusing on retention initiatives for specialized recruiting , training and onboarding efforts to better retain talent in our supply chain operations , and we are experiencing positive results from these efforts . these expense increases were partially offset by benefits from our transformative initiatives and corporate expense management . we have multiple transformational and operational initiatives underway , which include , among others : improved customer-facing technology ; continued growth of our sysco-branded products through new and innovative products , as well as expanding the reach of these products in additional geographies beyond the u.s. and canada ; a finance transformation roadmap that modernizes our global financial platform . this initiative increases centralization and standardization of our end-to-end global processes and workflow and uses digital automation on a modern finance platform to improve efficiency ; a smart spending initiative , which is focused on reducing our indirect spend in certain categories to drive productivity and savings ; the integration of our businesses in france and ireland ; supply chain transformation projects in the u.k. , including converting warehouses to accommodate multiple temperature zones ; and a canadian regionalization project , which is focused on streamlining our leadership and administrative support for our canadian operations , while maintaining an acute focus on our customers . we believe these initiatives will drive growth and profitability in the long-term . our effective tax rate has been influenced by discrete events , such as tax law changes and excess tax benefits attributable to equity compensation exercises as discussed in note 20 , โ income taxes , โ in the notes to consolidated financial statements in item 8. in fiscal 2020 , we expect our effective tax rate to be approximately 24 % . we continue to be focused on mergers and acquisitions as a part of our strategy . we have completed several acquisitions in fiscal 2019 within our u.s. foodservice operations and our international foodservice operations as follows : u.s. foodservice operations in the fourth quarter of fiscal 2019 , we acquired j & m wholesale meats and imperio foods , inc. , leading california distributors with approximately $ 44 million in combined annual sales . j & m wholesale meats and imperio foods , inc. , sister companies based out of modesto , california , operate throughout northern california and oregon . in the third quarter of fiscal 2019 , we acquired waugh foods , inc. , a leading illinois broadline distributor with approximately $ 40 million in annual sales ; and in addition to the acquisitions noted above , in the third quarter of fiscal 2019 , we purchased the remaining interests in iowa premium , making the previously consolidated entity a wholly owned subsidiary . sysco initially acquired an interest in the specialty meat company in fiscal 2014. we subsequently sold iowa premium in the fourth quarter of fiscal 2019 and realized a gain of $ 66.3 million . international foodservice operations in the third quarter of fiscal 2019 , we acquired classic drinks , an established specialist wine and spirits distributor in ireland with approximately 42 million in annual sales . 23 in the first quarter of fiscal 2020 , we acquired j. kings food service professionals , a new york broadline distributor with approximately $ 150 million in annual sales . strategy and fiscal 2020 three-year financial targets our objective to improve the overall customer experience is a core element of our success over the past few years and will continue to be a key focus as we move forward . we have identified four strategic priorities that will accelerate our current growth and guide us into the future . these priorities are to enrich the customer experience , deliver operational excellence , optimize our business and activate the power of our people . fiscal 2019 is the second year in our current three-year plan that was established in fiscal 2018 and includes our strategic and financial objectives through fiscal 2020 , which will enable us to continue transforming our business , while improving the customer experience of doing business with sysco . our target financial objectives set at the beginning of our current three-year plan cycle , included : reaching $ 650 million to $ 700 million of adjusted operating income growth as compared to fiscal 2017 ; growing earnings per share faster than operating income ; and achieving 16 % in adjusted return on invested capital improvement for existing businesses . while we continue to experience improved operating performance year-over-year , our volume growth is lower than originally anticipated , and we have incurred increased expenses . due to these items , combined with the impact of our sale of iowa premium , we are lowering our fiscal 2018 to fiscal 2020 adjusted operating income growth target to approximately $ 600 million .
| results of operations the following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated : replace_table_token_6_th 24 the following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year : replace_table_token_7_th ( 1 ) other expense ( income ) , net was income of $ 36.1 million in fiscal 2019 and income of $ 37.7 million in fiscal 2018 . segment results the following represents our results by reportable segments : replace_table_token_8_th replace_table_token_9_th based on information in note 22 , โ business segment information , โ in the notes to consolidated financial statements in item 8 , in fiscal 2019 , u.s. foodservice operations and international foodservice operations represented approximately 68.7 % and 19.1 % , respectively , of sysco 's overall sales , compared to 67.5 % and 19.6 % , respectively , in fiscal 2018 . in fiscal 2019 , u.s. foodservice operations and international foodservice operations represented approximately 94.4 % and 3.7 % , respectively , of 25 the total segment operating income , compared to 92.2 % and 5.8 % , respectively in fiscal 2018 . this illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments . cost of sales primarily includes our product costs , net of vendor consideration , and includes in-bound freight . operating expenses include the costs of facilities , product handling , delivery , selling and general and administrative activities . fuel surcharges are reflected within sales and gross profit ; fuel costs are reflected within operating expenses .
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the interest rate swaps terminate at various dates between december 2015 and february 2018 . non-designated lumber swap derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements , commodity price movements or other identified risks , but do not meet the strict hedge accounting requirements . in february 2012 , we entered into two commodity swap contracts for a total of 22,500 mbf ( thousand board feet ) of southern yellow pine , story_separator_special_tag overview the u.s. housing market remained weak going into the beginning of 2012 , with only slight improvements in housing starts expected through the year . however , economic conditions improved considerably , resulting in significantly better results than what we expected for 2012. we generated $ 42.6 million of net income during 2012 , slightly above that of 2011. in our resource segment , results reflect the impact of our decision to reduce harvest levels in 2012. our total harvest volume was 3.6 million tons in 2012 compared to 4.1 million tons in 2011. operating income for our resource segment was $ 49.5 million in 2012 compared to $ 59.8 million in 2011. operating income for our real estate segment totaled $ 28.1 million in 2012 compared to $ 31.4 million in 2011 as fewer acres were sold in 2012. our wood products segment was impacted the most positively from the improved economic conditions , with operating income of $ 45.5 million in 2012 compared to $ 7.3 million in 2011. average lumber prices and total shipment volumes increased 15 % and 8 % , respectively , in 2012 over 2011. we ended the year with $ 80.1 million of cash and short-term investments on our balance sheet . we expect the economy to continue to expand as the housing market improves , which should positively impact our operating results , particularly in our resource and wood products segments . u.s. lumber demand increased in 2012 and is expected to increase again in 2013. lumber prices are trending higher and we expect 2013 prices to remain higher than in 2012. in our resource segment , the improvement in lumber prices is working its way into higher sawlog prices . as a result , we are modestly increasing our harvest level in 2013 to 3.8 million tons . our expectations for our real estate segment are slightly lower compared to 2012 , with no large non-strategic land sales expected . however , we expect a consistent level of rural real estate and hbu sales at slightly higher prices . factors influencing our results of operations and cash flows the operating results of our resource , real estate and wood products business segments have been and will continue to be influenced by a variety of factors , including the cyclical nature of the forest products industry , changes in timber prices and in harvest levels from our timberlands , competition , timberland valuations , demand for our non-strategic timberland for higher and better use purposes , the efficiency and level of capacity utilization of our wood products manufacturing operations , changes in our principal expenses such as log costs , asset dispositions or acquisitions , and other factors . cyclical forest products markets . the operating results of our timber , real estate and wood products manufacturing operations are cyclical . historical prices for our wood products have been volatile , and we , like other manufacturers in the forest products industry , have limited direct influence over the timing and extent of price changes for our products . wood products pricing and demand affects timber pricing and demand . the demand for our wood products is affected by the level of new residential construction activity , commercial and industrial demand , and , to a lesser extent , home repair and remodeling activity , which are subject to fluctuations due to changes in economic conditions , interest rates , population growth , weather conditions and other factors . the profitability of our wood products segment depends largely on our ability to operate our facilities efficiently and at or near full capacity . our operating results can be adversely affected if market demand does not justify operating at these levels or if our operations are inefficient or suffer significant interruption for any reason . one of the most significant expenses of our wood products segment is the cost of sawlogs to supply our manufacturing facilities . the cost of logs that supply our mills has at times fluctuated greatly as a result of the factors discussed above affecting the price of our timber . selling prices of our manufactured wood products have not always increased in response to log price increases , nor have log prices always decreased in conjunction with declining wood products prices . on occasion , the results of operations of our wood products business have been , and may in the future be , adversely affected if we are unable to pass cost increases through to our customers . the forest products industry in general and the wood products business in particular has been adversely affected since 2008 by the national decline in home building and the resulting weak demand and lower prices for wood products . as we experienced in 2012 , lumber demand in north america has started to improve and is expected to continue to increase due to improving housing starts and increased repair and remodel activity . 2012 form 10-k / 29 fluctuating timber prices . our results of operations and cash flows will be materially affected by the fluctuating nature of timber prices . a variety of factors affect prices for timber , including factors impacting demand , such as changes in wood products and pulpwood pricing and demand , which are affected by economic conditions , construction activity levels , interest rates , credit availability , population growth and weather conditions . all of these factors can vary by region and by timber type , such as sawlogs or pulpwood logs . story_separator_special_tag the number of hbu acres and the price per acre sold increased in 2012 over 2011. we expect a consistent level of both types of sales in 2013. acquisitions and dispositions . in addition to sales of timberlands as rural real estate or for hbu purposes , our business strategy also includes the disposition of non-strategic timberlands or timber deed sales when we desire to create financial flexibility and we believe pricing to be particularly attractive . changes in investor interest in purchasing timberlands could reduce our ability to execute sales of non-strategic timberlands and could negatively affect our results of operations . we do not expect any large sales of non-strategic timberland in 2013 , however , we expect continued smaller sales of our non-strategic properties . as a result of our reit conversion , we are better able to compete for acquisitions of timberlands against other entities that use tax-efficient structures . it is uncertain whether any timberland acquisitions we make will perform in accordance with our expectations . we anticipate financing acquisitions through cash from operations , borrowings under our credit facility or proceeds from equity or debt offerings . our inability to finance future acquisitions on favorable terms or the failure of any acquisition to perform as we expect could harm our results of operations . we continually assess possible acquisition opportunities as they arise in the marketplace . critical accounting policies and estimates our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states , which require management to make estimates that affect the amounts of revenues , expenses , assets and liabilities reported . the following are critical accounting matters which are both very important to the portrayal of our financial condition and results of operations and which require some of management 's most difficult , subjective and complex judgments . the accounting for these matters involves forming estimates based on current facts , circumstances and assumptions which , in management 's judgment , could change in a manner that would materially affect management 's future estimates with respect to such matters and , accordingly , could cause our future reported financial condition and results of operations to differ materially from financial results reported based on management 's current estimates . changes in these estimates are recorded periodically based on updated information . our critical accounting policies are discussed below . timber and timberlands . timber and timberlands are recorded at cost , net of depletion . expenditures for reforestation , including all costs related to stand establishment , such as site preparation , costs of seeds or seedlings and tree planting , are capitalized . expenditures for forest management , consisting of regularly recurring items necessary to the ownership and administration of our timber and timberlands , are accounted for as current operating expense . our depletion is determined based on costs capitalized and the related current estimated recoverable timber volume . recoverable volume does not include anticipated future growth , nor are anticipated future costs considered . there are currently no authoritative accounting rules relating to costs to be capitalized in the timber and timberlands category . we have used relevant portions of current accounting rules , industry practices and our judgment in determining costs to be capitalized or expensed . alternate interpretations and judgments could significantly affect the amounts capitalized . additionally , models and observations used to estimate the current recoverable timber volume on our lands are subject to judgments that could significantly affect volume estimates . following are examples of factors that add to the complexity of the assumptions we make regarding capitalized or expensed costs : harvest cycles can vary by geographic region and by species of timber ; weather patterns can affect annual harvest levels ; environmental regulations and restrictions may limit our ability to harvest certain timberlands ; changes in harvest plans may occur ; 2012 form 10-k / 31 scientific advancements regarding seedlings and timber growing technology may affect future harvests ; land sales and acquisitions affect volumes available for harvest ; and major forest fire events or pest infestations can significantly affect future harvest levels . different assumptions for either the cost or volume estimates , or both , could have a significant effect upon amounts reported in our statements of operations and financial condition . because of the number of variables involved and the interrelationship between the variables , sensitivity analysis of individual variables is not practical . long-lived assets . a significant portion of our total assets are invested in our timber and timberlands and our wood products manufacturing facilities . the cyclical patterns of our businesses cause cash flows to fluctuate by varying degrees from period to period . as a result , long-lived assets are a material component of our financial position with the potential for material change in valuation if assets are determined to be impaired . our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable , as measured by its undiscounted estimated future cash flows . we use our operational budgets to estimate future cash flows . budgets are inherently uncertain estimates of future performance due to the fact that all inputs , including revenues , costs and capital spending , are subject to frequent change for many different reasons , including the reasons previously described above under โ factors influencing our results of operations and cash flows. โ because of the number of variables involved , the interrelationship between the variables and the long-term nature of the impairment measurement , sensitivity analysis of individual variables is not practical . budget estimates are adjusted periodically to reflect changing business conditions , and operations are reviewed , as appropriate , for impairment using the most current data available . income taxes . we believe it is more likely than not that we will have sufficient future taxable income to realize our deferred tax assets .
| cash flows summary the following table presents information regarding our cash flows for the years ended december 31 , 2012 , 2011 and 2010 . replace_table_token_16_th net cash provided by operating activities from continuing operations in 2012 totaled $ 80.0 million , compared to $ 77.4 million in 2011 and $ 126.1 million in 2010. the variance between 2012 and 2011 was primarily due to increased net income and the use of net operating loss carryforwards , partially offset by the $ 21.6 million contribution to our qualified pension plans in 2012. the variance between 2011 and 2010 was primarily related to the reduced proceeds from real estate sold in 2011 and the $ 9.4 million contribution to our qualified pension plans . 2012 form 10-k / 39 net cash used for investing activities from continuing operations was $ 8.6 million in 2012. net cash provided by investing activities from continuing operations was $ 4.5 million in 2011. net cash used for investing activities from continuing operations was $ 45.5 million in 2010. in 2012 , we used $ 29.2 million for capital expenditures , which was partially offset by the $ 21.8 million we borrowed against our coli plan to fund our 2012 pension contributions . in 2011 , the decrease in short-term investments of $ 22.3 million was partially offset by $ 16.9 million used for capital expenditures . in 2010 , we increased short-term investments by $ 31.7 million and used $ 15.0 million for capital expenditures . our authorized capital spending budget for 2013 totals $ 24.4 million . our capital spending is primarily related to reforestation expenditures , logging road construction , smaller high-return discretionary projects and routine general replacement projects for our wood products manufacturing facilities .
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