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the company has entered into certain licenses with performing rights organizations ( `` pros `` ) , and is currently involved in negotiations with story_separator_special_tag overview and results of operations the following represents our consolidated performance highlights : replace_table_token_6_th consolidated revenues for 2014 and 2013 increased as compared to prior years due to growth in both international and domestic streaming memberships , as well as increases in average revenue per paying member resulting from the introduction of higher priced plans . the increases in operating income and net income in each of the two years ended december 31 , 2014 and 2013 were due to the increase in revenues , partially offset by the increase in the cost of revenues due to increased content expenses relating to our existing and new streaming content . we offer three types of streaming membership plans . in the u.s. our basic plan is priced at $ 7.99 per month and includes access to standard definition quality streaming on a single screen at a time . our most popular streaming plan , which includes access to high definition quality streaming on two screens concurrently , is priced at $ 8.99 per month for members who joined after the second quarter of 2014 when we had increased the membership fee from $ 7.99 per month . existing members were grandfathered in at $ 7.99 for two years , as long as they remain a member . our premium plan , which we introduced in the second quarter of 2013 , is priced at $ 11.99 per month and includes access to high definition and ultra-high definition quality content on four screens concurrently . internationally , pricing for the three types of membership plans is structured similar to the u.s. and ranges from the u.s. dollar equivalent of approximately $ 6.00 per month to $ 19.00. the following represents the key elements to our segment results of operations : we define contribution profit as revenues less cost of revenues and marketing expenses . we believe this is an important measure of our operating segment performance as it represents each segment 's performance before discrete global corporate costs . for the domestic and international streaming segments , content expenses , which include the amortization of the streaming content library and other expenses associated with the licensing and acquisition of streaming content , represent the vast majority of cost of revenues . streaming content rights are generally specific to a geographic region and accordingly our international expansion will require us to obtain additional streaming content to support new international markets . other cost of revenues such as streaming delivery expenses , customer service and payment processing fees tend to be lower as a percentage of total cost of revenues as compared to content expenses . we utilize both our own and third-party content delivery networks to help us efficiently stream a high volume of content to our members over the internet . streaming delivery expenses , therefore , also include equipment costs related to our content delivery network ( `` open connect '' ) and all third-party costs associated with delivering streaming content over the internet . cost of revenues in the domestic dvd segment consist primarily of delivery expenses , content expenses , including amortization of dvd content library and revenue sharing expenses , and other expenses associated with our dvd processing and customer service centers . delivery expenses for the domestic dvd segment consist of the postage costs to mail dvds to and from our members and the packaging and label costs for the mailers . for the domestic and international streaming segments , marketing expenses consist primarily of advertising expenses and payments made to our affiliates and device partners . advertising expenses include promotional activities such as television and online advertising . payments to our affiliates and device partners include fixed fee and /or revenue sharing payments . marketing expenses are primarily incurred by our domestic and international streaming segments given our focus on building consumer awareness of the streaming offerings . marketing expenses incurred by our international streaming segment have been significant and will fluctuate dependent upon the number of international territories in 17 which our streaming service is offered and the timing of the launch of new territories . marketing expenses are immaterial for the domestic dvd segment . we have demonstrated our ability to grow domestic streaming contribution margin as evidenced by the increase in contribution margin from 17 % in 2012 to 27 % in 2014. as a result of our focus on growing the streaming segments , contribution margins for the domestic and international streaming segments are lower than for our domestic dvd segment . investments in content and marketing associated with the international streaming segment will continue to fluctuate dependent upon the number of international territories in which our streaming service is offered and the timing of the launch of new territories . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in our international revenues was primarily due to the 82 % growth in the average number of paid international memberships as well as the 1 % increase in average monthly revenue per paying member resulting from the price increase on our most popular streaming plan and the introduction of the premium plan , offset partially by the impact of exchange rate fluctuations . average paid international streaming memberships account for 27 % of total average paid streaming memberships as of december 31 , 2014 , as compared to 20 % of total average paid streaming memberships as of december 31 , 2013. the increase in international cost of revenues was primarily due to a $ 311.5 million increase in content expenses including content for our new markets as well as more exclusive and original programming . other costs increased $ 60.3 million primarily due to increases in our streaming delivery expenses , costs associated with our customer service call centers and payment processing fees , all driven by our growing member base . story_separator_special_tag general and administrative expenses also include the gain on disposal of dvds . replace_table_token_15_th general and administrative expenses increased primarily due to a $ 70.6 million increase in personnel-related costs , including stock-based compensation expense , resulting from a 37 % increase in average headcount primarily to support our international expansion , and an increase in compensation for existing employees . in addition , there was an $ 11.6 million increase in legal costs for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. replace_table_token_16_th the increase in general and administrative expenses was primarily due to a $ 22.0 million increase in personnel-related costs resulting from a 31 % increase in average headcount to support our growth . in addition , expenses related to the use of outside and professional services , taxes and insurance increased $ 8.9 million . the increase in expenses was further impacted by an $ 8.0 million decrease in the gain on the disposal of dvds . interest expense interest expense consists primarily of the interest associated with our outstanding long-term debt obligations , including the amortization of debt issuance costs , as well as interest on our lease financing obligations . replace_table_token_17_th interest expense for the year ended december 31 , 2014 consists primarily of $ 46.8 million of interest on our notes . the increase in interest expense for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 is due to the higher aggregate principal of interest bearing notes outstanding . replace_table_token_18_th 23 interest expense for the year ended december 31 , 2013 consists primarily of $ 26.1 million of interest on our 5.375 % notes . the increase in interest expense for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 is due to the higher aggregate principal of interest bearing notes outstanding , partially offset by their lower interest rate . interest and other income ( expense ) interest and other income ( expense ) consists primarily of interest earned on cash , cash equivalents and short-term investments and foreign exchange gains and losses on foreign currency denominated balances . replace_table_token_19_th interest and other income ( expense ) was relatively flat as compared to the prior year . losses on foreign currency denominated balances were $ 8.2 million and $ 8.4 million for the years ended december 31 , 2014 and 2013 , respectively . replace_table_token_20_th interest and other income ( expense ) decreased due to increased foreign exchange losses on foreign currency denominated balances . the foreign exchange losses were $ 8.4 million and $ 4.0 million for the years ended december 31 , 2013 and 2012 , respectively . extinguishment of debt in connection with the redemption of the outstanding $ 200.0 million aggregate principal amount of the 8.50 % notes , we recognized a loss on extinguishment of debt of $ 25.1 million in the year ended december 31 , 2013 , which consisted of expenses associated with the redemption , including a $ 19.4 million premium payment pursuant to the make-whole provision in the indenture governing the 8.50 % notes . for further detail see note 5 of item 8 , financial statements and supplementary data . provision for income taxes replace_table_token_21_th in 2014 , the difference between our 24 % effective tax rate and the federal statutory rate of 35 % was $ 39.7 million primarily due to the release of tax reserves on previously unrecognized tax benefits of $ 38.6 million as a result of an irs appeals settlement for the tax years 2008-2009 leading to the reassessment of our reserves for all open years , coupled with the retroactive reinstatement of the 2014 federal research and development ( `` r & d '' ) credits partially offset by state income taxes , foreign taxes and nondeductible expenses . the decrease in our effective tax rate for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 was primarily attributable to the $ 38.6 million release of tax reserves on previously unrecognized tax benefits . on december 19 , 2014 , the tax increase prevention act of 2014 ( h.r . 5771 ) was signed into law which retroactively extended the federal r & d credit from january 1 , 2014 through december 31 , 2014. as a result , we recognized the retroactive benefit of the 2014 federal r & d credit of approximately $ 10.7 million as a discrete item in the fourth quarter of 2014 , the period in which the legislation was enacted . 24 replace_table_token_22_th in 2013 , the difference between our effective tax rate and the federal statutory rate of 35 % was $ 1.2 million primarily due to the federal and california r & d credits partially offset by state income taxes and nondeductible expenses . the decrease in our effective tax rate for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was primarily attributable to the retroactive reinstatement of the 2012 federal r & d credit in january 2013. on january 2 , 2013 , the american taxpayer relief act of 2012 ( h.r . 8 ) was signed into law which retroactively extended the federal r & d credit from january 1 , 2012 through december 31 , 2013. as a result , we recognized the retroactive benefit of the 2012 federal r & d credit of approximately $ 3.1 million as a discrete item in the first quarter of 2013 , the period in which the legislation was enacted . liquidity and capital resources cash , cash equivalents and short-term investments were $ 1,608.5 million and $ 1,200.4 million as of december 31 , 2014 and 2013 , respectively . in february 2014 , we issued $ 400.0 million aggregate principal amount of 5.750 % senior notes due 2024 ( the `` 5.750 % notes '' ) .
| segment results domestic streaming segment year ended december 31 , 2014 as compared to the year ended december 31 , 2013 replace_table_token_7_th in the domestic streaming segment , we derive revenues from monthly membership fees for services consisting solely of streaming content offered through a membership plan . the increase in our domestic streaming revenues was due to the 22 % growth in the average number of paid memberships , as well as to the 2 % increase in average monthly revenue per paying member resulting from our price increase for new members in the second quarter of 2014 and introduction of the higher priced plan in 2013. our two screen high definition plan continues to be the most popular plan choice for new members . the increase in domestic streaming cost of revenues was primarily due to the $ 242.3 million increase in content expenses relating to our existing and new streaming content , including more exclusive and original programming . in addition , streaming delivery expenses increased by $ 59.5 million and other costs , such as payment processing fees and customer service call centers , increased $ 36.6 million due to our growing member base . marketing expenses increased primarily due to an increase in advertising and public relations spending . our domestic streaming segment had a contribution margin of 27 % for the year ended december 31 , 2014 , which increased as compared to the contribution margin of 23 % for the year ended december 31 , 2013 due to growth in paid memberships and revenue , which continued to outpace content and marketing spending . the decrease in net membership additions in the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 is a natural progression of our large domestic market as we grow . we expect to continue to increase domestic contribution margins over the next several years even with lower membership growth .
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advertising expense was $ 186 million for the year ended story_separator_special_tag forward-looking information the discussions under business , risk factors , properties and legal proceedings , and the following discussions under management 's discussion and analysis of financial condition and results of operations and quantitative and qualitative disclosures about market risk contain various forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , which represent the company 's expectations or beliefs concerning future events . when used in this document and in documents incorporated herein by reference , the words expects , estimates , plans , anticipates , indicates , believes , forecast , guidance , outlook , may , will , should , seeks , targets and similar expressions are intended to identify forward-looking statements . similarly , statements that describe the company 's objectives , plans or goals , or actions the company may take in the future , are forward-looking statements . forward-looking statements include , without limitation , the company 's expectations concerning operations and financial conditions , including changes in capacity , revenues , and costs ; future financing plans and needs ; the amounts of its unencumbered assets and other sources of liquidity ; fleet plans ; overall economic and industry conditions ; plans and objectives for future operations ; regulatory approvals and actions ; and the impact on the company of its results of operations in recent years and the sufficiency of its financial resources to absorb that impact . other forward-looking statements include statements which do not relate solely to historical facts , such as , without limitation , statements which discuss the possible future effects of current known trends or uncertainties , or which indicate that the future effects of known trends or uncertainties can not be predicted , guaranteed or assured . all forward-looking statements in this report are based upon information available to the company on the date of this report . the company undertakes no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events , or otherwise . guidance given in this report regarding capacity , fuel consumption , fuel prices , fuel hedging and unit costs are forward-looking statements . forward-looking statements are subject to a number of factors that could cause the company 's actual results to differ materially from the company 's expectations . the risk factors listed in item 1a could cause the company 's actual results to differ materially from historical results and from those expressed in forward-looking statements . chapter 11 proceedings overview as previously discussed , on november 29 , 2011 , amr and certain of its direct and indirect domestic subsidiaries filed voluntary petitions for relief under the bankruptcy code in the united states bankruptcy court for the southern district of new york . the chapter 11 cases are being jointly administered under the caption in re amr corporation , et al , case no . 11-15463-shl. the company and the other debtors are operating as debtors-in-possession under the jurisdiction of the bankruptcy court and the applicable provisions of the bankruptcy code . in general , as debtors-in-possession under the bankruptcy code , we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the bankruptcy court . the bankruptcy code enables the company to continue to operate its business without interruption and the bankruptcy court has granted additional relief , covering among other things , obligations to ( i ) employees , ( ii ) taxing authorities , ( iii ) insurance providers , ( iv ) independent contractors for improvement projects , ( v ) foreign vendors , ( vi ) other airlines pursuant to certain interline agreements , and ( vii ) certain vendors deemed critical to the debtors ' operations . while operating as debtors-in-possession under chapter 11 of the bankruptcy code , the debtors may sell or otherwise dispose of or liquidate assets or settle liabilities , subject to the approval of the bankruptcy court or otherwise as permitted in the ordinary course of business . moreover , the debtors have not yet prepared or filed with the bankruptcy court a plan of reorganization . the ultimate plan of reorganization , which would be subject to acceptance by the requisite majorities of empowered creditors under the bankruptcy code and approved by the bankruptcy court , could materially change the amounts and classifications in the historical condensed consolidated financial statements . the company 's chapter 11 cases followed an extended effort by the company to restructure its business to strengthen its competitive and financial position . however , the company 's substantial cost disadvantage compared to its larger competitors , most of which have reorganized under the protection of chapter 11 of the bankruptcy code , became increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability , volatile and rising fuel prices , and intensifying competitive challenges . 31 no assurance can be given as to the value , if any , that may be ascribed to the debtors ' various pre-petition liabilities and other securities . the company can not predict what the ultimate value of any of its securities may be and it remains too early to determine whether holders of any such securities will receive any distribution in the debtors ' reorganization . in particular , in most cases under chapter 11 of the bankruptcy code , holders of equity securities receive little or no recovery of value from their investment . accordingly , the debtors urge that caution be exercised with respect to existing and future investments in any of these securities or other debtor claims . story_separator_special_tag the 60-day period under section 1110 in the chapter 11 cases expired on january 27 , 2012. in accordance with the bankruptcy court 's order authorizing the debtors to ( i ) enter into agreements under section 1110 ( a ) of the bankruptcy code , ( ii ) enter into stipulations to extend the time to comply with section 1110 of the bankruptcy code and ( iii ) file redacted section 1110 ( b ) stipulations , dated december 23 , 2011 , the debtors have entered into agreements to extend the automatic stay or agreed to perform and cure defaults under financing agreements with respect to certain aircraft in their fleet and other aircraft property . while the debtors have reached agreements on , or agreements on key aspects of , renegotiated terms with respect to certain of their aircraft properties and are continuing to negotiate terms with respect to many of their other aircraft property financings , the ultimate outcome of these negotiations can not be predicted with certainty . to the extent the debtors are unable to reach definitive agreements with aircraft property financing parties , those parties may seek to repossess the subject aircraft property . the loss of a significant number of aircraft could result in a material adverse effect on the debtors ' financial and operating performance . in accordance with section 1110 of the bankruptcy code , as of december 31 , 2011 , the company had rejected 24 aircraft leases relating to 20 md-80 aircraft and four fokker 100 aircraft . in addition , since december 31 , 2011 , the company has rejected an additional 9 aircraft leases and mortgages relating to one md-80 aircraft , seven boeing 757-200 aircraft , and one airbus a300-600r aircraft . in addition , the company filed a motion with the bankruptcy court to modify the leases of the super atr aircraft . as of february 15 , 2012 , 21 of the aircraft had been returned to the lessor as allowed under the modified agreement . the remaining 18 aircraft will be returned to the lessor during 2012 and 2013. in january 2012 , american entered into agreements under section 1110 ( a ) of the bankruptcy code to retain 350 aircraft , including boeing 737-800 , boeing 757-200 , boeing 767-300er , boeing 777-200er , bombardier crj-700 , and mcdonnell douglas md-80 aircraft on the terms provided in the related financing documents . magnitude of potential claims the debtors will file with the bankruptcy court schedules and statements of financial affairs setting forth , among other things , the assets and liabilities of the debtors , subject to the assumptions filed in connection therewith . all of the schedules are subject to further amendment or modification . bankruptcy rule 3003 ( c ) ( 3 ) requires the bankruptcy court to fix the time within which proofs of claim must be filed in a chapter 11 case pursuant to section 501 of the bankruptcy code . this bankruptcy rule also provides that any creditor who asserts a claim against the debtors that arose prior to the petition date and whose claim ( i ) is not listed on the debtors ' schedules or ( ii ) is listed on the schedules as disputed , contingent , or unliquidated , must file a proof of claim . the bankruptcy court has not yet established a date and time by which such proofs of claim must be filed . differences between amounts scheduled by the debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process . in light of the expected number of creditors , the claims resolution process may take considerable time to complete . accordingly , the ultimate number and amount of allowed claims is not presently known , nor can the ultimate recovery with respect to allowed claims be presently ascertained . collective bargaining agreements . the bankruptcy code provides a process for the modification and or rejection of collective bargaining agreements ( cbas ) . in particular , section 1113 ( c ) of the code permits a debtor to reject its cbas if the debtor satisfies a number of statutorily prescribed substantive and procedural prerequisites and obtains the bankruptcy court 's approval to reject the cbas . the 1113 ( c ) process requires that a debtor must make proposals to its unions to modify existing cbas based on the most complete and reliable information available at the time the proposals are made . the proposed modifications must be necessary to permit the reorganization of the debtor and must assure that all the affected parties are treated fairly and equitably . the debtor must provide the unions with all information necessary to 33 evaluate the proposals , and meet at reasonable times and confer in good faith with the unions in an effort to reach mutually agreeable modifications to the cbas . if consensual agreements are not reached , the debtor may file a motion with the bankruptcy court requesting approval to reject the cbas . rejection of the cbas is appropriate if the court finds the debtor 's proposals are necessary for its reorganization , are fair and equitable , and that the unions refused to agree to the proposals without good cause . american commenced the section 1113 ( c ) process with its unions on february 1 , 2012. amr eagle intends to commence the section 1113 ( c ) process with its unions soon . plan of reorganization . the debtors have the exclusive right for 120 days after the petition date to file a plan of reorganization and , if they do so , 60 additional days to obtain necessary acceptances of the plan . the debtors exclusivity period may be extended by the court , with good cause , for up to 18 months from the petition date . if the debtors ' exclusivity period lapses , any party in interest may file a plan of reorganization for any of the debtors .
| results of operations revenues 2011 compared to 2010 the company 's revenues increased approximately $ 1.8 billion , or 8.2 percent , to $ 24.0 billion in 2011 compared to 2010. american 's passenger revenues increased by 7.1 percent , or $ 1.2 billion , on a 0.7 percent increase in capacity ( available seat mile ) ( asm ) . the company 's 2011 passenger revenues reflect a $ 43 million reduction as a result of a decrease in the breakage assumption related to the aadvantage frequent flier liability . american 's passenger load factor increased 0.1 points while passenger yield increased by 6.2 percent to 14.19 cents . this resulted in an increase in passenger revenue per available seat mile ( rasm ) of 6.3 percent to 11.63 cents . american derived approximately 60 percent of its passenger revenues from domestic operations and approximately 40 percent from international operations ( flights serving international destinations ) . following is additional information regarding american 's domestic and international rasm and capacity : replace_table_token_7_th regional affiliates ' passenger revenues , which are based on industry standard proration agreements for flights connecting to american flights , increased $ 397 million , or 17.1 percent , to $ 2.7 billion as a result of higher yield and increased traffic . regional affiliates ' traffic increased 12.3 percent to 9.9 billion revenue passenger miles ( rpms ) , on a capacity increase of 10.9 percent to 13.5 billion asms , resulting in a 0.9 point increase in passenger load factor to 73.3 percent . cargo revenues increased 4.5 percent , or $ 31 million , to $ 703 million primarily as a result of increased freight yields . other revenues increased 8.1 percent , or $ 195 million , to $ 2.6 billion primarily due to increased revenue associated with the sale of mileage credits in the aadvantage frequent flyer program and increases in certain passenger service charge volumes and fees .
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public offerings on july 23 , 2014 , the company completed the sale of 5,750,000 shares of its common stock in its ipo at a price to the public of $ 18.00 per share , resulting in net proceeds to the company of $ 94.0 million after deducting underwriting discounts and commissions and offering costs paid by the company . the shares began trading on the nasdaq global market on july 18 , 2014. on april 20 , 2015 , the company completed the sale of 2,628,571 shares of its common stock at a price to the public of $ 52.50 per share , resulting in net proceeds to the company of $ 129.1 million after deducting underwriting discounts and commissions and offering costs paid by the company . on january 12 , 2016 , the company completed the sale of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k , or annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . we caution you that forward-looking statements are not guarantees of future performance , and that our actual results of operations , financial condition and liquidity , and the developments in our business and the industry in which we operate , may differ materially from the results discussed or projected in the forward-looking statements contained in this annual report . we discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this report , including under part i , item 1a . “ risk factors ” and under “ cautionary note regarding forward-looking statements ” in this annual report . in addition , even if our results of operations , financial condition and liquidity , and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this annual report , they may not be predictive of results or developments in future periods . we caution readers not to place undue reliance on any forward-looking 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 securities and exchange commission , or 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 forward-looking statements . information pertaining to fiscal year 2017 was included in the company 's annual report on form 10-k for the year-ended december 31 , 2018 , on pages 79 through 97 , under part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations , ” which was filed with the sec on february 19 , 2019. we are a biopharmaceutical company committed to developing and commercializing novel medicines with the potential to transform the lives of people with debilitating disorders of the brain . our lead product , zulresso ( brexanolone ) injection , was approved by the u.s. food and drug administration , or fda , in march 2019 for the treatment of postpartum depression , or ppd , in adults , and was made commercially available in the u.s. beginning on june 24 , 2019 , after completion of controlled substance scheduling of brexanolone by the u.s. drug enforcement administration , or dea and incorporation of the scheduling into the fda-approved label and other product information . we have a portfolio of other product candidates with a current focus on modulating two critical cns receptor systems , gaba and nmda . the gaba receptor family , which is recognized as the major inhibitory neurotransmitter in the cns , mediates downstream neurologic and bodily function via activation of gaba a receptors . the nmda-type receptors of the glutamate receptor system are a major excitatory receptor system in the cns . dysfunction in these systems is implicated in a broad range of cns disorders . we are targeting cns indications where patient populations are easily identified , clinical endpoints are well-defined , and development pathways are feasible . 82 the following table summarizes the status of our product and product candidate portfolio as of the filing date of this annual report . our lead product , zulresso ( brexanolone ) injection , is a proprietary intravenous , or iv , formulation of brexanolone . brexanolone is chemically identical to allopregnanolone , a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of gaba a receptors . in march 2019 , the fda approved zulresso for the treatment of ppd in adults . we launched zulresso commercially in the u.s. beginning on june 24 , 2019 , after completion of controlled substance scheduling of brexanolone by the dea and incorporation of the scheduling into the fda-approved label and other product information . the dea placed zulresso into schedule iv of the controlled substances act . ppd is one of the most common medical complications during and after pregnancy . because of the risk of serious harm resulting from excessive sedation or sudden loss of consciousness during the zulresso infusion , zulresso must be administered in a medically-supervised healthcare setting that has been certified under a risk evaluation and mitigation strategy , or rems , program and meets the other requirements of the rems program , including requirements related to monitoring of the patient during the infusion . patients who are prescribed zulresso are required to enroll in a registry which may allow us to compile additional information to further our understanding of the risk of excessive sedation or sudden loss of consciousness during administration of zulresso and management of the risk . story_separator_special_tag examples of indications involving nmda receptor dysfunction also include certain types , aspects or subpopulations of a number of diseases such as depression , alzheimer 's disease , attention deficit hyperactivity disorder , schizophrenia , and neuropathic pain . in december 2019 , we reported top-line results from a phase 1 clinical trial to evaluate the safety , tolerability and pharmacokinetics of sage-718 in a small cohort of patients with early huntington 's disease . in the 14-day open-label study , the safety , tolerability , and pharmacokinetic profile of daily sage-718 oral solution were evaluated in six patients with early huntington 's disease . in the study , sage-718 was well tolerated , with no serious adverse events or adverse events leading to treatment discontinuation . in addition , patients demonstrated improved performance , compared to baseline , on assessments of executive functioning , with measures relevant to the core cognitive decline observed in people with huntington 's disease . these results are comparable to improvements in measures of executive function observed in an earlier phase 1 cohort of individuals without huntington 's disease . we plan to evaluate sage-718 in phase 2a open-label studies evaluating patients with certain other cognition-related disorders , which will inform potential advancement of sage-718 into further phase 2 clinical development , including in huntington 's disease . our second product candidate targeting the nmda receptor , sage-904 , is in development as a potential oral therapy for disorders associated with nmda hypofunction . we initiated a phase 1 clinical trial of sage-904 in healthy volunteers in the third quarter of 2019. we expect to continue our work on allosteric modulation of the gaba a and nmda receptor systems in the brain . the gaba a and nmda receptor systems are broadly accepted as impacting many psychiatric and neurological disorders , spanning disorders of mood , seizure , cognition , anxiety , sleep , pain , and movement , among others . we believe that we may have the opportunity to develop molecules from our internal portfolio with the goal of addressing a number of these disorders in the future . we also continue to evaluate business development opportunities in potential new areas of interest . we began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product , zulresso , which commenced on june 24 , 2019. prior to the second quarter of 2019 , all of our revenue had been derived from a strategic collaboration we entered into in the second quarter of 2018 with shionogi & co. , ltd. , or shionogi , for the clinical development and commercialization of zuranolone in japan , taiwan and south korea . based on experience during the initial six months of the zulresso launch , we now anticipate that it will take nine months or longer , varying by site , for the majority of interested healthcare settings to complete the key actions required to become ready to infuse patients . we expect that many larger hospitals and healthcare systems will take 12 months or longer to become treatment-ready , often as a result of institutional barriers . the actions required for a healthcare setting to be ready to treat patients include : becoming rems-certified , achieving formulary approvals , establishing protocols for administering zulresso and securing satisfactory reimbursement . we expect that some treatment-ready sites will wait to gain familiarity with the clinical profile of zulresso and to secure direct experience with reimbursement prior to increasing patient intake . sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage . we also expect that the availability , terms and timing of coverage for zulresso by state medicaid systems will vary significantly by state . as a result , we expect that revenue growth from sales of zulresso may lag the expected increase in the number of infusion-ready sites , if such increase occurs . given these dynamics , we expect zulresso revenue growth will be modest over the next couple of quarters with an increase in the rate of growth of zulresso revenue anticipated in the second half of 2020 , assuming an increase in the number of sites , including larger hospitals , administering zulresso to treat women with ppd and an increase in the volume of patients treated at existing sites . to accomplish this objective , we are guiding large sites through the steps necessary to become treatment-ready and supporting hospital administrations ' efforts to reduce the complexity of those steps . we are early in the launch of zulresso and will continue to evaluate trends related to revenue momentum for zulresso . we have incurred net losses in each year since our inception , and we have an accumulated deficit of $ 1.6 billion as of december 31 , 2019. our net losses were $ 680.2 million , $ 372.9 million and $ 270.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . these losses have resulted principally from costs incurred in connection with research and development activities and selling , general and administrative costs associated with our operations and our commercial build . we expect to incur significant expenses and increasing operating losses for the foreseeable future . 85 we expect that our expenses will increase substantially in connection with our ongoing activities , as we : continue to advance phase 3 clinical development of zuranolone ; continue our commercialization efforts with respect to zulresso in the treatment of ppd in the u.s. ; fulfill our post-approval clinical trial commitments related to zulresso ; prepare for a potential nda filing and pre-launch activities with respect to zuranolone , if our pivotal program is successful and supports a filing ; continue to advance clinical development of sage-324 with an initial focus on development in essential tremor , certain epileptiform disorders , and potentially other neurological conditions ; continue to advance clinical development of sage-718 with an initial focus on development in indications involving nmda receptor hypofunction , including potentially
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th product revenue , net we began to record net product revenues in the second quarter of 2019 following the approval of zulresso by the fda on march 19 , 2019 and its subsequent commercial launch in the u.s. in june 2019. during the year ended december 31 , 2019 , we recognized $ 4.0 million of net product revenues related to sales of zulresso . sales allowances and accruals consisted of patient financial assistance , distribution fees , discounts , and chargebacks . collaboration revenue during the year ended december 31 , 2019 , we recognized $ 2.9 million in collaboration revenue from our agreement with shionogi related to the supply of zuranolone drug product for clinical development . for further discussion regarding our collaboration agreement with shionogi and the accounting for revenue from collaboration agreements , refer to note 6 , collaboration agreement and note 2 , summary of significant accounting policies in the notes to consolidated financial statements included in part iv , item 15 of this annual report . effective june 12 , 2018 , we entered into a strategic collaboration with shionogi for the clinical development and commercialization of zuranolone for the treatment of mdd and other potential indications in japan , taiwan and south korea . under the terms of the agreement , shionogi will be responsible for all clinical development , regulatory filings and commercialization of zuranolone for mdd , and potentially other indications , in japan , taiwan and south korea .
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the agreement , which is scheduled to mature on march 31 , 2018 story_separator_special_tag cautionary note regarding forward-looking statements this annual report on form 10-k contains certain statements that may be considered forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended and section 21e of the securities exchange act of 1934 , as amended , and such statements are subject to the safe harbor created by those sections , and the private securities litigation reform act of 1995 , as amended . all statements , other than statements of historical or current fact , are statements that could be deemed forward-looking statements , including without limitation : any projections of earnings , revenues , or other financial items ; any statement of plans , strategies , and objectives of management for future operations ; any statements concerning proposed new services or developments ; any statements regarding future economic conditions or performance ; and any statements of belief and any statement of assumptions underlying any of the foregoing . in this item 7 , statements relating to future insurance and claims experience , future driver market , future acquisitions and dispositions of revenue equipment , future profitability , future fuel prices , our ability to recover costs through our fuel surcharge program , future purchased transportation expense , future operations and maintenance costs , future depreciation and amortization , future effects of inflation , expected capital resources and sources of liquidity , future indebtedness , expected capital expenditures , and future income tax rates , among others , are forward-looking statements . such statements may be identified by their use of terms or phrases such as “ expects , ” “ estimates , ” “ projects , ” “ believes , ” “ anticipates , ” “ intends , ” “ plans , ” “ goals , ” “ may , ” “ will , ” “ should , ” “ could , ” “ potential , ” “ continue , ” “ future ” and similar terms and phrases . forward-looking statements are based on currently available operating , financial , and competitive information . forward-looking statements are inherently subject to risks and uncertainties , some of which can not be predicted or quantified , which could cause future events and actual results to differ materially from those set forth in , contemplated by , or underlying the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section entitled `` item 1a. , risk factors , '' set forth above . readers should review and consider the factors discussed under the heading “ risk factors ” in item 1a of this annual report on form 10-k , along with various disclosures in our press releases , stockholder reports , and other filings with the securities and exchange commission . all such forward-looking statements speak only as of the date of this annual report on form 10-k. you are cautioned not to place undue reliance on such forward-looking statements . we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events , conditions , or circumstances on which any such information is based . all forward-looking statements attributable to us , or persons acting on our behalf , are expressly qualified in their entirety by this cautionary statement . references to the “ company , ” “ we , ” “ us , ” “ our ” and words of similar import refer to usa truck , inc. and its subsidiary . overview the following management 's discussion and analysis of financial condition and results of operations ( or md & a ) is intended to help the reader understand usa truck , inc. , our operations and our present business environment . md & a is provided as a supplement to and should be read in conjunction with our consolidated financial statements and notes thereto and other financial information that appears elsewhere in this report . this overview summarizes the md & a , which includes the following sections : our business – a general description of our business , the organization of our operations and the service offerings that comprise our operations . results of operations – an analysis of our consolidated results of operations for the two years presented in our consolidated financial statements and a discussion of seasonality , the potential impact of inflation and fuel availability and cost . off-balance sheet arrangements – a discussion of significant financial arrangements , if any , that are not reflected on our balance sheet . liquidity and capital resources – an analysis of cash flows , sources and uses of cash , debt , equity and contractual obligations . critical accounting estimates – a discussion of accounting policies that require critical judgment and estimates . our business we operate primarily in the for-hire truckload segment of the trucking industry . customers in a variety of industries engage us to haul truckload quantities of freight , with the trailer we use to haul that freight being assigned exclusively to that customer 's freight until delivery . our three operating segments are classified into two reportable segments : ( i ) trucking , consisting of our truckload and dedicated freight and ( ii ) strategic capacity solutions ( “ scs ” ) , consisting of our freight brokerage service offering and our rail intermodal service offering . we previously reported each operating segment separately ; however , during the second quarter of 2013 , based on several factors , including the relatively small size of intermodal and the interrelationship of scs and intermodal operations , we aggregated intermodal with the scs operating segment . story_separator_special_tag legal and related defense costs in the fourth quarter , we recorded approximately $ 1.5 million , or $ 0.09 per diluted share , in legal and other defense costs incurred in connection with the unsolicited proposal from knight to acquire usa truck and related litigation . we deemed these costs to be non-operating in nature , and accordingly , they have been recorded in other expenses ( income ) in the consolidated statements of operations . on february 5 , 2014 , we announced that we had entered into a settlement agreement with knight on the litigation relating to its unsolicited proposal . accordingly , we expect legal and related defense costs to be substantially reduced in the first quarter of 2014. balance sheet and liquidity our revenue growth and cost control initiatives have materially improved our cash flow from operations , enabling us to pay down debt sequentially by $ 12.0 million during the fourth quarter . this follows a $ 5.0 million reduction during the third quarter . for the quarter , our cash flow from operations more than tripled ; for the full year , it rose approximately 131 % . we ended 2013 with $ 128.9 million of outstanding debt , which , net of cash , represented 56.2 % of our total capitalization . story_separator_special_tag roman , serif ; font-size : 10pt '' > base revenues from our scs operating segment , consisting entirely of base revenues from our freight brokerage service offering , have fluctuated in recent periods . this service offering typically does not involve the use of our tractors and trailers . therefore , an increase in these revenues tends to cause expenses related to our operations that do involve our equipment—including fuel expense , depreciation and amortization expense , operations and maintenance expense , salaries , wages and employee benefits and insurance and claims expense—to decrease as a percentage of base revenue , and a decrease in these revenues tends to cause those expenses to increase as a percentage of base revenue with a related change in purchased transportation expense . since changes in scs revenues generally affect all such expenses , as a percentage of base revenue , we do not specifically mention it as a factor in our discussion of increases or decreases in the other expenses presented in the consolidated statements of operations in the period-to-period comparisons below . results of operations – combined services total revenue increased 8.3 % from $ 512.4 million in 2012 to $ 555.0 million in 2013. total base revenue increased 8.6 % from $ 408.7 million in 2012 to $ 443.9 million in 2013. we reported a net loss for all service offerings of $ 9.1 million ( $ 0.88 per share ) in 2013 , as compared to a net loss of $ 17.7 million ( $ 1.71 per share ) in 2012. our effective tax rate decreased from 35.2 % to 30.4 % . income tax expense varies from the amount computed by applying the federal tax rate to income before income taxes primarily due to state income taxes , net of federal income tax effect , adjusted for permanent differences , the most significant of which is the effect of the per diem pay structure for drivers . due to the partially nondeductible effect of per diem payments , our tax rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure . results of operations – trucking relationship of certain items to total trucking revenue the following table sets forth the percentage relationship of certain items to total revenue of our trucking operating segment for the periods indicated . replace_table_token_7_th relationship of certain items to base trucking revenue the following table sets forth the percentage relationship of certain items to base revenue of our trucking operating segment for the periods indicated . fuel and fuel taxes are shown net of fuel surcharges . replace_table_token_8_th key operating statistics : replace_table_token_9_th ( 1 ) operating income or loss is calculated by deducting total operating expenses and costs from total revenues . ( 2 ) operating ratio is calculated by dividing total operating expenses , net of fuel surcharge , by base revenue . ( 3 ) adjusted operating ratio is calculated by dividing total operating expenses , net of fuel surcharge , less the long-term claims liability reserve adjustment , by base revenue . ( 4 ) total miles include both loaded and empty miles . ( 5 ) tractors include company-operated tractors in service , plus tractors operated by independent contractors . ( 6 ) seated tractors are those occupied by drivers . ( 7 ) includes intermodal results . ( 8 ) gross margin is calculated by taking total revenue less purchased transportation expense and dividing that amount by total revenue . this calculation includes intercompany revenues and expenses . base revenue from our trucking operating segment increased from $ 297.6 million to $ 326.3 million . the increase was the net effect of the following factors : · our total miles and our average miles per seated tractor per week increased 8.8 % and 3.6 % , respectively . · the size of our in-service fleet increased 2.2 % . · the total number of loads dispatched decreased 2.1 % . · our empty mile factor increased 3.5 % . overall , our operating ratio improved by 3.7 percentage points of total trucking revenue to 104.2 % from 107.9 % and 4.6 percentage points of base trucking revenue to 105.4 % from 110.0 % as a result of the following factors : · salaries , wages and employee benefits expense decreased by 2.3 percentage points of total trucking revenue , and 2.9 percentage points of base trucking revenue due to lower non-driver wages resulting from reduced non-driver employee head count as part of internal efforts to increase efficiency and a 9.6 % increase in base trucking revenue .
| financial results total base revenues increased 6.2 % to $ 113.6 million for the quarter ended december 31 , 2013 from $ 107.1 million for the same quarter of 2012. asset-based trucking revenue , not including fuel surcharge , increased 6.9 % to $ 83.3 million , while non-asset based scs revenue rose 4.1 % to $ 30.4 million . we incurred a net loss of $ 4.6 million , or $ 0.45 per diluted share , for the 2013 quarter compared to a net loss of $ 3.2 million , or $ 0.31 per diluted share , for the 2012 quarter . excluding the adjustments to the long-term claims liability reserve and legal and related defense expenses described above , we incurred an adjusted net loss of $ 41,626 , or $ 0.00 per diluted share , for the 2013 quarter . total base revenues increased 8.6 % to $ 443.9 million for the year ended december 31 , 2013 from $ 408.7 million for the same period of 2012. asset-based trucking revenue , not including fuel surcharge , increased 9.6 % to $ 326.3 million , while non-asset based scs revenue rose 5.8 % to $ 117.6 million . we incurred a net loss of $ 9.1 million , or $ 0.88 per diluted share , for the year ended december 31 , 2013 compared to a net loss of $ 17.7 million , or $ 1.71 per diluted share , for the comparable 2012 period . excluding the long-term claims liability reserve and the legal and related defense expenses described above , we incurred an adjusted net loss of $ 4.5 million , or $ 0.44 per diluted share , for the year ended december 31 , 2013. a reconciliation of net loss to adjusted net loss is provided below . use of non-gaap financial information in addition to our gaap results , this annual report on form 10-k also includes certain non-gaap financial measures as defined by the sec .
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considering that the patent portfolio is the company 's most significant asset and is the foundation of all of its operations , the company determined that the most appropriate measurement of fair value of the asset group was the aggregate market value of the company 's common stock . as a result , the company determined that the fair value of the patent portfolio at june 30 , 2015 was approximately $ 14.6 million , which was comparable to the aggregate market capitalization of the company as of that date . the company recorded a $ 35.5 million impairment charge against its patent portfolio in the second quarter of 2015. due to the continuing decrease in the company 's stock price , the company 's performed an additional impairment test of intangible assets at december 31 , 2015. in accordance with asc 360-10 , the company first estimated the future undiscounted cash flows anticipated to be generated by the patent portfolio based on the company 's current usage and future plans for the patent portfolio over its remaining weighted average useful life . the analysis concluded that the carrying amount of the patent portfolio was not recoverable at december 31 , 2015. as a result , the company performed an analysis to determine if the carrying value of the patent portfolio exceeded its fair value . considering that the patent portfolio is the company 's most significant asset and is the foundation of all of its operations , the company determined that the most appropriate measurement of fair value of the asset group was the aggregate market value of the company 's common stock . as a result , the company determined that the fair value of the patent portfolio at december 31 , 2015 was approximately $ 9.8 million , which was comparable to the aggregate market capitalization of the company as of that date . the company recorded an additional $ 3.4 million of impairment charge against its patent portfolio at december 31 , 2015. the new cost basis of the patent portfolio of $ 9.8 million will be amortized over its weighted average remaining useful life of 4.63 years . the future amortization of these intangible assets was based on the adjusted carrying amount . future amortization of all patents is as follows ( $ in thousands ) : replace_table_token_10_th goodwill the company 's market capitalization is sensitive to the volatility of the company 's stock price . during the six months ended june 30 , 2015 , the market price of the common stock decreased from $ 21.47 to $ story_separator_special_tag forward-looking statements you should read this discussion together with the financial statements , related notes and other financial information included elsewhere in this form 10-k. the following discussion contains assumptions , estimates and other forward-looking statements that involve a number of risks and uncertainties . these risks could cause our actual results to differ materially from those anticipated in these forward-looking statements . overview we are an intellectual property company that owns patented and unpatented intellectual property . spherix incorporated was formed in 1967 as a scientific research company and for much of our history pursued drug development including through phase iii clinical studies which were largely discontinued in 2012. in 2012 and 2013 , we shifted our focus to being a firm that owns , develops , acquires and monetizes intellectual property assets . through our acquisitions of 108 patents and patent applications from rockstar consortium us , lp and acquisition of several hundred patents issued to harris corporation as a result of our acquisition of north south , we have expanded our activities in wireless communications and telecommunication sectors including antenna technology , wi-fi , base station functionality and cellular . our activities generally include the acquisition and development of patents through internal or external research and development . in addition , we seek to acquire existing rights to intellectual property through the acquisition of already issued patents and pending patent applications , both in the united states and abroad . we may alone , or in conjunction with others , develop products and processes associated with our intellectual property and license our intellectual property to others seeking to develop products or processes or whose products or processes infringe our intellectual property rights through legal processes . using our patented technologies , we employ strategies seeking to permit us to derive value from licensing , commercialization , settlement and litigation from our patents . we will continue to seek to obtain patents from inventors and patent owners to monetize patent portfolios . 21 critical accounting policies accounting for warrants we account for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of accounting standards codification ( “ asc ” ) 815 , derivatives and hedging ( “ asc 815 ” ) . we classify as equity any contracts that ( i ) require physical settlement or net-share settlement or ( ii ) gives the company a choice of net-cash settlement or settlement in its own shares ( physical settlement or net-share settlement ) . we classify as assets or liabilities any contracts that ( i ) require net-cash settlement ( including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the company ) or ( ii ) gives the counterparty a choice of net-cash settlement or settlement in shares ( physical settlement or net-share settlement ) . in addition , under asc 815 , registered common stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities . we classify these derivative warrant liabilities on the consolidated balance sheet as a current liability . story_separator_special_tag the intellectual property rights granted may be perpetual in nature , extending until the expiration of the related patents , or can be granted for a defined , relatively short period of time , with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment . intangible assets – patent portfolios intangible assets include our patent portfolios with original estimated useful lives ranging from 6 months to 12 years . we amortize the cost of the intangible assets over their estimated useful lives on a straight line basis . costs incurred to acquire patents , including legal costs , are also capitalized as long-lived assets and amortized on a straight-line basis with the associated patent . we monitor the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable . if a change in circumstance occurs , we will perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows . if cash flows can not be separately and independently identified for a single asset , we will determine whether impairment has occurred for the group of assets for which we can identify the projected cash flows . if the carrying values are in excess of undiscounted expected future cash flows , we measure any impairment by comparing the fair value of the asset or asset group to its carrying value . we deemed it was necessary to test our intangible assets for impairment during the second quarter of 2015 and at the end of december 31 , 2015. during the year ended december 31 , 2015 , we recorded a $ 38.9 million of impairment charges to our intangible assets . there was no impairment of intangible assets in 2014. goodwill goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination . goodwill is subject to impairment testing at least annually and will be tested for impairment between annual tests if an event occurs or circumstances changes that indicate the carrying amount may be impaired . asc topic 350 provides an entity with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if , after assessing the totality of events or circumstances , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . if the two-step impairment test is necessary , a fair-value-based test is applied at the reporting unit level , which is generally one level below the operating segment level . the test compares the fair value of an entity 's reporting units to the carrying value of those reporting units . this test requires various judgments and estimates . we estimate the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach . impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit . an adjustment to goodwill will be recorded for any goodwill that is determined to be impaired . we test goodwill for impairment at least annually in conjunction with the preparation of our annual business plan , or more frequently if events or circumstances indicate it might be impaired . accounting standards update ( “ asu ” ) 2010-28 modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts . for those reporting units , an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists . in determining whether it is more likely than not that goodwill impairment exists , an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist . refer to note 5 in the consolidated financial statements included elsewhere in this annual report for further discussion of the interim goodwill impairment test performed by us during the year ended december 31 , 2015. recently issued accounting pronouncements see note 3 of notes to the consolidated financial statements for a discussion of recent accounting standards and pronouncements . 23 story_separator_special_tag /page -- > our financial statements for the year ended december 31 , 2015 indicated there is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to retain short-term financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis in order to attain profitability , as well as successfully obtain financing on favorable terms to fund our long-term plans . our business will require significant amounts of capital to sustain operations and make the investments we need to execute our longer term business plan . our working capital deficit amounted to approximately $ 0.6 million at december 31 , 2015. our existing liquidity is not sufficient to fund our operations , anticipated capital expenditures , working capital and other financing requirements for the foreseeable future . we will need to obtain additional debt or equity financing , especially if we experience downturns in our business that are more severe or longer than anticipated , or if we experience significant increases in expense levels resulting from being a publicly-traded company or from the litigations in which we participate .
| results of operations fiscal year ended december 31 , 2015 compared to fiscal year ended december 31 , 2014 for the year ended december 31 , 2015 , we incurred a loss from operations of $ 52.0 million , an increase of $ 21.4 million or 70 % , as compared to $ 30.6 million for the same period in 2014. during the second half of 2014 , we implemented certain cost cutting measures , including assessing consultants and vendors . the increase in net loss was primarily attributed to a $ 40.6 million impairment charge taken against the goodwill and intangible assets during the second and fourth quarters of 2015 , partially offset by a $ 12.3 million decrease in stock-based compensation expense , and decreased professional expenses of $ 1.7 million related to legal services , consulting services and accounting services , which was a result of our cost cutting measures . during the years ended december 31 , 2015 and 2014 , we recorded $ 6.3 million and $ 9.8 million in amortization expenses related to the rockstar patents acquired by the company during 2013 , respectively . for the year ended december 31 , 2015 and 2014 , revenue was nominal . for the year ended december 31 , 2015 , we recorded income related to a non-cash fair value adjustment on our warrant liability of approximately $ 269,000 , compared to $ 48,000 of income for the same period in 2014. fair value adjustments for warrant liabilities is the result of the change in the carrying amount of the warrant liability caused by changes in the fair value as determined using a black-scholes valuation method .
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our fmc agricultural solutions segment develops , markets and sells all three major classes of crop protection chemicals – insecticides , herbicides and fungicides . these products are used in agriculture to enhance crop yield and quality by controlling a broad spectrum of insects , weeds and disease , as well as in non-agricultural markets for pest control . the fmc health and nutrition segment focuses on food , pharmaceutical ingredients , nutraceuticals , personal care and similar markets . our food ingredients are used to enhance texture , color , structure and physical stability . the pharmaceutical additives are used for binding , encapsulation and disintegrant applications . some of our products are increasingly being used as an active ingredients in nutraceutical and pharmaceutical markets . our fmc minerals segment manufactures a wide range of inorganic materials , including soda ash and lithium . soda ash is utilized in markets such as glass and detergents and lithium is utilized in energy storage , specialty polymers and pharmaceutical synthesis . story_separator_special_tag time we announced the acquisition of cheminova ; see note 3 within these consolidated financial statements included within this form 10-k for more information . these charges are included within `` business separation costs '' on our consolidated income statement . these costs were primarily related to professional fees associated with separation activities within the finance and legal functions through september 8 , 2014 . 25 ( 4 ) charges related to the expensing of the inventory fair value step-up resulting from the application of acquisition purchase accounting , legal and professional fees and gains or losses on hedging purchase price associated with the planned or completed acquisitions and costs incurred associated with the divestiture of our fmc alkali chemicals division . amounts represent the following : replace_table_token_7_th ( 1 ) on the consolidated statements of income , these charges are included in “ selling , general and administrative expenses ” . ( 2 ) on the consolidated statements of income , these charges are included in “ costs of sales and services ” . adjusted earnings reconciliation the following chart , which is provided to assist the readers of our financial statements , depicts certain charges ( gains ) that are excluded by us in the measures we use to evaluate business performance and determine certain performance-based compensation . these items are discussed in detail within the section that follows . additionally , the chart below discloses our non-gaap financial measure “ adjusted after-tax earnings from continuing operations attributable to fmc stockholders ” reconciled from the gaap financial measure “ net income attributable to fmc stockholders ” . we believe that this measure provides useful information about our operating results to investors and securities analysts . we also believe that excluding the effect of `` corporate special charges ( income ) '' from operating results and discontinued operations allows management and investors to compare more easily the financial performance of our underlying businesses from period to period . `` corporate special charges ( income ) '' are defined as : restructuring and other income and charges , non-operating pension and postretirement charges , acquisition/divestiture related charges , business separation charges as well as certain tax adjustments , this measure should not be considered as a substitute for net income ( loss ) or other measures of performance or liquidity reported in accordance with gaap . replace_table_token_8_th in the discussion below , please refer to our chart titled `` segment results reconciliation '' within the results of operations section . all comparisons are between the periods unless otherwise noted . segment results for management purposes , segment operating profit is defined as segment revenue less segment operating expenses ( segment operating expenses consist of costs of sales and services , selling , general and administrative expenses ( `` sg & a '' ) and research and development expenses ( `` r & d '' ) ) . we have excluded the following items from segment operating profit : corporate staff expense , interest income and expense associated with corporate debt facilities and investments , income taxes , gains ( or losses ) on divestitures of businesses , restructuring and other charges ( income ) , non-operating pension and postretirement charges , investment gains and 26 losses , loss on extinguishment of debt , asset impairments , last-in , first-out ( “ lifo ” ) inventory adjustments , acquisition/divestiture related charges , business separation costs and other income and expense items . information about how each of these items relates to our businesses at the segment level and results by segment are discussed below and in note 19 to our consolidated financial statements included in this form 10-k. fmc agricultural solutions replace_table_token_9_th 2014 vs. 2013 revenue of $ 2,173.8 million increased approximately one percent versus the prior year period due to higher sales in north america , asia and emea offset by a decline in sales in latin america . sales in latin america of $ 1,120.7 million decreased five percent due to weak demand conditions in brazil , particularly in sugarcane and cotton segments , as drought and lower planted area reduced herbicide and insecticide demand . this was partially offset by growth in other latin american countries such as argentina and mexico as fmc gained market share . sales in north america of $ 560.2 million increased 11 percent primarily driven by strong demand for pre-emergent herbicides into soybeans and growth from new product introductions into various crop segments . revenue in asia of $ 343.6 million increased nine percent reflecting sales growth in australia , pakistan , korea and china . sales in europe , middle east and africa ( emea ) increased seven percent to $ 149.3 million primarily due to higher herbicide volumes . fmc agricultural solutions ' operating profit of $ 497.8 million decreased approximately eight percent compared to the year-ago period , reflecting relatively flat sales , unfavorable currency impacts , increases to sg & a as well as additional planned r & d investments and changes in product mix . story_separator_special_tag alkali revenues of $ 747.0 million increased two percent over the prior year due to volume gains of six percent which were partially offset by reduced pricing of four percent . lithium revenues of $ 223.0 million decreased four percent compared to the prior year due to unfavorable sales mix . production and sales volumes on a lithium carbonate equivalent basis were relatively flat year over year , as lower production in argentina due to operational issues was offset by higher third party product purchases . segment operating profit of $ 128.3 million decreased approximately 25 percent versus the prior year . the decrease was primarily due to lower average export pricing in soda ash . additionally , production factors , such as poor geological conditions at the alkali mine as well as poor weather at the lithium mine and unfavorable currency in lithium impacted the results . corporate and other corporate expenses are included as a component of the line item “ selling , general and administrative expenses ” except for last in , first-out ( lifo ) related charges that are included as a component of `` cost of sales and other services '' on our consolidated statements of income . 2014 vs. 2013 corporate and other expenses of $ 72.3 million decreased by $ 10.4 million from $ 82.7 million in the same period in 2013. the decrease period over period is primarily due to a decrease of $ 5.1 million in employees ' incentive accruals and a decrease of $ 4.6 million in pension service charges . reduced pension service charges are primarily driven by the higher discount rate utilized to calculate the 2014 expense . 2013 vs. 2012 corporate and other expenses of $ 82.7 million increased by $ 4.1 million from $ 78.6 million in the same period in 2012. the increase period over period is due to increased costs of approximately $ 4 million primarily representing costs associated with the transformation of our finance organization . this transformation is similar to past initiatives to improve our organization . interest expense , net 2014 vs. 2013 interest expense , net for 2014 of $ 59.5 million increased approximately 41 % percent as compared to 2013 of $ 42.2 million . the increase is primarily driven by the issuance of $ 400 million in senior notes in november 2013. the $ 400 million debt issuance , with an interest rate of 4.10 percent , was utilized to fund the acquisition of epax and to fund working capital requirements of our businesses . 2013 vs. 2012 interest expense , net for 2013 of $ 42.2 million increased approximately four percent compared to 2012 of $ 40.7 million . the increase was primarily due to higher overall debt levels driven by funding requirements for the acquisition of epax and our share repurchases during 2013 . 29 corporate special ( charges ) income restructuring and other ( charges ) income our restructuring and other ( charges ) income are comprised of restructuring , assets disposals and other charges ( income ) as described below : replace_table_token_12_th 2014 restructuring and asset disposal charges in 2014 of $ 17.3 million were primarily associated with our health and nutrition restructuring as well as other miscellaneous exit costs . other charges ( income ) net in 2014 of $ 39.2 million were primarily related to corporate environmental charges of $ 43.7 million and charges of $ 22.1 million associated with our fmc agricultural solutions segment which entered into collaboration and license agreements with various third-party companies for the purpose of obtaining certain technology and intellectual property rights relating to new compounds still under development . offsetting these charges is income from the sale of a portion of our ownership interest in a pesticide distribution company which resulted in a gain on the sale of approximately $ 26.6 million . 2013 restructuring and asset disposal charges in 2013 of $ 9.6 million were primarily associated with the announced lithium restructuring . other charges ( income ) net in 2013 of $ 38.3 million primarily related to charges associated with collaboration and license agreements entered into by our fmc agricultural solutions segment for the purpose of obtaining certain technology and intellectual property rights relating to new compounds still under development . the rights and technology obtained is referred to as in-process research and development and in accordance with gaap , the amounts paid were expensed as incurred since they were acquired outside of a business combination . 2012 restructuring and asset disposal charges in 2012 primarily included charges of $ 13.3 million associated with the lithium restructuring . other charges ( income ) net in 2012 were primarily due to charges of $ 5.8 million for environmental remediation at operating sites and a $ 4.4 million charge related to our fmc agricultural solutions segment for the purpose of acquiring certain rights to a fungicide still under development . the activity of the restructuring charges listed above are also included within note 7 to our consolidated financial statements included in this form 10-k. we believe the restructuring plans implemented are on schedule and the benefits and savings either have been or will be achieved . non-operating pension and postretirement ( charges ) income non-operating pension and postretirement ( charges ) income are included in “ selling , general and administrative expenses ” on our consolidated statements of income . 2014 vs. 2013 the charge for 2014 was $ 10.5 million compared to $ 38.1 million for 2013. the decrease in charges was primarily attributable to lower amortization of net actuarial losses of $ 21.1 million compared to 2013 . 2013 vs. 2012 the charge for 2013 was $ 38.1 million compared to $ 34.9 million for 2012. the increase in charges were primarily the result of a settlement charge of $ 7.4 million , partially offset by lower interest costs of $ 3.7 million .
| 2014 highlights the following are the more significant developments in our businesses during the year ended december 31 , 2014 : revenue of $ 4,037.7 million in 2014 increased $ 162.9 million or four percent versus last year . revenue increases are associated with sales growth in all segments . a more detailed review of revenues by segment are included under the section entitled “ results of operations ” . on a regional basis , sales in latin america decreased by four percent , sales in north america were up seven percent , sales in asia were up 14 percent and sales in europe , middle east and africa ( emea ) increased by six percent . our gross margin , excluding acquisition/divestiture related charges , of $ 1,379.2 million increased approximately $ 34 million or approximately two percent versus last year . gross margin as a percent of revenues of approximately 34 percent declined one hundred basis points compared to 2013. the increase in gross margin did not result in increased gross margin percent primarily due to unfavorable currency movements and product mix of sales in fmc agricultural solutions . selling , general and administrative expenses increased 20 percent from $ 515.8 million to $ 621.2 million . selling , general and administrative expenses , excluding non-operating pension and postretirement charges and acquisition/divestiture related charges , of $ 469.9 million decreased $ 3.0 million or approximately one percent . non-operating pension and postretirement charges and acquisition/divestiture related charges are presented in our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . research and development expenses of $ 128.3 million increased $ 10.6 million or nine percent , largely due to spending in fmc agricultural solutions to fund investments in earlier stage active ingredient research , biological crop protection development projects and rapid market innovation initiatives .
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for over 60 years , we have served a diverse base of thousands of customers around the world in attractive and growing markets , including oil & gas , chemical processing and power generation . we are a global leader and one of the few thermal solutions providers with a global footprint . we offer a full suite of products ( heating cables , tubing bundles and control systems ) and services ( design optimization , engineering , installation and maintenance services ) required to deliver comprehensive solutions to complex projects . we serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our five manufacturing facilities on three continents . these global capabilities and longstanding relationships with some of the largest multinational oil & gas , chemical processing , power and epc companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth markets worldwide . for fiscal 2017 , approximately 55 % of our revenues were generated outside of the united states . since march 2015 , we have acquired three companies , unitemp , sumac and ipi , that offer complementary products and services to our core thermal solution offerings . we actively pursue both organic and inorganic growth initiatives that serve to advance our corporate strategy . revenue . our revenues are derived from providing customers with a full suite of innovative and reliable heat tracing solutions , including electric and steam heat tracing , tubing bundles , control systems , design optimization , engineering services , 28 installation services and portable power solutions . our sales are primarily to industrial customers for petroleum and chemical plants , oil and gas production facilities and power generation facilities . our petroleum customers represent a significant portion of our business . we serve all three major categories of customers in the petroleum industry - upstream exploration/production , midstream transportation and downstream refining . overall , demand for industrial heat tracing solutions falls into two categories : ( i ) new facility construction , which we refer to as greenfield projects , and ( ii ) recurring maintenance , repair and operations and facility upgrades or expansions , which we refer to as mro/ue . greenfield construction projects often require comprehensive heat tracing solutions . we believe that greenfield revenue consists of sales revenues by customer in excess of $ 1 million annually ( excluding sales to resellers ) , and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities . we refer to sales revenues by customer of less than $ 1 million annually , which we believe are typically derived from mro/ue , as mro/ue revenue . based on our experience , we believe that $ 1 million in annual sales is an appropriate threshold for distinguishing between greenfield revenue and mro/ue revenue . however , we often sell our products to intermediaries or subcontract our services ; accordingly , we have limited visibility into how our products or services may ultimately be used and can provide no assurance that our categorization may accurately reflect the sources of such revenue . furthermore , our customers do not typically enter into long-term forward maintenance contracts with us . in any given year , certain of our smaller greenfield projects may generate less than $ 1 million in annual sales , and certain of our larger plant expansions or upgrades may generate in excess of $ 1 million in annual sales , though we believe that such exceptions are few in number and insignificant to our overall results of operations . we believe that our pipeline of planned projects , in addition to our backlog of signed purchase orders , provides us with visibility into our future revenue , as historically we have experienced few order cancellations , and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog . the small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of greenfield project construction . our backlog at march 31 , 2017 was $ 106.9 million , as compared to $ 81.2 million at march 31 , 2016 . the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of sales includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , shipping and handling costs , and other costs associated with our manufacturing/fabrication operations . the other costs associated with our manufacturing/fabrication operations are primarily indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . historically , our primary raw materials have been readily available from multiple suppliers and raw material costs have been stable , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . story_separator_special_tag greenfield projects , on the other hand , require a higher level of our services than mro/ue orders , and often require us to purchase materials from third party vendors . therefore , we typically realize higher margins from mro/ue revenues than greenfield revenues . large and growing installed base . customers typically use the incumbent heat tracing provider for mro/ue projects to avoid complications and compatibility problems associated with switching providers . therefore , with the significant greenfield activity we have experienced in recent years , our installed base has continued to grow , 30 and we expect that such installed base will continue to generate ongoing high margin mro/ue revenues . for fiscal 2017 , mro/ue sales comprised approximately 61 % of our consolidated revenues . seasonality of mro/ue revenues . revenues realized from mro/ue orders tend to be less cyclical than greenfield projects and more consistent quarter over quarter , although mro/ue revenues are impacted by seasonal factors . mro/ue revenues are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . recent developments-canadian operations . during fiscal 2017 and fiscal 2016 , revenue from our canadian operations has decreased , year over year , by approximately 27 % and 42 % compared to revenues generated in fiscal 2016 and fiscal 2015 , respectively . lower crude oil prices over the last three years have had a significant adverse impact on capital spending , particularly in the canadian oil sands region , which in turn resulted in the decline in our revenue in canada . we believe that the revenue decline in our canadian reporting unit is cyclical in nature and that our long term business model is sound . we can not , however , provide any assurances regarding a recovery in the financial performance of our canadian operations . during the three months ended september 30 , 2015 , we completed a restructuring of our canadian operations in which we reduced approximately 34 % of our canadian workforce and closed two sales offices . the employee severance and office closure costs totaled approximately $ 0.6 million . these spending reductions are intended to align the expected cost structure with future expected revenue levels . we consider the decline in our canadian business to be an indicator of potential asset impairments in our canadian reporting units . the goodwill balance in the canadian reporting units at march 31 , 2017 was $ 43.4 million and the net intangible assets are $ 23.8 million . beginning in the second quarter of fiscal 2016 , we began to perform quarterly goodwill and intangible asset impairment assessments of our canadian operations utilizing the income approach , based on discounted future cash flows , which were derived from internal forecasts and economic expectations , and the market approach , based on market multiples of guideline public companies . based on the results of our quarterly goodwill impairment assessment , the estimated fair value of the canadian reporting unit exceeded the carrying value . as such , there was no impairment of our canadian reporting unit 's goodwill or intangible assets during fiscal 2017. we will continue to monitor our canadian reporting unit 's goodwill and intangible asset valuations and test for potential impairments until the overall market conditions in such region improve . changes in estimates and assumptions used to determine whether impairment exists or future declines in actual and forecasted operating results and or market conditions in canada , especially in energy markets , could indicate a need to reevaluate the fair value of our canadian reporting unit and may ultimately result in an impairment to goodwill and or indefinite-lived intangible assets of our canadian reporting unit in future periods . recent developments-sumac operations and fire in fort mcmurray , alberta , canada . our sumac operations are located in fort mcmurray , alberta , canada . beginning on may 3 , 2016 , a forest fire swept through the town of fort mcmurray and the surrounding area causing significant damage to homes and businesses . none of thermon 's personnel located in fort mcmurray were injured nor were our facilities damaged . however , the entire city of fort mcmurray , including all of our staff , was evacuated for approximately one month , and did not return until the first week of june 2016. as a result of the shutdown of our business operations in fort mcmurray during this period , we incurred business interruption costs and approximately $ 21 thousand for temporary relocation of our employees . in the fourth quarter of fiscal 2017 , we reached a settlement with the insurance carrier in the amount of $ 320 thousand . see note 18 , `` business interruption recoveries . '' story_separator_special_tag a result of our assessment we impaired $ 1.2 million of goodwill and $ 0.5 33 million of intangibles assets related to our unitemp reporting unit . the company determined that there were no impairments to goodwill or intangible assets in fiscal 2017. amortization of intangible assets . amortization of intangible assets was $ 11.8 million in fiscal 2017 , compared to $ 12.1 million in fiscal 2016 , a decrease of $ 0.3 million . the decrease in our amortization of intangible assets was primarily due to the finalization of our provisional purchase accounting for the ipi transaction in which we reduced the fair value and useful lives of customer relationships . as a result of these ipi purchase accounting adjustments , we recorded a cumulative reduction of amortization of intangible asset expense of $ 0.3 million during fiscal 2017. interest expense , net . interest expense , net totaled $ 3.0 million in fiscal 2017 , compared to $ 3.7 million in fiscal 2016 , a decrease of $ 0.7 million .
| results of operations the following table sets forth data from our statements of operations as a percentage of sales for the periods indicated . 31 replace_table_token_5_th ( 1 ) as part of the sumac transaction , we issued the sellers a $ 5.9 million non-interest bearing note ( `` performance note '' ) that matured on april 1 , 2016 , with the actual amount payable at maturity ranging from zero up to a maximum of $ 7.5 million canadian dollars subject to the achievement of certain performance metrics during the twelve month period ended april 1 , 2016. the terms of the performance-based note assume the continued employment of sumac 's principals and , as a result , the performance note payment is accounted for as compensation expense . the performance note was settled during the first quarter of fiscal 2017 for $ 5.8 million . ( 2 ) during the year ended march 31 , 2016 , the european segment 's financial results were negatively impacted by a $ 1.7 million impairment charge to unitemp 's goodwill and other intangible assets . ( 3 ) interest expense for fiscal 2016 included a $ 0.3 million acceleration of amortization of our deferred debt issuance costs in connection with the second amendment to our credit agreement and , during the same period , we incurred an additional $ 0.4 million in amortized debt issuance costs . further reductions in our fiscal 2017 and fiscal 2016 interest expense were due to the difference in interest rates on our term loan that carried an interest rate that ranged from 2.87 % to 3.62 % after giving effect to our interest rate swaps and the interest rate reductions realized from the first and second amendments to our restated credit agreement . year ended march 31 , 2017 ( `` fiscal 2017 '' ) compared to the year ended march 31 , 2016 ( `` fiscal 2016 '' ) revenues .
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this discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this annual report on form 10-k. the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , our operating expenses , and future payments under our collaboration agreements , includes forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . such statements are based upon current expectations that involve risks and uncertainties . you should review the section entitled `` risk factors '' in item 1a of part i above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . see the section entitled `` special note regarding forward looking statements '' above for more information . management overview theravance is a biopharmaceutical company with a pipeline of internally discovered product candidates and strategic collaborations with pharmaceutical companies . we are focused on the discovery , development and commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease , bacterial infections , and central nervous system ( cns ) /pain . theravance 's key programs include : relvar®/breo® ellipta® ( ff/vi ) , anoro ellipta ( umec/vi ) and maba ( bifunctional muscarinic antagonist-beta 2 agonist ) , each partnered with glaxo group limited ( gsk ) , and our long-acting muscarinic antagonist program . by leveraging our proprietary insight of multivalency to drug discovery , we are pursuing a best-in-class strategy designed to discover superior medicines in areas of significant unmet medical need . business highlights issuance of convertible subordinated notes due 2023 in january 2013 , we completed an underwritten public offering of $ 287.5 million aggregate principal amount of unsecured convertible subordinated notes , which will mature on january 15 , 2023. the financing raised proceeds , net of issuance costs , of approximately $ 281.2 million , less $ 36.8 million to purchase two privately-negotiated capped-call option transactions in connection with the issuance of the notes . business separation announcement in april 2013 , theravance announced that its board of directors approved plans to separate its businesses into two independent publicly traded companies . the company to be spun-off , theravance biopharma , inc. ( theravance biopharma ) , filed an initial form 10 with the sec on august 1 , 2013 and filed amendments of its form 10 with the sec on september 27 , 2013 , october 29 , 2013 and november 22 , 2013. after the spin-off , theravance will be responsible for all development and commercial activities under the laba collaboration and the strategic alliance agreements with gsk . theravance will be eligible to receive the associated potential royalty revenues from ff/vi ( relvar®/breo® ellipta® ) , umec/vi ( anoro ellipta ) and potentially vi monotherapy and 15 % of the potential royalty revenues from umec/vi/ff , maba , and maba/ff and other products that may be developed under the laba collaboration and strategic alliance agreements . theravance biopharma will be a biopharmaceutical company focused on discovery , development and commercialization of small-molecule medicines in areas of significant unmet medical need . the result will be two independent , publicly traded companies with different business models enabling investors to align their 48 investment philosophies with the strategic opportunities and financial objectives of the two independent companies . royalty participation agreement in may 2013 , we and elan corporation , plc ( elan ) entered into a royalty participation agreement . the closing of the transaction was subject to closing conditions , including the approval of the transaction by elan 's shareholders . elan 's shareholders did not approve the transaction at an extraordinary general meeting . subsequently , we terminated the agreement and as a result , elan paid us a $ 10.0 million termination fee in june 2013 , which is reflected in other income . conversion of convertible subordinated notes due 2015 in june 2013 , we called for the redemption of all of our outstanding 3 % convertible subordinated notes due 2015 ( the `` 2015 notes '' ) , pursuant to the redemption right in the indenture governing the 2015 notes . all of the convertible subordinated notes , $ 172.5 million principal amount , were converted into shares of our common stock and none were redeemed for cash . story_separator_special_tag to placebo . we intend to initiate the second phase 2b study with td-4208 ourselves . bacterial infections program vibativ® ( telavancin ) theravance reintroduced vibativ® ( telavancin ) into the u.s. in august 2013. vibativ® is approved in the u.s. for the treatment of adult patients with hospital-acquired and ventilator-associated bacterial pneumonia ( habp/vabp ) caused by susceptible isolates of staphylococcus aureus when alternative treatments are not suitable , and for the treatment of complicated skin and skin structure infections ( csssi ) caused by susceptible isolates of gram-positive bacteria , including staphylococcus aureus , both methicillin-susceptible ( mssa ) and methicillin-resistant ( mrsa ) strains . vibativ® is a bactericidal , once-daily , injectable lipoglycopeptide antibiotic with a dual mechanism of action whereby it both inhibits bacterial cell wall synthesis and disrupts bacterial cell membrane function . central nervous system ( cns ) /pain programs oral peripheral mu opioid receptor antagonisttd-1211 td-1211 is an investigational once-daily , orally administered , peripherally selective , multivalent inhibitor of the mu opioid receptor designed with a goal of alleviating gastrointestinal side effects of opioid therapy without affecting analgesia . in july 2012 , theravance announced positive topline results from the phase 2b study 0084 , the key study in the phase 2b program evaluating td-1211 as potential treatment for chronic , non-cancer pain patients with opioid-induced constipation . story_separator_special_tag in december 2013 , the u.s. fda approved anoro ellipta as a combination anticholinergic/long-acting beta 2 -adrenergic agonist ( laba ) indicated for the long-term , once-daily , maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease ( copd ) , including chronic bronchitis and or emphysema . total milestone fees recorded of $ 15.0 million in january 2014 resulted from the following : in january 2014 , relvar® ellipta® was launched in the european union . we are entitled to receive annual royalties from gsk on sales of relvar®/breo® ellipta® as follows : 15 % on the first $ 3.0 billion of annual global net sales and 5 % for all annual global net sales above $ 3.0 billion . sales of single-agent laba medicines and combination medicines would be combined for the purposes of this royalty calculation . for other products combined with a laba from the laba collaboration , such as anoro ellipta , royalties are upward tiering and range from 6.5 % to 10 % . 2004 strategic alliance in march 2004 , we entered into our strategic alliance with gsk ( the strategic alliance agreement and the laba collaboration are together referred to herein as the gsk agreements ) . under this alliance , gsk received an option to license exclusive development and commercialization rights to product candidates from certain of our discovery programs on pre-determined terms and on an exclusive , worldwide basis . upon gsk 's decision to license a program , gsk is responsible for funding all future development , manufacturing and commercialization activities for product candidates in that program . in addition , gsk is obligated to use diligent efforts to develop and commercialize product candidates from any program that it licenses . if the program is successfully advanced through development by gsk , we are entitled to receive clinical , regulatory and commercial milestone payments and royalties on any sales of medicines developed from the program . if gsk chooses not to license a program , we retain all rights to the program and may continue the program alone or with a third party . gsk has no further option rights on any of our research or development programs under the strategic alliance . 53 in 2005 , gsk licensed our maba program for the treatment of copd , and in october 2011 , we and gsk expanded the maba program by adding six additional theravance-discovered preclinical maba compounds ( the `` additional mabas '' ) . gsk 's development , commercialization , milestone and royalty obligations under the strategic alliance remain the same with respect to gsk961081 ( '081 ) , the lead compound in the maba program . gsk is obligated to use diligent efforts to develop and commercialize at least one maba within the maba program , but may terminate progression of any or all additional mabas at any time and return them to us , at which point we may develop and commercialize such additional mabas alone or with a third party . both gsk and we have agreed not to conduct any maba clinical studies outside of the strategic alliance so long as gsk is in possession of the additional mabas . if a single-agent maba medicine containing '081 is successfully developed and commercialized , we are entitled to receive royalties from gsk of between 10 % and 20 % of annual global net sales up to $ 3.5 billion , and 7.5 % for all annual global net sales above $ 3.5 billion . if a maba medicine containing '081 is commercialized as a combination product , such as a '081/ff , the royalty rate is 70 % of the rate applicable to sales of the single-agent maba medicine . for single-agent maba medicines containing an additional maba , we are entitled to receive royalties from gsk of between 10 % and 15 % of annual global net sales up to $ 3.5 billion , and 10 % for all annual global net sales above $ 3.5 billion . for combination products containing an additional maba , such as a maba/ics combination , the royalty rate is 50 % of the rate applicable to sales of the single-agent maba medicine . if a maba medicine containing '081 is successfully developed and commercialized in multiple regions of the world , we could earn total contingent payments of up to $ 125.0 million for a single-agent medicine and up to $ 250.0 million for both a single-agent and a combination medicine . if a maba medicine containing an additional maba is successfully developed and commercialized in multiple regions of the world , we could earn total contingent payments of up to $ 129.0 million . agreements entered into with gsk in connection with the spin-off in conjunction with the planned spin-off of theravance biopharma , on march 3 , 2014 , we , theravance biopharma and gsk entered into a series of agreements clarifying how the companies will implement the spin-off and operate following the spin-off . we , theravance biopharma and gsk entered into a three-way master agreement providing for gsk 's consent to the spin-off provided certain conditions are met . in addition , we and gsk also entered into amendments of our laba collaboration and strategic alliance agreements , and theravance biopharma and gsk entered into a governance agreement , a registration rights agreement and an extension agreement . the three-way master agreement is currently effective , but will terminate if the spin-off is not effected by june 30 , 2014 , and the other agreements will become effective upon the spin-off , provided that the spin-off is effected on or before june 30 , 2014. the amendments to the gsk agreements do not change the economics or royalty rates . the amendments to the gsk agreements do provide that gsk 's diligent efforts obligations regarding commercialization matters under both agreements will change upon regulatory approval in either the united states or the european union of umec/vi/ff or a maba in combination with ff .
| financial highlights in 2013 , our net loss was $ 170.7 million , an increase of $ 152.2 million from $ 18.5 million in 2012. net loss in 2012 includes the recognition of $ 125.8 million deferred revenue from our global collaboration arrangement with astellas pharma inc. ( astellas ) for the development and commercialization of vibativ® . this recognition resulted from astellas ' january 6 , 2012 termination of our agreement with them . in 2013 , our research and development expenses were $ 125.2 million , an increase of 6 % from $ 117.9 million in 2012 primarily due to external-related costs for key phase 2 clinical trials . in 2013 , our selling , general and administrative expenses were $ 48.4 million , an increase of 57 % from $ 30.9 million in 2012 largely driven by external legal and accounting fees incurred in connection with our separation strategy . cash , cash equivalents , and marketable securities totaled $ 520.5 million on december 31 , 2013 , an increase of $ 176.8 million from december 31 , 2012. the increase was primarily due to net proceeds of $ 281.6 million received from the january 2013 issuance of convertible subordinated notes and net proceeds of $ 153.0 million received from issuances of our common stock , which includes net proceeds of $ 126.0 million received from private placements of our common stock to an affiliate of gsk . these increases were partially offset by cash used in operations of $ 129.6 million , registrational and launch-related milestone payments to gsk of $ 85.0 million and payments on privately-negotiated capped call option transactions in connection with the issuance of the convertible subordinated notes of $ 36.8 million .
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research and development costs research and development costs relating to both future and current products are charged to selling , general and administrative expenses as incurred . these costs totaled $ 144 million , $ 149 million and $ 151 million in 2020 , 2019 and 2018 , respectively . other significant accounting policies other significant accounting policies are disclosed as follows : discontinued operations - footnote 2 restructuring – footnote 4 inventory – story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations section should be read in conjunction with “ financial statements and supplementary data ” included in part ii , item 8 of this 2020 annual report and the company 's audited consolidated financial statements and notes thereto included elsewhere in this 2020 annual report . the following “ business strategy ” and `` recent developments '' sections below is a brief presentation of our business and certain significant items addressed in this section or elsewhere in this 2020 annual report . this section should be read along with the relevant portions of this 2020 annual report for a complete discussion of the events and items summarized below . overview newell brands is a leading global consumer goods company with a strong portfolio of well-known brands , including rubbermaid® , paper mate® , sharpie® , dymo® , expo® , parker® , elmer's® , coleman® , marmot® , oster® , sunbeam® , foodsaver® , mr. coffee® , rubbermaid commercial products® , graco® , baby jogger® , nuk® , calphalon® , contigo® , first alert® , mapa® , spontex® and yankee candle® . newell brands is committed to enhancing the lives of consumers around the world with planet-friendly , innovative and attractive products that create moments of joy and provide peace of mind . the company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries , excluding third-party distributors . business strategy the company is continuing to execute on its turnaround strategy of building a global , next generation consumer products company that can unleash the full potential of its brands in a fast moving omni-channel environment . the strategy , developed in 2019 , is designed to drive sustainable top line growth , improve operating margins , accelerate cash conversion cycle and strengthen the portfolio , organizational capabilities and employee engagement , while addressing key challenges facing the company . these challenges include : shifting consumer preferences and behaviors ; a highly competitive operating environment ; a rapidly changing retail landscape , including the growth in e-commerce ; continued macroeconomic and political volatility ; and an evolving regulatory landscape . the coronavirus ( covid-19 ) pandemic and its impact to the company 's business resulted in the acceleration of these initiatives in many respects . 25 the company has made significant progress on the following imperatives it previously identified as part of its turnaround strategy : strengthening the portfolio by investing in attractive categories aligned with its capabilities and strategy ; driving sustainable profitable growth by focusing on innovation , as well as growth in digital marketing , e-commerce and its international businesses ; improving margins by driving productivity and overhead savings , while reinvesting into the business ; enhancing cash efficiency by improving key working capital metrics , resulting in a lower cash conversion cycle ; and building a winning team through engagement and focusing the best people on the right things . continued execution of these strategic imperatives will better position the company for long-term sustainable growth . organizational structure the company 's five primary operating segments are as follows : segment key brands description of primary products appliances and cookware calphalon® , crock-pot® , mr. coffee® , oster® and sunbeam® household products , including kitchen appliances , gourmet cookware , bakeware and cutlery commercial solutions brk® , first alert® , mapa® , quickie® , rubbermaid® , rubbermaid commercial products® , and spontex® commercial cleaning and maintenance solutions ; closet and garage organization ; hygiene systems and material handling solutions ; connected home and security and smoke and carbon monoxide alarms home solutions ball® ( 1 ) , chesapeake bay candle® , foodsaver® , rubbermaid® , sistema® , woodwick® and yankee candle® food and home storage products ; fresh preserving products , vacuum sealing products and home fragrance products learning and development aprica® , baby jogger® , dymo® , elmer's® , expo® , graco® , mr. sketch® , nuk® , paper mate® , parker® , prismacolor® , sharpie® , tigex® waterman® and x-acto® baby gear and infant care products ; writing instruments , including markers and highlighters , pens and pencils ; art products ; activity-based adhesive and cutting products and labeling solutions outdoor and recreation coleman® , contigo® , exofficio® , marmot® products for outdoor and outdoor-related activities ( 1 ) and ball® , tms ball corporation , used under license . this structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes , including the allocation of resources . the company also provides general corporate services to its segments which is reported as a non-operating segment , corporate . see footnote 17 of the notes to the consolidated financial statements for further information . recent developments coronavirus ( covid-19 ) beginning late in the fourth quarter of 2019 through 2020 and into 2021 , covid-19 emerged and subsequently spread globally , ultimately being declared a pandemic by the world health organization . the pandemic resulted in various federal , state and local governments , as well as private entities , mandating restrictions on travel and public gatherings , closure of non-essential commerce , stay at home orders and quarantining of people to limit exposure to the virus . the company 's global operations , similar to those of many large , multi-national corporations , experienced significant covid-19 related disruption to its business in three primary areas : supply chain . story_separator_special_tag see results of operations , critical accounting estimates and footnotes 1 and 7 of the notes to consolidated financial statements for further information . goodwill and other indefinite-lived intangible asset impairments in conjunction with the company 's annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter ( on december 1 ) , the company recorded a non-cash impairment charge of $ 20 million associated with a tradename in the learning and development segment , as its carrying value exceeded its fair value . the impairment reflected a downward revision of forecasted results due to the impact of the delayed and limited re-opening of schools and offices as a result of the covid-19 global pandemic , as well as the continued deterioration in sales for slime-related adhesive products . 27 during the third quarter of 2020 , the company concluded that a triggering event had occurred for an indefinite-lived intangible asset in the learning and development segment . pursuant to the authoritative literature the company performed an impairment test and determined that an indefinite-lived intangible asset was impaired . during the three months ended september 30 , 2020 , the company recorded a non-cash charge of $ 2 million to reflect impairment of this indefinite-lived tradename as its carrying value exceeded its fair value . during the first quarter of 2020 , the company concluded that a triggering event had occurred for all of its reporting units as a result of the covid-19 global pandemic . pursuant to the authoritative literature the company performed an impairment test and determined that certain of its indefinite-lived intangible assets in the appliances and cookware , home and outdoor living and learning and development segments were impaired . during the three months ended march 31 , 2020 , the company recorded an aggregate non-cash charge of $ 1.3 billion to reflect impairment of these indefinite-lived tradenames as their carrying values exceeded their fair values . in addition , the company determined that its goodwill associated with its appliances and cookware segment was fully impaired . during , the three months ended march 31 , 2020 , the company recorded a non-cash charge of $ 212 million to reflect the impairment of its goodwill as its carrying value exceeded its fair value . see results of operations , critical accounting estimates and footnotes 1 and 7 of the notes to consolidated financial statements for further information . impacts of tariffs the united states trade representative ( “ ustr ” ) imposed increased tariffs on some chinese goods imported into the united states , resulting in increased costs for the company . in 2020 , the company was successful at securing from the ustr exemptions and exclusions for some of its products , with the most notable exemptions being for certain of its baby gear products , which represents a substantial portion of the company 's tariff exposure . the company has largely mitigated its tariff exposure , in part through pricing , productivity and , in some cases , relocation . the phase 1 agreement signed on january 15 , 2020 with china reduced tariffs under list 4a from 15 % to 7.5 % , effective february 14 , 2020 , and suspended 301 tariffs under list 4b , which went into effect on december 15 , 2019. the terms of the agreement significantly reduced the estimated impact on tariffs for 2020. in spite of the agreement , a full year of previously implemented tariffs had a material impact on the company 's operating results and cash flows , with gross impact of approximately $ 91 million in 2020 , primarily relating to its appliances and cookware , commercial solutions , and outdoor and recreation businesses . the company will continue to monitor the impact , if any , of new trade policy under the new u.s. presidential administration and deploy mitigation efforts to offset the gross exposure . however , there can be no assurance that the company will be successful in its mitigation efforts . u.s. treasury regulations on june 18 , 2019 , the u.s. treasury and the internal revenue service ( “ irs ” ) released temporary regulations under irc section 245a ( “ section 245a ” ) as enacted by the 2017 u.s. tax reform legislation ( “ 2017 tax reform ” ) and irc section 954 ( c ) ( 6 ) ( the “ temporary regulations ” ) to apply retroactively to the date the 2017 tax reform was enacted . on august 21 , 2020 , the u.s. treasury and irs released finalized versions of the temporary regulations ( collectively with the temporary regulations , the “ regulations ” ) . the regulations seek to limit the 100 % dividends received deduction permitted by section 245a for certain dividends received from controlled foreign corporations and to limit the applicability of the look-through exception to foreign personal holding company income for certain dividends received from controlled foreign corporations . before the retroactive application of the regulations , the company benefited in 2018 from both the 100 % dividends received deduction and the look-through exception to foreign personal holding company income . the company analyzed the regulations and concluded the relevant regulations were not validly issued . therefore , the company has not accounted for the effects of the regulations in its consolidated financial statements for the period ending december 31 , 2020. the company believes it has strong arguments in favor of its position and believes it has met the more likely than not recognition threshold that its position will be sustained . however , due to the inherent uncertainty involved in challenging the validity of regulations as well as a potential litigation process , there can be no assurances that the relevant regulations will be invalidated or that a court of law will rule in favor of the company .
| results of operations consolidated operating results 2020 vs. 2019 replace_table_token_0_th net sales for 2020 decreased 3 % , due to a decline in sales within learning and development and outdoor and recreation segments . the learning and development segment was impacted by changes in consumer purchasing patterns as well as delays and limited opening of schools and offices caused by the covid-19 pandemic . net sales in the outdoor and recreation segment were impacted by lower overall demand . the net sales decline was partially offset by growth in the appliances and cookware , commercial solutions and home solutions segments due to an increase in demand , notably through online channels . changes in foreign currency unfavorably impacted net sales by $ 108 million , or 1 % . gross profit for 2020 decreased 4 % and gross profit margin declined to 32.8 % as compared with 33.1 % in the prior year period . the gross margin decline was driven by higher costs associated with lower sales volume and certain temporary manufacturing closures , primarily during the first half of the year , as well as business unit mix and inflation related to input costs . the decline in gross margin also reflected increased costs across most of its business units related to the covid-19 pandemic , including increased employee costs , such as expanded benefits and frontline incentives , and other costs , such as procurement of personal protective equipment . the gross profit decline was partially offset by the cumulative depreciation expense recorded during the prior year , as a result of the company 's decision to retain the commercial business , as well as gross productivity and lower product recall costs . changes in foreign currency exchange rates unfavorably impacted gross profit by $ 25 million , or 1 % .
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the allowance for credit losses is based primarily upon historical credit loss experience , with consideration given to recent credit loss trends and changes in loan characteristics ( e.g . , average amount financed and term ) , delinquency levels , collateral values , economic conditions and underwriting and collection practices . the allowance for credit losses is periodically reviewed by management with any changes reflected in current operations . the company fully reserves or charges off consumer loans once the loan has been classified as delinquent for 60 days . short-term loans are considered delinquent when payment of an amount due is not made as of the due date . installment loans are considered delinquent when a customer misses two payments . if a loan is estimated to be uncollectible before it is fully reserved , it is charged off at that point . recoveries on loans previously charged to the allowance , including the sale of delinquent loans to unaffiliated third parties , are credited to the allowance when collected or story_separator_special_tag general on september 1 , 2016 , the company completed its merger with cash america , whereby cash america merged with and into a wholly owned subsidiary of the company . the accompanying audited results of operations for the year ended december 31 , 2017 includes the results of operations for cash america while the comparable prior-year period includes the results of operations for cash america for the period september 2 , 2016 to december 31 , 2016 , affecting comparability of fiscal 2017 and 2016 amounts . see note 3 of notes to consolidated financial statements for additional information about the merger . the company is a leading operator of retail-based pawn stores with over 2,100 store locations in the u.s. and latin america . the company 's pawn stores generate significant retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers . the stores also offer pawn loans to help customers meet small short-term cash needs . personal property , such as consumer electronics , jewelry , power tools , household appliances , sporting goods and musical instruments is pledged as collateral for the pawn loans and held by the company over the term of the loan plus a stated grace 36 period . in addition , some of the company 's pawn stores offer consumer loans or credit services products . the company 's strategy is to focus on growing its retail-based pawn operations in the u.s. and latin america through new store openings and strategic acquisition opportunities as they arise . pawn operations accounted for approximately 96 % of the company 's consolidated revenue during fiscal 2017 and 2016 . the company organizes its operations into two reportable segments . the u.s. operations segment consists of all pawn and consumer loan operations in the u.s. and the latin america operations segment consists of all pawn and consumer loan operations in latin america , which currently includes operations in mexico , guatemala and el salvador . the company recognizes pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawn loans of which the company deems collection to be probable based on historical redemption statistics . if a pawn loan is not repaid prior to the expiration of the loan term , including any extension or grace period , if applicable , the property is forfeited to the company and transferred to inventory at a value equal to the principal amount of the loan , exclusive of accrued pawn fee revenue . the company records merchandise sales revenue at the time of the sale and presents merchandise sales net of any sales or value-added taxes collected . the company does not provide direct financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free layaway plan . should the customer fail to make a required payment pursuant to a layaway plan , the previous payments are typically forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the company . some jewelry is processed at third-party facilities and the precious metal and diamond content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these wholesale scrap jewelry transactions when a price has been agreed upon and the company ships the commodity to the buyer . the company operates a small number of stand-alone consumer finance stores in the u.s. and mexico . these stores provide consumer financial services products including credit services , consumer loans and check cashing . in addition , 362 of the company 's pawn stores also offer credit services and or consumer loans as an ancillary product , which products have been deemphasized by the company in recent years due to regulatory constraints and increased internet based competition for such products . beginning in fiscal 2018 , the company no longer offers fee-based check cashing services in its non-franchised stores . consumer loan and credit services revenue accounted for approximately 4 % of consolidated revenue for fiscal 2017 and 2016 . the company recognizes service fee income on consumer loan transactions on a constant-yield basis over the life of the loan and recognizes credit services fees ratably over the life of the extension of credit made by the independent lenders . changes in the valuation reserve on consumer loans and credit services transactions are charged or credited to the consumer loan credit loss provision . the credit loss provision associated with the company 's cso programs and consumer loans is based primarily upon historical credit loss experience , with consideration given to recent credit loss trends , delinquency rates , economic conditions and management 's expectations of future credit losses . story_separator_special_tag the company maintains an allowance for credit losses on consumer loans on an aggregate basis at a level it considers sufficient to cover estimated losses in the collection of its consumer loans . the allowance for credit losses is based primarily upon historical credit loss experience , with consideration given to recent credit loss trends and changes in loan characteristics ( e.g. , average amount financed and term ) , delinquency levels , collateral values , economic conditions and underwriting and collection practices . the allowance for credit losses is periodically reviewed by management with any changes reflected in current operations . the company fully reserves or charges off consumer loans once the loan has been classified as delinquent for 60 days . short-term loans are considered delinquent when payment of an amount due is not made as of the due date . installment loans are considered delinquent when a customer misses two payments . if a loan is estimated to be uncollectible before it is fully reserved , it is charged off at that point . recoveries on loans previously charged to the allowance , including the sale of delinquent loans to unaffiliated third parties , are credited to the allowance when collected or when sold to a third party . the company generally does not accrue interest on delinquent consumer loans . in addition , delinquent consumer loans generally may not be renewed , and if , during its attempt to collect on a delinquent consumer loan , the company allows additional time for payment through a payment plan or a promise to pay , it is still considered delinquent . generally , all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan . under the cso programs , the company assists customers in applying for a short-term extension of credit from independent lenders and issues the independent lenders a guarantee for the repayment of the extension of credit . the company is required to recognize , at the inception of the guarantee , a liability for the fair value of the obligation undertaken by issuing the guarantee . according to the guarantee , if the borrower defaults on the extension of credit , the company will pay the independent lenders the principal , accrued interest , insufficient funds and late fee , if applicable , all of which the company records as a component of its credit loss provision . the company is entitled to seek recovery , directly from its customers , of the amounts it pays the independent lenders in performing under the guarantees . the company records the estimated fair value of the liability in accrued liabilities . the estimated fair value of the liability is periodically reviewed by management with any changes reflected in current operations . inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . the company also retails limited quantities of new or refurbished merchandise obtained directly from wholesalers and manufacturers . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers , wholesalers and manufacturers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or net realizable value and , accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . 39 goodwill and other indefinite-lived intangible assets - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. operations and latin america operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . as described in “ —results of operations—goodwill impairment—u.s . consumer loan operations ” below , the company recorded a goodwill impairment charge of $ 7.9 million during 2015. the company 's indefinite-lived intangible assets consist of trade names , pawn licenses and franchise agreements related to a check-cashing operation . the company performs its indefinite-lived intangible asset impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company determined there was no impairment as of december 31 , 2017 and 2016 . foreign currency transactions - the company has significant operations in latin america , where in mexico and guatemala the functional currency is the mexican peso and guatemalan quetzal , respectively . accordingly , the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity .
| consolidated results of operations the following table reconciles pre-tax operating income of the company 's u.s. operations segment and latin america operations segment discussed above to consolidated net income for the fiscal year ended december 31 , 2016 as compared to the fiscal year ended december 31 , 2015 ( dollars in thousands ) : replace_table_token_21_th goodwill impairment - u.s. consumer loan operations as a result of the company 's fiscal 2015 goodwill impairment analysis , a $ 7.9 million goodwill impairment charge was recorded associated with its former u.s. consumer loan operations reporting unit , which is no longer a goodwill reporting unit of the company . corporate expenses , other income and taxes administrative expenses increased to $ 96.5 million during fiscal 2016 compared to $ 51.9 million during fiscal 2015 , primarily as a result of the merger and a 49 % increase in the weighted-average store count resulting in additional management and supervisory compensation and other support expenses required for such growth , partially offset by an 18 % unfavorable change in the average value of the mexican peso , which reduced comparative administrative expenses in mexico . as a percentage of revenue , administrative expenses increased from 7 % during fiscal 2015 to 9 % during fiscal 2016 primarily due to the merger and the maxi prenda acquisition . corporate depreciation and amortization increased to $ 7.8 million during fiscal 2016 compared to $ 3.0 million during fiscal 2015 , primarily due to the assumption of $ 118.2 million in property and equipment and $ 23.4 million in intangible assets subject to amortization as a result of the merger . 56 interest expense increased to $ 20.3 million during fiscal 2016 compared to $ 16.9 million for fiscal 2015 primarily related to increased borrowings on the company 's revolving unsecured credit facility primarily used to pay off assumed debt in conjunction with the merger . see “ —liquidity and capital resources.
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the following discussion includes forward-looking statements as described in “ cautionary note regarding forward-looking statements ” in this form 10-k. a detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is outlined under “ risk factors ” in this form 10-k. this md & a includes the financial results of markit ltd. beginning july 12 , 2016. the comparability of our operating results for fiscal 2016 to fiscal 2015 is significantly impacted by the merger . as a result of the merger , we have created a new financial services segment , which consists entirely of legacy markit 's business , and we have included revenue and expense attributable to legacy markit in the financial services segment from the date of the merger . in our discussion and analysis of comparative periods , we have quantified the legacy markit contribution wherever we have deemed such amounts to be meaningful . while identified amounts may provide indications of general trends , the analysis can not completely address the effects attributable to integration efforts . executive summary business overview we are a world leader in critical information , analytics , and solutions for the major industries and markets that drive economies worldwide . we deliver next-generation information , analytics , and solutions to customers in business , finance , and government , improving their operational efficiency and providing deep insights that lead to well-informed , confident decisions . we have more than 50,000 key business and government customers , including 85 percent of the fortune global 500 and the world 's leading financial institutions . headquartered in london , we are committed to sustainable , profitable growth . on july 12 , 2016 , the merger was completed pursuant to the merger agreement between ihs , markit , and merger sub , and merger sub merged with and into ihs , with ihs continuing as the surviving corporation and an indirect and wholly owned subsidiary of ihs markit . upon completion of the merger , markit became the combined group holding company and was renamed ihs markit ltd. in accordance with the terms of the merger agreement , ihs stockholders received 3.5566 common shares of ihs markit for each share of ihs common stock they owned . to best serve our customers , we are organized into the following four industry- and workflow-focused segments : resources , which includes our energy and chemicals product offerings ; transportation , which includes our automotive ; maritime & trade ; and aerospace , defense & security product offerings ; consolidated markets & solutions , which includes our product design ; technology , media & telecom ( tmt ) ; and economics & country risk ( ecr ) product offerings ; and financial services , which includes the entire markit set of information , processing , and solutions product offerings . we believe that this sales and operating model helps our customers do business with us by providing a cohesive , consistent , and effective product , sales , and marketing approach by segment . our recurring fixed revenue and recurring variable revenue represented approximately 82 percent of our total revenue in 2016 . our recurring revenue is generally stable and predictable , and we have long-term relationships with many of our customers . our business has seasonal aspects . our fourth quarter typically generates our highest quarterly levels of revenue and profit . conversely , our first quarter generally has our lowest quarterly levels of revenue and profit . we also experience event-driven seasonality in our business ; for instance , ceraweek , an annual energy conference , was held in the first quarter of 2016 and will be held in the second quarter of 2017. another example is the biennial release of the boiler pressure vessel code ( bpvc ) engineering standard , which generates revenue for us predominantly in the third quarter of every other year . the most recent bpvc release was in the third quarter of 2015 and the next release will be in the third quarter of 2017. during 2016 , we focused on commercial expansion , operational excellence , and strategic acquisitions . for 2017 , we expect to focus our efforts on the following actions : 30 integrate organizational structure . we are in the process of completing key merger integration activities primarily related to our shared services and corporate organization . we intend to integrate our people , platforms , processes , and products in a manner that allows us to take advantage of revenue and cost synergies that will strengthen the effectiveness and efficiency of our business operations . innovate and develop new product offerings . we expect to continue to create new commercial offerings from our existing data sets , converting core information to higher value analytics . our investment priorities for new product offerings are primarily in energy , transportation , financial services , and product design , and we intend to continue to invest across the business to increase our customer value proposition . simplify capital allocation . we are focusing our capital allocation strategy primarily on shareholder return through share repurchases . longer term , we expect to balance capital allocation between returning capital to shareholders through consistent share repurchases and mergers and acquisitions focused primarily on fewer deals in our core end markets that will allow us to continue to build out our strategic position . key performance indicators we believe that revenue growth , adjusted ebitda ( both in dollars and margin ) , and free cash flow are key financial measures of our success . adjusted ebitda and free cash flow are financial measures that are not prepared in accordance with u.s. generally accepted accounting principles ( non-gaap ) . revenue growth . we review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs . we measure revenue growth in terms of organic , acquisitive , and foreign currency impacts . story_separator_special_tag however , non-gaap measures have limitations as an analytical tool . because not all companies use identical calculations , our presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . they are not presentations made in accordance with u.s. gaap , are not measures of financial condition or liquidity , and should not be considered as an alternative to profit or loss for the period determined in accordance with u.s. gaap or operating cash flows determined in accordance with u.s. gaap . as a result , these performance measures should not be considered in isolation from , or as a substitute analysis for , results of operations as determined in accordance with u.s. gaap . strategic acquisitions and divestitures acquisitions continue to be an important part of our growth strategy . in addition to the merger , we completed two other acquisitions during the year ended november 30 , 2016 . we paid a total purchase price of approximately $ 1.1 billion for those two acquisitions . we paid a total purchase price of approximately $ 370 million for acquisitions we completed during the year ended november 30 , 2015 , and we paid a total purchase price of approximately $ 210 million for acquisitions we completed during the year ended november 30 , 2014 . our consolidated financial statements include the results of operations and cash flows for these business combinations beginning on their respective dates of acquisition . for a more detailed description of our recent acquisition activity , see `` item 8 - financial statements and supplementary data - notes to consolidated financial statements - note 3 '' in part ii of this form 10-k. during 2015 , we conducted a complete review of our entire business portfolio . as a result of that review , we determined that the oe & rm and globalspec product offerings no longer fit with our strategic goals , and in the fourth quarter of 2015 , we decided to divest those product groups . in the second quarter of 2016 , we completed the sale of both of these product groups . we have entered into transition services agreements ( tsas ) with the globalspec and oe & rm buyers to facilitate an orderly transition process . the results of these product groups have been classified as discontinued operations in the accompanying financial statements and footnotes . we will continue to evaluate the long-term potential and strategic fit of all of our assets . 32 global operations approximately 40 percent of our revenue is transacted outside of the united states ; however , only about 20 percent of our revenue is transacted in currencies other than the u.s. dollar . as a result , a strengthening u.s. dollar relative to certain currencies has historically resulted in a negative impact on our revenue ; conversely , a weakening u.s. dollar has historically resulted in a positive impact on our revenue . however , the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the u.s. dollar . our largest foreign currency exposures are the british pound , euro , canadian dollar , singapore dollar , and indian rupee . see `` quantitative and qualitative disclosures about market risk – foreign currency exchange rate risk '' for additional discussion of the impacts of foreign currencies on our operations . pricing information we customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors , including various price segmentation models which utilize customer attributes , value attributes , and other data sources . attributes can include a proxy for customer size ( e.g. , barrels of oil equivalent and annual revenue ) , industry , users , usage , breadth of the content to be included in the offering , and multiple other factors . because of the level of offering customization we employ , it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty . this analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods . as a result , we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business . other items cost of operating our business . we incur our cost of revenue primarily through acquiring , managing , and delivering our offerings . these costs include personnel , information technology , data acquisition , and occupancy costs , as well as royalty payments to third-party information providers . our sales , general , and administrative expenses include wages and other personnel costs , commissions , corporate occupancy costs , and marketing costs . a large portion of our operating expenses are not directly commensurate with volume sold , particularly in our recurring revenue business model . stock-based compensation expense . we issue equity awards to our employees primarily in the form of restricted stock units , performance stock units , and stock options , for which we record cost over the respective vesting periods . the typical vesting period is three years . as of november 30 , 2016 , we had approximately 11.7 million unvested rsus/rsas and 22.8 million unvested stock options outstanding . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . in applying u.s. gaap , we make significant estimates and judgments that affect our reported amounts of assets , liabilities , revenues , and expenses , as well as disclosure of contingent assets and liabilities . we believe that our accounting estimates and judgments are reasonable when made , but in many instances , alternative estimates and judgments would also be acceptable . in addition , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from our estimates .
| results of operations total revenue total revenue for 2016 increased 25 percent compared to the same period of 2015 . total revenue for 2015 increased 5 percent compared to the same period in 2014 . the table below displays the percentage point change in revenue due to organic , acquisitive , and foreign currency factors when comparing 2016 to 2015 and 2015 to 2014 . markit 's revenue from july 12 , 2016 to november 30 , 2016 of approximately $ 449 million , less the $ 9 million change from the comparable 2015 stub period , has been included in the calculation of acquisitive growth in the table below , and then the components of markit 's $ 9 million revenue growth in the period from july 12 , 2016 to november 30 , 2016 versus the prior year have been included in their related factors in the table below . increase ( decrease ) in total revenue ( all amounts represent percentage points ) organic acquisitive foreign currency 2016 vs. 2015 — % 27 % ( 2 ) % 2015 vs. 2014 2 % 5 % ( 2 ) % organic revenue growth for both 2016 and 2015 was primarily attributable to recurring revenue results , which were flat in 2016 and grew 5 percent in 2015. the recurring-based business represented 82 percent of total revenue in 2016 and 81 percent of total revenue in 2015. the non-recurring business decreased organically by 3 percent in 2016 and by 9 percent in 2015 , with both years being adversely impacted by lower consulting , software , and services revenue , mostly in our resources segment .
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this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of various factors described in this report . story_separator_special_tag million of net favorable development on prior accident year loss reserves , primarily attributable to favorable development in our general liability line , our syndicate 1200 liability lines and our commercial automobile lines , partially offset by unfavorable development in our workers compensation and commercial multi-peril lines . included in losses and loss adjustment expenses for 2014 was $ 18.7 million in catastrophe losses resulting from storm activity in the united states , various hailstorms , typhoon rammasum and hurricane odile . partially offsetting these 2014 accident year losses was $ 37.7 million of net favorable development on prior accident year loss reserves , primarily attributable to favorable development in our general liability line and our syndicate 1200 liability and property lines , partially offset by unfavorable development in the commercial multi-peril and commercial automobile lines . the following table summarizes the above referenced loss reserve development as respects prior year loss reserves by line of business for the year ended december 31 , 2016 : replace_table_token_6_th in determining appropriate reserve levels for the year ended december 31 , 2016 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for loss and loss adjustment expenses were $ 3,350.8 million ( including $ 156.1 million of reserves attributable to syndicate 1200 's trade capital providers ) , $ 3,123.6 million ( including $ 102.3 million of reserves attributable to syndicate 1200 's trade capital providers ) , and $ 3,042.4 million ( including $ 80.3 million of reserves attributable to the trade capital providers ) as of december 31 , 2016 , 2015 and 2014 , respectively . management has recorded its best estimate of loss reserves at each 45 date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . consolidated underwriting , acquisition and insurance expenses were $ 547.0 million , $ 536.7 million and $ 537.0 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the decline in the expense ratio for 2016 as compared to 2015 was primarily attributable to increased ceding commissions received , reduced contingent commissions payable and lower equity stock compensation expenses , partially offset by increased premium taxes and assessment expenses . the decline in the consolidated expense ratio for 2015 as compared to 2014 was due to lower acquisition cost primarily attributable to lower premium taxes , fees and assessments coupled with increased ceding commissions received . non-acquisition cost increased due to higher compensation and information technology costs , partially offset by lower outside services expense . consolidated interest expense was $ 19.6 million , $ 19.0 million and $ 19.9 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the increase in consolidated interest expense in 2016 as compared to 2015 was the result of slightly higher interest rates on our variable rate debt instruments . the decline in consolidated interest expense in 2015 as compared to 2014 was the result of slightly reduced interest rates on our variable rate debt instruments . consolidated foreign currency exchange gains were $ 4.5 million $ 18.3 million and $ 7.8 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the changes in the foreign currency exchange gains were due to fluctuations of the u.s dollar , on a weighted average basis , against the currencies in which we transact our business . the consolidated provisions for income taxes were $ 35.2 million , $ 14.3 million and $ 32.8 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the consolidated income tax provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate . therefore , the consolidated provision for income taxes represents taxes on net income for our united states , ireland , belgium , brazil , switzerland and united kingdom operations . the consolidated effective tax rates were 19.4 % , 8.1 % and 15.2 % for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the increase in the effective tax rate for the year ended december 31 , 2016 as compared to the same period ended 2015 was primarily attributable to an increase in pretax income in the united states . story_separator_special_tag partially offsetting these increases was reduced underwriting in our grocery and retail business units due to planned reductions as we exited unprofitable accounts and implemented underwriting initiatives . additionally , gross written premiums increased $ 68.1 million for the year ended december 31 , 2016 due to increased premium writings in our fronting programs . the fronting programs do not impact earned premiums , but result in ceding commissions received . the increase in earned premiums was primarily attributable to the increase in gross written premiums coupled with a reduction in ceding percentages for certain lines of business . the decline in the loss ratio for the year ended december 31 , 2016 as compared to the same period in 2015 was primarily attributable to increased net favorable loss reserve development on prior accident years coupled with reduced catastrophe losses . the decline in the loss ratio for the year ended december 31 , 2015 as compared to the same period in 2014 was primarily attributable to improved current accident year results . included in losses and loss adjustment expense for the year ended december 31 , 2016 was $ 2.6 million in catastrophe losses , including $ 2.1 million for storm activity in the united states and $ 0.5 million for hurricane matthew . included in losses and loss adjustment expenses was $ 22.7 million in net favorable loss reserve development on prior accident years , primarily attributable to $ 9.0 million favorable development in the workers compensation lines , $ 7.0 million in the surety lines , $ 6.2 million in automobile liability lines and $ 2.0 million in the property lines . partially offsetting this favorable development was $ 1.5 million of unfavorable development in the other liability lines . included in losses and loss adjustment expense for the year ended december 31 , 2015 was $ 5.2 million in catastrophe losses for storm activity in the united states . included in losses and loss adjustment expenses was $ 2.5 million in net unfavorable loss reserve development on prior accident years , primarily attributable to $ 11.9 million of unfavorable development in general liability and $ 8.7 million of unfavorable development in the workers compensation lines due to increases in claim severity . partially offsetting this unfavorable development was $ 8.8 million of favorable development in short-tail lines , $ 6.6 million favorable development in errors and ommissions lines and $ 2.1 million of favorable development on an assumed directors and officers program . included in losses and loss adjustment expense for the year ended december 31 , 2014 was $ 5.7 million in catastrophe losses for storm activity in the united states . included in losses and loss adjustment expenses was $ 1.7 million in net favorable loss reserve development on prior accident years , primarily attributable to $ 19.5 million of unfavorable development in general liability due to increases in claim severity , offset by favorable development of $ 8.5 million in errors and ommissions lines , $ 7.9 million in short-tail lines and $ 5.8 million in workers compensation . the increase in the expense ratio for the year ended december 31 , 2016 as compared to the same period ended 2015 was primarily attributable to a $ 13.9 million favorable adjustment to the premium taxes and assessments accrual recorded in 2015. partially offsetting the increased premium taxes and assessments was increased fronting fees received and an increase of claims related 48 expenses reclassified to unallocated loss adjustment expenses . the decline in the expense ratio for the year ended december 31 , 2015 as compared to the same period ended 2014 was primarily attributable to the favorable change in estimate of the premium taxes and assessments accrual . fee and other income increased for the year ended december 31 , 2016 as compared to the same period ended 2015 due to the recognition of a $ 1.7 million gain on the sale of certain business units . the decline in fee and other expenses was primarily attributable to certain programs that were previously non-risk bearing converting to risk bearing programs . as a result of our annual evaluation of goodwill and other intangible assets , we determined that the goodwill and intangible asset which resulted from a 2010 acquisition were impaired and therefore , we wrote-off $ 3.4 million during the fourth quarter of 2014. international specialty the following table summarizes the results of operations for the international specialty segment : replace_table_token_9_th the decline in gross written premiums for the year ended december 31 , 2016 as compared to the same periods in 2015 and 2014 was primarily attributable to declines in our property reinsurance unit due to increased competition , changes in terms and conditions and declining rates . partially offsetting this decline was increased gross written premiums in our casualty and professional liability units which was the result of new business submissions partially offset by declining rates and increased competition . gross written premiums for our brazilian unit was favorably impacted by currency gains , as the brazilian real strengthened against the u.s dollar . the increase in earned premiums for the year ended december 31 , 2016 as compared to the same periods in 2015 and 2014 was primarily due to a reduction in our ceding percentages , coupled with a change in business mix . the increase in the loss ratio for the year ended december 31 , 2016 as compared to the same period in 2015 was primarily attributable to increased catastrophe losses partially offset by increased net favorable loss reserve development on prior accident years . the decline in the loss ratio for the year ended december 31 , 2015 as compared to the same period in 2014 was primarily attributable to increased net favorable loss reserve development on prior accident years partially offset by a slight increase in catastrophe losses .
| consolidated results of operations for the year ended december 31 , 2016 , we reported net income of $ 146.7 million , or $ 4.75 per fully diluted share . for the year ended december 31 , 2015 , we reported net income of $ 163.2 million , or $ 5.20 per fully diluted share . for the year ended december 31 , 2014 , we reported net income of $ 183.2 million , or $ 5.70 per fully diluted share . 43 the following is a comparison of select data from our results of operations : replace_table_token_5_th the increase in consolidated gross written premiums for the year ended december 31 , 2016 as compared to the same periods ended in 2015 and 2014 was primarily the result of increased premiums in all segments with the exception of international specialty as our property reinsurance book was adversely impacted by increased competition and declining rates . all segments were impacted to some degree by increasing competition and , in some cases , declining rates , with our international specialty and syndicate 1200 segments being the most impacted by this competition . net written premiums increased within our excess and surplus lines and commercial specialty segments due to the increases in gross written premiums and increased risk retention . net written premiums for our international specialty segment declined in 2016 due to the reduction in gross written premiums , partially offset by increased risk retention . net written premiums for the syndicate 1200 segment declined in 2016 as compared to 2015 and 2014 due to reductions in our participation percentages , partially offset by increased risk retention . the increase in consolidated earned premiums for the year ended december 31 , 2016 as compared to 2015 and 2014 was due to the increase in gross and net written premiums .
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the company monetized the derivative asset related to its fixed-to-float interest rate swaps due in 2018 and 2020 and received $ 21.5 million in the third quarter of 2011. the gain was treated as an increase to the debt balances for the 2018 and 2020 notes and will be amortized against interest expense over the life of the original swap . later in 2011 , the company subsequently entered into new interest rate swaps due in 2018 and story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes appearing in part ii , item 8 of the annual report on form 10-k. overview the manitowoc company , inc. is a multi-industry , capital goods manufacturer in two principal markets : cranes and related products ( crane ) and foodservice equipment ( foodservice ) . crane is recognized as one of the world 's leading providers of lifting equipment for the global construction industry , including lattice-boom cranes , tower cranes , mobile telescopic cranes , and boom trucks . foodservice is one of the world 's leading innovators and manufacturers of commercial foodservice equipment serving the ice , beverage , refrigeration , food preparation , and cooking needs of restaurants , convenience stores , hotels , healthcare , and institutional applications . during the fourth quarter of 2013 , the company agreed to sell its 50 % interest in manitowoc dong yue heavy machinery co. , ltd. ( `` manitowoc dong yue '' or the “ joint venture ” ) , which produces mobile and truck-mounted hydraulic cranes in china , to its joint venture partner , tai'an taishan heavy industry investment co. , ltd. , for a nominal amount . consequently , the joint venture has been classified as discontinued operations in the company 's financial statements . the transaction subsequently closed on january 21 , 2014. see note 4 , `` discontinued operations , '' for further details of this transaction . during the fourth quarter of 2012 , the company decided to divest its warewashing equipment business , which operated under the brand name jackson , and classified this business as discontinued operations in the company 's financial statements . jackson designs , manufactures and sells warewashing equipment , offering a full range of undercounter dishwashers , door-type dishwashers , conveyor , pot washing , and flight-type dishwashers . on january 28 , 2013 , the company sold the jackson warewashing equipment business to hoshizaki usa holdings , inc. for approximately $ 38.5 million . net proceeds were used to reduce ratably the then-outstanding balances of term loans a and b. on december 15 , 2010 , the company reached a definitive agreement to divest its kysor/warren and kysor/warren de mexico ( collectively “ kysor/warren ” ) businesses , which manufactured frozen , medium temperature and heated display merchandisers , mechanical refrigeration systems and remote mechanical and electrical houses to lennox international for approximately $ 145 million , including a preliminary working capital adjustment . the transaction subsequently closed on january 14 , 2011 and the net proceeds were used to pay down outstanding debt . on july 1 , 2011 , the company made a payment to lennox international of $ 2.4 million as the final working capital adjustment under the sale agreement . the results of these operations have been classified as discontinued operations . the following discussion and analysis covers key drivers behind our results for 2011 through 2013 and is broken down into three major sections . first , we provide an overview of our results of operations for the years 2011 through 2013 on a consolidated basis and by business segment . next we discuss our market conditions , liquidity and capital resources , off-balance sheet arrangements , and obligations and commitments . finally , we provide a discussion of risk management techniques , contingent liability issues , critical accounting policies , impacts of future accounting changes , and cautionary statements . all dollar amounts , except per share amounts , are in millions of dollars throughout the tables included in this management 's discussion and analysis of financial conditions and results of operations unless otherwise indicated . for all periods presented the results have been revised to reflect manitowoc dong yue as a discontinued operation . see note 4 , “ discontinued operations ” for further discussion . 26 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > interest expense & amortization of deferred financing fees replace_table_token_15_th interest expense for the year ended december 31 , 2013 totaled $ 128.4 million versus $ 135.6 million for the year ended december 31 , 2012 . the decrease in interest expense of $ 7.2 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 was due to debt reduction in 2013 and 2012. amortization expense for deferred financing fees was $ 7.0 million for the year ended december 31 , 2013 as compared to $ 8.2 million in 2012 . the decrease in amortization 28 expense for deferred financing fees of $ 1.2 million was attributable to the write-off of a portion of the deferred financing fees associated with the debt reductions at the end of 2012 , partially offset by the amortization of new fees associated with the issuance of the senior notes due 2022. see further detail at note 11 , “ debt. ” loss on debt extinguishment replace_table_token_16_th * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2013 totaled $ 3.0 million , compared to $ 6.3 million in 2012 . the loss on debt extinguishment in 2013 was attributable to the accelerated paydown of term loans a and b associated with our senior credit facility . story_separator_special_tag see note 4 , `` discontinued operations , '' for further details on this transaction . there was a net loss of $ 9.1 million attributable to the minority partner in connection with manitowoc dong yue for 2012 . year ended december 31 , 2012 compared to 2011 net sales ( in millions ) 2012 2011 change net sales $ 3,913.3 $ 3,589.3 9.0 % consolidated net sales increased 9.0 % in 2012 to $ 3.9 billion from $ 3.6 billion in 2011. the increase was primarily the result of the year-over-year increase in the crane segment along with a modest increase in the foodservice segment . crane segment sales increased 13.7 % for the year ended december 31 , 2012 compared to 2011. crane segment sales increased in all regions except china , which decreased as a result of volume reductions . the overall increase in the crane segment was primarily driven by the americas region due to economic recoveries and higher demand in certain emerging markets . foodservice sales increased 2.2 % for the year ended december 31 , 2012 compared to 2011. foodservice sales increased in the americas and asia pacific ( apac ) regions from the prior year due to volume increases . consolidated net sales were unfavorably impacted by approximately $ 73.5 million , or 2.0 % , from foreign currency volatility in relation to the u.s. dollar for the year ended december 31 , 2012 compared with the year ended december 31 , 2011. further analysis of the changes in sales by segment is presented in the `` sales and operating earnings by segment '' section below . 30 gross profit replace_table_token_21_th gross profit for the year ended december 31 , 2012 increased to $ 943.0 million compared to $ 832.9 million for the year ended december 31 , 2011 , an increase of 13.2 % . the increase in consolidated gross profit was attributable to sales volume increases in both the crane and foodservice segments in the regions noted above and pricing actions . crane segment gross profit increases were partially offset by increases in manufacturing costs . gross margin increased in 2012 to 24.1 % from 23.2 % in 2011. the increase in gross margin was primarily due to pricing actions , cost reduction and lean actions slightly offset by investment in optimizing global footprint . engineering , selling and administrative expenses replace_table_token_22_th engineering , selling and administrative ( es & a ) expenses for the year ended december 31 , 2012 increased $ 36.6 million to $ 597.6 million compared to $ 561.0 million for the year ended december 31 , 2011. crane segment es & a increased $ 36.8 million , or 15.0 % , for the year ended december 31 , 2012 compared to the same period in 2011. this increase was driven by increased employee compensation and benefit costs , increased levels of engineering expenses , recognition of reserves for a small number of discrete customer financing issues and enterprise resource planning system implementation costs . foodservice es & a decreased $ 2.8 million , or 1.1 % , for the year ended december 31 , 2012 compared to the same period in 2011. this decrease was driven by reduction in sales related costs , favorable foreign exchange impact , and reduced employee costs . amortization expense replace_table_token_23_th amortization expense for the year ended december 31 , 2012 was $ 36.5 million compared to $ 37.4 million for 2011. see further detail related to intangible assets at note 9 , “ goodwill and other intangible assets. ” restructuring expense replace_table_token_24_th * measure not meaningful restructuring expenses for the year ended december 31 , 2012 totaled $ 9.5 million compared to $ 5.5 million in 2011. crane segment restructuring expenses totaled $ 7.2 million for the year ended december 31 , 2012. these expenses primarily related to workforce reductions at our france operations . foodservice segment restructuring expenses totaled $ 2.3 million for the year ended december 31 , 2012. these expenses primarily related to plant consolidation efforts in the americas region and workforce reductions in europe . see further detail at note 19 , “ restructuring. ” interest expense & amortization of deferred financing fees replace_table_token_25_th interest expense for the year ended december 31 , 2012 totaled $ 135.6 million versus $ 145.4 million for the year ended december 31 , 2011. the decrease in interest expense of $ 9.8 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was due to the amendment of our senior credit facility during the second quarter of 2011 , which lowered the associated interest rates along with debt reduction in 2012 and 2011. amortization expense for deferred financing fees was $ 8.2 million for the year ended december 31 , 2012 as compared to $ 10.4 million in 2011. the decrease in amortization expense for deferred financing fees of $ 2.2 million was attributable to the write-off of a portion of the deferred 31 financing fees associated with the amendment in the second quarter of 2011 , partially offset by the amortization of new fees associated with the senior credit facility and the issuance of the senior notes due 2022. see further detail at note 11 , “ debt. ” loss on debt extinguishment replace_table_token_26_th * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2012 totaled $ 6.3 million , compared to $ 29.7 million in 2011. the loss on debt extinguishment in 2012 was attributable to the accelerated paydown of term loans a and b associated with our senior credit facility and the redemption of our 7.125 % senior notes due 2013. the loss on debt extinguishment in 2011 was attributable to the write-off of a portion of the deferred financing fees associated with the amendment to the senior credit facility in the second quarter of 2011. other income ( expense ) - net replace_table_token_27_th * measure not meaningful other income , net for the year ended december 31 , 2012 was $ 0.1 million versus $
| results of consolidated operations replace_table_token_10_th year ended december 31 , 2013 compared to 2012 net sales ( in millions ) 2013 2012 change net sales $ 4,048.1 $ 3,913.3 3.4 % consolidated net sales increased 3.4 % in 2013 to $ 4.0 billion from $ 3.9 billion in 2012 . the increase was driven by modest year-over-year increases in both the crane and foodservice segments . crane segment sales increased 3.3 % for the year ended december 31 , 2013 compared to 2012 . the overall increase in the crane segment was primarily due to higher demand in the americas region and in certain emerging markets driven by energy and infrastructure projects as well as steady growth in the product aftermarket support business . foodservice sales increased 3.7 % for the year ended december 31 , 2013 compared to 2012 . foodservice sales increased in the americas and europe , middle east and africa ( emea ) region from the prior year due to volume increases primarily driven by new product roll outs . consolidated net sales were favorably impacted by approximately $ 26.5 million , or 0.7 % , from foreign currency volatility in relation to the u.s. dollar for the year ended december 31 , 2013 compared with the year ended december 31 , 2012 . further analysis of the changes in sales by segment is presented in the `` sales and operating earnings by segment '' section below . 27 gross profit replace_table_token_11_th gross profit for the year ended december 31 , 2013 increased to $ 1,021.8 million compared to $ 943.0 million for the year ended december 31 , 2012 , an increase of 8.4 % . crane segment gross profit increases were primarily attributable to manufacturing cost reduction initiatives and pricing actions , partially offset by less favorable product mix .
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the company 's aggregate total allocable purchase price consideration was $ 39.0 million , comprised of $ 26.6 million in cash paid and $ 5.2 million in company common stock issued at closing , increased by $ 0.8 million for net working capital adjustments paid 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 on form 10-k and in the documents that we incorporate by reference into this annual report on form 10-k. this annual report on form 10-k may contain certain “ forward-looking ” 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 “ risk factors. ” 20 overview perficient is a global digital consultancy transforming how the world 's biggest brands connect with customers and grow their businesses . we help clients , primarily focused in north america , gain competitive advantage by using digital technology to : make their businesses more responsive to market opportunities ; strengthen relationships with customers , suppliers , and partners ; improve productivity ; and reduce information technology costs . with unparalleled strategy , creative and technology capabilities , across industries , our end-to-end digital consulting services help our clients drive faster speed-to-market capabilities and stronger , more compelling experiences for consumers . we go to market with six primary service categories – strategy and consulting , customer experience and design , innovation and product development , platforms and technology , data and intelligence , and optimized global delivery . within each service category , and collectively , we deliver a deep and broad portfolio of solutions that 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 a global and competitive marketplace . covid-19 pandemic in march 2020 , the world health organization recognized a novel strain of coronavirus ( covid-19 ) as a pandemic . in response to the pandemic , the united states and various foreign , state and local governments have , among other actions , imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines , causing some businesses to adjust , reduce or suspend operating activities . while certain of these restrictions and guidelines have been lifted or relaxed , they may be reinstituted in response to continuing effects of the pandemic . the pandemic and the various governments ' response have caused , and continue to cause , significant and widespread uncertainty , volatility and disruptions in the u.s. and global economies , including in the regions in which we operate . through december 31 , 2020 , we have not experienced a material impact to our business , operations or financial results as a result of the pandemic . however , in the current and future periods , we may experience weaker customer demand , requests for discounts or extended payment terms , customer bankruptcies , supply chain disruption , employee staffing constraints and difficulties , government restrictions or other factors that could negatively impact the company and its business , operations and financial results . as we can not predict the duration or scope of the pandemic or its impact on economic and financial markets , any negative impact to our results can not be reasonably estimated , but it could be material . we continue to monitor closely the company 's financial health and liquidity and the impact of the pandemic on the company . we have been able to serve the needs of our customers while taking steps to protect the health and safety of our employees , customers , partners , and communities . among these steps , we have transitioned to primarily working remotely and ceasing travel , which has not resulted in a material disruption to the company 's operations . we expect to maintain many of these steps for the near future . see “ part i – item 1a – risk factors ” of this form 10-k for additional information regarding the potential impact of covid-19 on the company . services revenues services revenues are derived from professional services that include developing , implementing , integrating , automating and extending business processes , technology infrastructure , and software applications . professional services revenues are recognized over time as services are rendered . most of our projects are performed on a time and materials basis , while a portion of our revenues is derived from projects performed on a fixed fee or fixed fee percent complete basis . 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 hourly rates . for fixed fee contracts , revenues are recognized and billed by multiplying the established fixed rate per time period by the number of time periods elapsed . for fixed fee percent complete projects , revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours . fixed fee percent complete engagements represented 8 % of our services revenues for the year ended december 31 , 2020 compared to 7 % and 8 % for the years ended december 31 , 2019 and 2018 , respectively . on most projects , we are reimbursed for out-of-pocket expenses including travel and other project-related expenses . these reimbursements are included as a component of the transaction price of the respective professional services contract . story_separator_special_tag 2016-13 resulted in a decrease of $ 0.4 million in accounts receivable , net , and a decrease of $ 0.3 million in retained earnings , net of tax , as of january 1 , 2020. refer to note 8 , allowance for credit losses , for additional disclosures resulting from the adoption of asu no . 2016-13. story_separator_special_tag style= '' text-align : justify '' > million . the primary components of operating cash flows for the year ended december 31 , 2019 were net income of $ 37.1 million plus net non-cash charges of $ 45.0 million and investments in net operating assets of $ 4.2 million . net cash used in investing activities during the year ended december 31 , 2020 , we used $ 91.9 million for acquisitions and $ 6.7 million to purchase property and equipment and to develop software . during the year ended december 31 , 2019 , we used $ 11.1 million for acquisitions and $ 9.3 million to purchase property and equipment and to develop software . net cash used in financing activities for the year ended december 31 , 2020 , we received $ 222.7 million of proceeds from the issuances of the 2025 notes , net of issuance costs , received $ 22.2 million of proceeds from the sales of net-share-settled warrants and paid $ 48.9 million for privately negotiated convertible note hedge transactions . we also used $ 180.4 million to repurchase a portion of the 2023 notes , received $ 50.1 million related to the sale of privately negotiated convertible hedge transactions for the 2023 notes , and paid $ 43.0 million for the repurchase of net-share-settled warrants related to the 2023 notes . we drew down $ 28.0 million from our line of credit , repaid $ 28.0 million on our line of credit , used $ 19.6 million to repurchase shares of our common stock through the stock repurchase program , $ 8.0 million to remit taxes withheld as part of a net share settlement of restricted stock vesting , and $ 2.8 million to settle contingent consideration for the purchase of elixiter and sundog . we also received proceeds from sales of stock through the employee stock purchase plan of $ 0.3 million . for the year ended december 31 , 2019 , we used $ 20.6 million to repurchase shares of our common stock through the stock repurchase program , used $ 7.3 million to remit taxes withheld as part of a net share settlement of restricted stock vesting and used $ 4.3 million to settle the contingent consideration for the purchase of southport . we also received proceeds from sales of stock through the employee stock purchase plan of $ 0.2 million . availability of funds from credit facility on june 9 , 2017 , we entered into a credit agreement , as amended ( the “ credit agreement ” ) , with wells fargo bank , national association , as administrative agent and the other lenders parties thereto . the credit agreement provides for revolving credit borrowings up to a maximum principal amount of $ 125.0 million , subject to a commitment increase of $ 75.0 million . all outstanding amounts owed under the credit agreement become due and payable no later than the final maturity date of june 9 , 2022. the credit agreement also allows for the issuance of letters of credit in the aggregate amount of up to $ 10.0 million at any one time ; outstanding letters of credit reduce the credit available for revolving credit borrowings . as of december 31 , 2020 , the company had two outstanding letters of credit for $ 0.2 million . substantially all of the company 's assets are pledged to secure the credit facility . borrowings under the credit agreement bear interest at the company 's option of the prime rate ( 3.25 % on december 31 , 2020 ) plus a margin ranging from 0.00 % to 0.50 % or one-month libor ( 0.14 % on december 31 , 2020 ) plus a margin ranging from 1.00 % to 1.75 % . the company incurs an annual commitment fee of 0.15 % to 0.20 % on the unused portion of the line of credit . the additional margin amount and annual commitment fee are dependent on the level of outstanding borrowings . as of december 31 , 2020 , the company had $ 124.8 million of unused borrowing capacity . at december 31 , 2020 , we were in compliance with all covenants under the credit agreement . stock repurchase program the company 's board of directors authorized the repurchase of up to $ 265.0 million of company common stock through a stock repurchase program expiring june 30 , 2021. the program could be suspended or discontinued at any time , based on market , economic , or business conditions . the timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions , share price , and other factors . from the program 's inception on august 11 , 2008 through december 31 , 2020 , we have repurchased approximately $ 239.6 million ( 15.8 million shares ) of our outstanding common stock . from time to time , we establish a written trading plan in accordance with rule 10b5-1 of the exchange act , pursuant to which we make a portion of our stock repurchases . additional repurchases will be at times and in amounts as the company deems appropriate and will be made through open market transactions in compliance with rule 10b-18 of the exchange act , subject to market conditions , applicable legal requirements , and other factors . 26 contractual obligations for the year ended december 31 , 2020 , there were no material changes outside the ordinary course of business in lease obligations or other contractual obligations . see note 16 , leases , and note 17 , commitments and contingencies , in the notes to consolidated financial statements for further description of our contractual obligations .
| results of operations the following table summarizes our results of operations as a percentage of total revenues : replace_table_token_4_th a discussion of changes in our financial condition and results of operations during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 has been omitted from this annual report on form 10-k , but may be found in “ item 7. management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 25 , 2020 , which is available free of charge on the sec 's website at www.sec.gov and on our investor relations website at www.perficient.com . year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues . total revenues increased 8 % to $ 612.1 million for the year ended december 31 , 2020 from $ 565.5 million for the year ended december 31 , 2019 . 23 financial results ( in thousands ) explanation for increases ( decreases ) over prior year period ( in thousands ) year ended december 31 , total increase ( decrease ) over prior year period increase attributable to revenue delivered by resources of acquired companies decrease attributable to revenue delivered by base business resources 2020 2019 services revenues $ 609,583 $ 561,918 $ 47,665 $ 48,988 $ ( 1,323 ) software and hardware revenues 2,550 3,609 ( 1,059 ) — ( 1,059 ) total revenues $ 612,133 $ 565,527 $ 46,606 $ 48,988 $ ( 2,382 ) services revenues increased 8 % to $ 609.6 million for the year ended december 31 , 2020 from $ 561.9 million for the year ended december 31 , 2019. services revenues delivered by base business resources decreased $ 1.3 million due to a $ 10.1 million decrease in reimbursable expenses resulting from travel reductions , while services revenues delivered by resources of acquired companies was $ 49.0 million , resulting
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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 . note 1 to our audited consolidated financial statements contains a summary of the company 's significant accounting policies . management believes the following critical accounting policies encompass the more significant judgments and estimates used in the preparation of our consolidated financial statements . allowance for loan losses . management believes our policy with respect to the methodology for the determination of the allowance for loan losses ( “ alll ” ) involves a high degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters . changes in these judgments , assumptions or estimates could materially impact the results of operations . this critical policy and its application are reviewed quarterly with our audit committee , board of directors and management . management is responsible for preparing and evaluating the alll on a quarterly basis in accordance with bank policy , and the interagency policy statement on the alll released by the board of governors of the federal reserve system on december 13 , 2006 as well as gaap . we believe that our allowance for loan losses is adequate to cover specifically identifiable loan losses , as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable . the allowance for loan losses is based upon management 's evaluation of the adequacy of the allowance account , including an assessment of known and inherent risks in the loan portfolio , giving consideration to the size and composition of the loan portfolio , actual loan loss experience , level of delinquencies , detailed analysis of individual loans for which full collectability may not be assured , the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans , and current economic and market conditions . although management utilizes the best information available , the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short term change . various regulatory agencies may require us and our banking subsidiaries to make additional provisions for loan losses based upon information available to them at the time of their examination . furthermore , the majority of our loans are secured by real estate in new jersey , primarily in monmouth , middlesex and union counties . accordingly , the collectability of a substantial portion of the carrying value of our loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or the new jersey and or our local market areas experience economic shock . stock-based compensation . stock-based compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period , which is usually the vesting period . the fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date . the company estimates the fair value of stock options on the date of grant using the black-scholes option pricing model . the model requires the use of numerous assumptions , many of which are highly subjective in nature . goodwill impairment . although goodwill is not subject to amortization , the company must test the carrying value for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . impairment testing requires that the fair value of our reporting unit be compared to the carrying amount of its net assets , including goodwill . our reporting unit was identified as our community bank operations . if the fair value of the reporting unit exceeds the book value , no write-down of recorded goodwill is necessary . if the fair value of a reporting unit is less than book value , an expense may be required on the company 's books to write-down the related goodwill to the proper carrying value . impairment testing during 2018 and 2017 for goodwill and intangibles was completed , and the company did not require any impairment charge during the three years ended december 31 , 2018. see note 6 in the notes to consolidated financial statements for more information . investment securities impairment valuation . securities are evaluated on at least a quarterly basis , and more frequently when market conditions warrant such an evaluation , to determine whether a decline in their value is other-than-temporary . the analysis of other-than-temporary impairment requires the use of various assumptions including , but not limited to , the length of time the investment 's book value has been greater than fair value , the severity of the investment 's decline and the credit deterioration of the issuer . for debt securities , management assesses whether ( a ) it has the intent to sell the security and ( b ) it is more likely 30 than not that it will be required to sell the security prior to its anticipated recovery . these steps are done before assessing whether the entity will recover the cost basis of the investment . in instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security , and it is more likely than not that it will not be required to sell the debt security prior to its anticipated recovery , the other-than-temporary impairment is separated into ( a ) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit loss ) and ( b ) the amount of the total other-than-temporary impairment related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . story_separator_special_tag at year-end 2018 , book value per common share increased to $ 13.54 compared to $ 12.58 at december 31 , 2017. at year-end 2018 , tangible book value per common share ( a non-gaap financial measure ) increased to $ 11.43 compared to $ 10.44 at december 31 , 2017. story_separator_special_tag interest and fees on loans increased by $ 3.0 million , or 9.2 % , to $ 35.8 million for the year ended december 31 , 2017 compared to $ 32.8 million for the same period in 2016. all of the $ 3.0 million increase in interest and fees on loans was attributable to volume-related increases of $ 3.1 million , which were partially offset by $ 128,000 of rate-related decreases . the average balance of the loan portfolio for the year ended december 31 , 2017 increased by $ 69.2 million , or 9.5 % , to $ 793.7 million from $ 724.5 million for the same period in 2016. the average annualized yield on the loan portfolio decreased to 4.51 % for the year ended december 31 , 2017 , from 4.53 % for the same period in 2016. the average balance of non-accrual loans was $ 2.1 million and $ 1.9 million for the years ended december 31 , 2017 and 2016 , respectively , which impacted the company 's loan yield for both periods presented . interest income on interest-bearing deposits was $ 483,000 for the year ended december 31 , 2018 , representing an increase of $ 133,000 , or 38.0 % , from $ 350,000 for the same period in 2017. for the year ended december 31 , 2018 , interest-bearing deposits had an average balance of $ 24.9 million and an average annualized yield of 1.95 % as compared to an average balance of $ 33.3 million and an average annualized yield of 1.05 % for the 2017 period . interest income on interest-bearing deposits was $ 350,000 for the year ended december 31 , 2017 , representing an increase of $ 217,000 , or 163.2 % , from $ 133,000 for the same period in 2016. for the year ended december 31 , 2017 , interest- 34 bearing deposits had an average balance of $ 33.3 million and an average annualized yield of 1.05 % as compared to an average balance of $ 26.2 million and an average annualized yield of 0.51 % for the 2016 period . interest income on investment securities totaled $ 2.3 million for the year ended december 31 , 2018 , representing an increase of $ 194,000 , or 9.3 % , over the year ended december 31 , 2017. for the year ended december 31 , 2018 , investment securities had an average balance of $ 93.4 million with an average annualized yield of 2.45 % , compared to an average balance of $ 94.1 million with an average annualized yield of 2.22 % for the year ended december 31 , 2017. interest income on investment securities totaled $ 2.1 million for the year ended december 31 , 2017 , representing an increase of $ 396,000 , or 23.4 % , over the year ended december 31 , 2016. for the year ended december 31 , 2017 , investment securities had an average balance of $ 94.1 million with an average annualized yield of 2.22 % , compared to an average balance of $ 84.2 million with an average annualized yield of 2.01 % for the year ended december 31 , 2016. total interest expense amounted to $ 8.4 million for the year ended december 31 , 2018 , compared to $ 5.7 million for the corresponding period in 2017 , an increase of $ 2.7 million , or 46.6 % . of this increase in interest expense , $ 1.0 million was due to volume-related increases resulting from deposit growth and $ 1.7 million was due to rate-related increases . total interest expense amounted to $ 5.7 million for the year ended december 31 , 2017 , compared to $ 5.2 million for the corresponding period in 2016 , an increase of $ 543,000 , or 10.5 % . of this increase in interest expense , $ 307,000 was due to volume-related increases resulting from deposit growth and $ 236,000 was due to rate-related increases . the average balance of interest-bearing liabilities increased to $ 784.6 million for the year ended december 31 , 2018 , from $ 714.6 million for the same period last year , an increase of $ 70.0 million , or 9.8 % . the average balance in now deposits during 2018 increased $ 14.5 million from $ 201.5 million with an average annualized yield of 0.48 % for the year ended december 31 , 2017 , to $ 216.0 million with an average annualized yield of 0.63 % for the same period in 2018. additionally , during 2018 , average demand deposits reached $ 168.4 million , an increase of $ 4.7 million , or 2.9 % , over the same period last year . average time deposits increased by $ 66.0 million , or 48.9 % , to $ 201.4 million with an average annualized yield of 1.84 % for the year ended december 31 , 2018 , from $ 135.3 million with an average annualized yield of 1.45 % for the year ended december 31 , 2017. average savings deposits increased by $ 4.0 million , or 1.6 % , to $ 260.2 million with an average annualized yield of 0.77 % for the year ended december 31 , 2018 , from $ 256.2 million with an average annualized yield of 0.52 % for the year ended december 31 , 2017. average money market deposits decreased by $ 11.6 million , or 18.4 % , to $ 51.5 million with an average annualized yield of 0.18 % for the year ended december 31 , 2018 , from $ 63.1 million with an average annualized yield of 0.17 % for the 2017 period .
| results of operations our principal source of revenue is net interest income , the difference between interest income on interest earning assets and interest expense on deposits and borrowings . interest earning assets consist primarily of loans , investment securities and federal funds sold . sources to fund interest earning assets consist primarily of deposits and borrowed funds . our net income is also affected by our provision for loan losses , non-interest income and non-interest expenses . non-interest income consists primarily of gains on the sale of loans , service charges , commissions and fees , while non-interest expenses are comprised of salaries and employee benefits , occupancy costs and other operating expenses . 32 the following table provides certain performance ratios for the dates and periods indicated . replace_table_token_5_th ( 1 ) the following table provides the reconciliation of non-gaap financial measures for the dates indicated : replace_table_token_6_th this report contains certain financial information determined by methods other than in accordance with gaap . these non-gaap financial measures are “ tangible book value per common share , ” “ return on average tangible assets , ” “ return on average tangible equity , ” and “ average tangible equity to average tangible assets. ” this non-gaap disclosure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap , nor is it necessarily comparable to non-gaap performance measures that may be presented by other companies . our management uses these non-gaap measures in its analysis of our performance because it believes these measures are material and will be used as a measure of our performance by investors .
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overview iqvia is a leading global provider of advanced analytics , technology solutions and contract research services to the life sciences industry . formed through the merger of ims health and quintiles , iqvia applies human data science – leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science – to enable companies to reimagine and develop new approaches to clinical development and commercialization , speed innovation , and accelerate improvements in healthcare outcomes . powered by the iqvia core , we deliver unique and actionable insights at the intersection of large scale analytics , transformative technology and extensive domain expertise , as well as execution capabilities to help biotech , medical device , and pharmaceutical companies , medical researchers , government agencies , payers and other healthcare stakeholders tap into a deeper understanding of diseases , human behaviors and scientific advances , in an effort to advance their path toward cures . with more than 58,000 employees , we conduct operations in more than 100 countries . we renamed two of our reportable segments during the second quarter of 2018. the reportable segment formerly known as commercial solutions is now named technology & analytics solutions and the reportable segment formerly known as integrated engagement services is now named contract sales & medical solutions . this is a name change only and there are no changes to the composition of either segment . we are managed through three reportable segments , technology & analytics solutions , research & development solutions and contract sales & medical solutions . technology & analytics solutions provides critical information , technology solutions and real-world insights and services to our life science clients . research & development solutions , which primarily serves biopharmaceutical clients , is engaged in research and development and provides clinical research and clinical trial services . contract sales & medical solutions provides contract sales to both biopharmaceutical clients and the broader healthcare market . for a description of our service offerings within our segments , refer to “ business ” within part i , item 1 , of this annual report on form 10-k. effective january 1 , 2018 , we adopted the requirements of accounting standards update ( “ asu ” ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asu 2014-09 ” ) and asu 2017-07 , “ compensation—retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost ” ( “ asu 2017-07 ” ) using the full retrospective method . as a result of the adoption of asu 2014-09 and asu 2017-07 , we retrospectively adjusted 2017 and 2016 related presentations in our consolidated financial statements and amounts and disclosures set forth in this annual report on form 10-k reflect these changes . see note 1 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for more information about these changes . industry outlook for information about the industry outlook and markets that we operate in , refer to “ our market outlook ” within part i , item i of this annual report on form 10-k. 44 business combinations we have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas , including various individually immaterial acquisitions during the years ended december 31 , 2018 and 2017. in october 2016 , we completed the merger to better serve our clients across their entire product lifecycle by ( i ) increasing the efficiency of healthcare companies ' commercial organizations through enhanced analytics and outsourcing services ; ( ii ) improving clinical trial design , recruitment , and execution ; and ( iii ) creating real-world information solutions based on the use of medicines by actual patients in normal situations . these transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date with a non-controlling interest for the portion that we do not own . see note 14 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information with respect to these business combinations . sources of revenue total revenues are comprised of revenues from the provision of our services . we do not have any material product revenues . costs and expenses our costs and expenses are comprised primarily of our costs of revenue , reimbursed expenses and selling , general and administrative expenses . costs of revenue include compensation and benefits for billable employees and personnel involved in production , trial monitoring , data management and delivery , and the costs of acquiring and processing data for our information offerings ; costs of staff directly involved with delivering technology-related services offerings and engagements , related accommodations and the costs of data purchased specifically for technology services engagements ; and other expenses directly related to service contracts such as courier fees , laboratory supplies , professional services and travel expenses . as noted above , reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives . selling , general and administrative expenses include costs related to sales , marketing , and administrative functions ( including human resources , legal , finance , quality assurance , compliance and general management ) for compensation and benefits , travel , professional services , training and expenses for information technology , facilities and depreciation and amortization . foreign currency translation in 2018 , approximately 40 % of our revenues were denominated in currencies other than the united states dollar , which represents approximately 55 currencies . because a large portion of our revenues and expenses are denominated in currencies other than the united states dollar and our financial statements are reported in united states dollars , changes in foreign currency exchange rates can significantly affect our results of operations . story_separator_special_tag 118 ( “ sab 118 ” ) to address situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax act . during the fourth quarter of 2017 , we recognized the tax impacts related to the transition tax on undistributed foreign earnings and the impact to deferred tax assets and liabilities and included these amounts in our consolidated financial statements on a provisional basis . during the fourth quarter of 2018 , we completed our accounting for sab 118 that resulted in a full year benefit of $ 35 million related to the transition tax . additionally , in 2018 as a result of the new provisions of the tax act , we recorded a benefit of $ 25 million related to foreign derived intangible income ( “ fdii ” ) as well as a tax expense of $ 35 million related to gilti . our effective income tax rate was also favorably impacted by a tax benefit of $ 188 million related to purchase accounting amortization of approximately $ 813 million as a result of the merger . for 2017 , we recorded a provisional deferred tax benefit of $ 966 million related to the revaluation of deferred taxes at the newly enacted 21 % rate and the reversal of the deferred tax liability on undistributed foreign earnings net of the newly enacted transition tax . we no longer consider any of our foreign earnings to be indefinitely reinvested . our effective income tax rate was also favorably impacted by a tax benefit of $ 261 million related to purchase accounting amortization of approximately $ 763 million as a result of the merger . in 2016 , due to the merger , we reevaluated our indefinite reinvestment assertion based on the need for cash in the united states , including funding the repurchase program and potential acquisitions . accordingly , we changed our assertion with respect to $ 2,801 million of foreign earnings , including $ 1,865 million of ims health 's previously undistributed historical foreign earnings . deferred income taxes of $ 625 million were recorded in 2016 related to non-indefinitely reinvested foreign earnings . of that amount , $ 373 million was recorded through purchase accounting related to ims health 's historical foreign earnings and the remainder of $ 252 million was recorded through deferred income tax expense . in january of 2019 , the u.s. treasury department issued final regulations regarding the transition tax . we are in the process of reviewing these regulations to determine if there is an impact on our effective income tax rate . 49 equity in earnings ( losses ) of unconsolidated affiliates replace_table_token_17_th equity in earnings ( losses ) of unconsolidated affiliates primarily included earnings from our investment in novaquest pharma opportunities fund iii , l.p. see note 4 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information with respect to this fund . net income attributable to non-controlling interests replace_table_token_18_th net income attributable to non-controlling interests primarily included quest 's interest in q 2 solutions . segment results of operations revenues and profit by segment are as follows : replace_table_token_19_th certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses . these costs primarily consist of stock-based compensation and expenses for corporate overhead functions such as senior leadership , finance , human resources , information technology , facilities and legal . in addition , we do not allocate depreciation and amortization , impairment charges , restructuring costs , or merger related costs to our segments . 50 technology & analytics solutions replace_table_token_20_th revenues 2018 compared to 2017 technology & analytics solutions ' revenues were $ 4,137 million in 2018 , an increase of $ 455 million , or 12.4 % , over 2017. this increase was comprised of constant currency revenue growth of approximately $ 444 million , or 12.1 % , and a positive impact of approximately $ 11 million from the effects of foreign currency fluctuations . the constant currency growth resulted primarily from revenue growth in the americas region as well as the europe and africa region . the revenue growth in these regions was due to higher revenues across technology solutions and real-world and analytical services as well as incremental revenue from acquisitions . 2017 compared to 2016 technology & analytics solutions ' revenues were $ 3,682 million in 2017 , an increase of $ 2,534 million , or 220.7 % , over 2016. this increase was comprised of constant currency revenue growth of approximately $ 2,508 million , or 218.5 % , and a positive impact of approximately $ 26 million from the effects of foreign currency fluctuations . the constant currency increase included the incremental impact from the merger of $ 2,557 million , including post-merger acquisitions , partially offset by a decline in revenue from encore during the first half of 2017 and the sale of encore at the beginning of the third quarter of 2017. costs of revenue , exclusive of depreciation and amortization 2018 compared to 2017 technology & analytics solutions ' costs of revenue , exclusive of depreciation and amortization , were $ 2,343 million in 2018 , an increase of $ 376 million over 2017. this increase was comprised of constant currency growth of approximately $ 361 million , or 18.4 % , and a negative impact of approximately $ 15 million from the effects of foreign currency fluctuations . the constant currency increase was primarily due to an increase in compensation and related expenses to support revenue growth and incremental costs from acquisitions .
| consolidated results of operations for information regarding our results of operations for technology & analytics solutions , research & development solutions and contract sales & medical solutions , refer to “ segment results of operations ” later in this section . revenues replace_table_token_6_th 2018 compared to 2017 in 2018 , our revenues increased $ 710 million , or 7.3 % , as compared to 2017. this increase was comprised of constant currency revenue growth of approximately $ 664 million , or 6.8 % , and a positive impact of approximately $ 46 million from the effects of foreign currency fluctuations . the constant currency revenue growth was comprised of a $ 444 million increase in technology & analytics solutions , a $ 332 million increase in research & development solutions and a $ 112 million decrease in contract sales & medical solutions . 2017 compared to 2016 in 2017 , our revenues increased $ 2,887 million , or 42.4 % , as compared to 2016. this increase was comprised of constant currency revenue growth of approximately $ 2,869 million , or 42.1 % , and a positive impact of approximately $ 18 million from the effects of foreign currency fluctuations . the constant currency revenue growth was comprised of a $ 2,508 million increase in technology & analytics solutions , which includes $ 2,557 million from the merger , partially offset by lower revenue from encore during the first half of 2017 and the sale of encore at the beginning of the third quarter of 2017 , a $ 371 million increase in research & development solutions and a $ 10 million decrease in contract sales & medical solutions . costs of revenue , exclusive of depreciation and amortization replace_table_token_7_th 2018 compared to 2017 when compared to 2017 , costs of revenue , exclusive of depreciation and amortization , in 2018 increased $ 445 million , or 7.1 % .
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54 axcelis technologies , inc. notes to consolidated financial statements ( continued ) note 9. assets manufactured for story_separator_special_tag certain statements in `` management 's discussion and analysis of financial condition and results of operations '' are forward-looking statements that involve risks and uncertainties . words such as may , will , should , would , anticipates , expects , intends , plans , believes , seeks , estimates and similar expressions identify such forward-looking statements . the forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements . factors that might cause such a difference include , among other things , those set forth under `` liquidity and capital resources '' and `` risk factors '' and others discussed elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date hereof . we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements , except as may be required by law . overview the semiconductor capital equipment industry is subject to significant cyclical swings in capital spending by semiconductor manufacturers . capital spending is influenced by demand for semiconductors and the products using them , the utilization rate and capacity of existing semiconductor manufacturing facilities and changes in semiconductor technology , all of which are outside of our control . as a result , our revenue and gross margins fluctuate from year to year and period to period . our established cost structure does not vary significantly with changes in volume . we may experience fluctuations in operating results and cash flows depending on our revenue as driven by the level of capital expenditures by semiconductor manufacturers . a successful semiconductor equipment manufacturer must not only provide some of the most technically complex products manufactured in the world but also must design its business to thrive during the inevitable low points in the cycle . our financial results in 2015 reflect our investment of a significant portion of our resources in research and development programs related to our purion ion implantation platform and the market introduction and initial sales of purion systems . these results also reflect our efforts to maintain control of discretionary spending . in 2014 , we introduced the purion h high current system . this system is critically important to the company since it addresses the largest segment of the ion implant market , which represents 60 % of the total $ 800 million to $ 1 billion ion implant market . we shipped seventeen purion h high current ion implanters in 2015. we expect customer demands for our products to increase through 2016. throughout 2016 , we expect to continue to grow purion system sales and improve gross margins while maintaining tight control of our cost structure , which we expect will yield improved financial results throughout 2016. consolidation and partnering within the semiconductor manufacturing industry has resulted in a smaller number of customers representing a substantial portion of our business . our net revenue from our ten largest customers accounted for 76.8 % of total revenue for the year ended december 31 , 2015 compared to 68.1 % and 69.1 % of revenue for the years ended december 31 , 2014 and 2013 , respectively . for the year ended december 31 , 2015 , the company had two customers representing 29.3 % and 10.5 % of total revenue , respectively . operating results for the years presented are not necessarily indicative of the results that may be expected for future interim periods or years as a whole . critical accounting estimates management 's discussion and analysis of our financial condition and results of operations are based upon axcelis ' consolidated financial statements , which have been prepared in accordance with 19 accounting principles generally accepted in the united states . the preparation of these 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 . on an on-going basis , we evaluate our estimates and assumptions . management 's estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following accounting policies are critical in the portrayal of our financial condition and results of operations and require management 's most significant judgments and estimates in the preparation of our consolidated financial statements . for additional accounting policies see notes to consolidated financial statements note 2. summary of significant accounting policies . revenue recognition our revenue recognition policy involves significant judgment by management . as described below , we consider a broad array of facts and circumstances in determining when to recognize revenue , including contractual service obligations to the customer , the complexity of the customer 's post-delivery acceptance provisions , payment history , customer creditworthiness and the installation process . in the future , if the post-delivery acceptance provisions and installation process become more complex or result in a materially lower rate of acceptance , we may have to revise our revenue recognition policy , which could delay the timing of revenue recognition . our system sales transactions are made up of multiple elements , including the system itself and elements that are not delivered simultaneously with the system . these undelivered elements might include a combination of installation services , extended warranty and support and spare parts , all of which are generally covered by a single sales price . story_separator_special_tag if we subsequently sell product that has previously been written down , our gross margin in that period will be favorably impacted . product warranty we generally offer a one year warranty for all of our systems , the terms and conditions of which vary depending upon the product sold . for all systems sold , we accrue a liability for the estimated cost of standard warranty at the time of system shipment and defer the portion of systems revenue attributable to the relative fair value of non-standard warranty . costs for non-standard warranty are expensed as incurred . factors that affect our warranty liability include the number of installed units , historical and anticipated product failure rates , material usage and service labor costs . we periodically assess the adequacy of our recorded liability and adjust the amount as necessary . share-based compensation stock-based compensation expense with time-based conditions is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period , which generally equals the vesting period , based on the number of awards that are expected to vest . estimating the fair value for stock options requires judgment , including the expected term of our stock options , volatility of our stock , expected dividends , risk-free interest rates over the expected term of the options and the expected forfeiture rate . we are responsible for estimating volatility and have considered a number of factors when estimating volatility . our method of estimating expected volatility for all stock options granted relies on a combination of historical and implied volatility . we believe that this blended volatility results in a more accurate estimate of the grant-date fair value of employee stock options because it more appropriately reflects the market 's current expectations of future volatility . in limited circumstances , we also issue stock option grants with vesting based on performance or market conditions , such as the price of our common stock , or , a combination of time or market conditions . the fair values and derived service periods for all grants that have vesting based on market conditions are estimated using the monte carlo valuation method . for each stock option grant with vesting based on a combination of time or market conditions , where vesting will occur if either condition is met , the related compensation costs are recognized over the shorter of the explicit service period or the derived service period . we use the straight-line attribution method to recognize expense for stock-based awards such that the expense associated with awards is evenly recognized throughout the period . the amount of stock-based compensation recognized is based on the value of the portion of the awards that are ultimately expected to vest . we estimate forfeitures at the time of grant and revise them , if necessary , in subsequent periods if actual forfeitures differ from those estimates . the term `` forfeitures '' is distinct from `` cancellations '' or `` expirations '' and represents only the unvested portion of the surrendered stock-based award . the benefits of tax deductions in excess of recognized compensation cost is reported as a financing cash flow , rather than as an operating cash flow . because the company does not recognize the benefit of tax deductions in excess of recognized compensation cost due to its cumulative net operating loss position , this had no impact on the company 's consolidated statement of cash flows for the years ended december 31 , 2015 , 2014 and 2013. income taxes we record income taxes using the asset and liability method . deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the 22 financial statement carrying amounts of existing assets and liabilities and their respective income tax basis , and net operating loss and tax credit carryforwards . our consolidated financial statements contain certain deferred tax assets which have arisen primarily as a result of operating losses , as well as other temporary differences between financial and income tax accounting . we establish a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized . significant management judgment is required in determining our provision for income taxes , the deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets . we evaluate the weight of all available evidence such as historical losses , projected future taxable income and the expected timing of the reversals of existing temporary differences to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized . based on our level of deferred tax assets as of december 31 , 2015 and our level of historical u.s. losses , we have determined that the current uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against our u.s. net deferred tax assets . we have also determined that a valuation allowance is required on a portion of our foreign deferred tax assets . our income tax expense includes the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position . settlements with tax authorities , the expiration of statutes of limitations for particular tax positions , or obtaining new information on particular tax positions may cause a change to the effective tax rate . the company recognizes accrued interest related to unrecognized tax benefits as interest expense and penalties as operating expense .
| results of operations the following table sets forth our results of operations as a percentage of total revenue : replace_table_token_2_th revenue the following table sets forth our revenue : replace_table_token_3_th 24 2015 compared with 2014 product product revenue which includes new system sales , sales of spare parts , product upgrades and used system sales was $ 278.9 million or 92.5 % of revenue in 2015 , compared with $ 179.2 million , or 88.3 % of revenue in 2014. the increase in product revenue in 2015 was primarily driven by an increase in the number of purion systems sold . approximately 13.0 % of systems revenue in 2015 was from sales of 200mm products and 87.0 % was from sales of 300mm products , compared with 18.1 % and 81.9 % for sales of 200mm products and 300mm products in 2014 , respectively . a portion of our revenue from system sales is deferred until installation and other services related to future deliverables are performed . the total amount of deferred revenue at december 31 , 2015 and 2014 was $ 8.5 million and $ 7.2 million , respectively . the increase was mainly due to the increase in systems sales in 2015 and the timing of acceptance of deferred system sales . services services revenue , which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel , was $ 22.6 million , or 7.5 % of revenue for 2015 , compared with $ 23.8 million , or 11.7 % of revenue for 2014. although services revenue should increase with the expansion of the installed base of systems , it can fluctuate from period to period based on capacity utilization at customers ' manufacturing facilities , which affects the need for equipment service . 2014 compared with 2013 product product revenue was $ 179.2 million or 88.3 % of revenue in 2014 , compared with $ 169.6 million , or 86.7
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the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties , including those set forth under the heading “ risk factors ” and elsewhere in this annual report on form 10-k. our actual results and the timing of selected events discussed below could differ materially from those expressed in , or implied by , these forward-looking statements . overview we are a clinical-stage biopharmaceutical company focused on developing novel medicines to address serious medical conditions for individuals who need new or better treatment options . we used a scientific approach to engineer several protease-based therapeutic candidates . we are focusing our product development efforts in the field of hemostasis ( the process that regulates bleeding ) and have a mission to develop valuable therapies for individuals with hemophilia . we are applying our substantial expertise in protease engineering and our proprietary product discovery platform to create , engineer and characterize protease drug candidates . proteases regulate several complex biological cascades , or sequenced biochemical reactions , including the coagulation cascade ( a mechanism of blood clotting ) in hemophilia and non-hemophilia settings and the complement cascade that causes inflammation and tissue damage in certain diseases . our protease expertise allowed us to improve the biochemical and pharmacological properties of currently marketed hemophilia protease drugs , specifically factors viia , ix and xa and to create completely novel proteases that cleave disease-causing proteins , specifically complement factor 3 ( c3 ) , for the potential treatment of dry age-related macular degeneration ( dry amd ) and renal delayed graft function ( dgf ) . our most advanced program is a highly potent next-generation coagulation factor viia protease variant , marzeptacog alfa ( activated ) ( formerly cb 813d ) , that has successfully completed an intravenous phase 1 clinical trial evaluating the pharmacokinetics , pharmacodynamics and coagulation activity in individuals with severe hemophilia a and b with and without an inhibitor . we expect to advance marzeptacog alfa ( activated ) into the phase 2 portion of a phase 2/3 subcutaneous prophylaxis efficacy trial in 2017. our next most advanced hemophilia program , a highly potent factor ix protease variant , cb 2679d/isu304 , has completed advanced preclinical ind-enabling development . we expect to initiate a phase 1/2 subcutaneous dosing trial for cb 2679d/isu304 in the second quarter 2017. the substantially enhanced potency of marzeptacog alfa ( activated ) and cb 2679d/isu304 compared to existing treatment options may allow for effective subcutaneous prophylactic treatment of individuals with hemophilia a or b with an inhibitor or individuals with hemophilia b , respectively . catalyst 's engineered hemostasis proteases are designed to overcome current treatment limitations by allowing delivery via subcutaneous injection which we believe will facilitate effective prophylactic treatment , especially in children , and ultimately deliver substantially better outcomes for individuals with hemophilia . subcutaneous dosing results in progressive increases in the levels of our protease factors until they reach a stable blood level therapeutic target range ( ideally mild hemophilia to normal ) . conversely , dosing by intravenous infusions results in very high factor levels in the blood initially , but the factor level then falls rapidly to a trough level at a range that is measured as moderate or severe hemophilia , triggering the next dose . stable factor levels could potentially yield a significant improvement in outcomes and have the added benefit of convenience over competing intravenous therapeutics , particularly when administered to children where venous access is challenging . we also have several factor xa variants that have demonstrated efficacy in several preclinical models and have the potential to be used as a universal pro-coagulant . we have delayed initiating further work on our factor xa therapeutic program at this time to focus our efforts on the factor viia and factor ix clinical programs . 59 we continue to explore licens ing opportunities for our anti-complement programs in dgf and dry amd so that we can focus our efforts and resources on advancing marzeptacog alfa ( activated ) and cb 2679d/isu304 through phase 2/3 and phase 1/2 clinical trials , respectively . based on industry reports , we estimate annual worldwide sales in 2015 for fda-approved recombinant protease products for individuals with hemophilia a and b and an inhibitor were approximately $ 2.4 billion and approximately $ 3.6 billion when including prothrombin complex concentrate products used to treat individuals with hemophilia b with an inhibitor . on june 29 , 2009 we entered into a research and license agreement with wyeth pharmaceuticals , inc. , subsequently acquired by pfizer , whereby we and pfizer collaborated on the development of novel human factor viia products and we granted pfizer the exclusive rights to develop and commercialize the licensed products on a worldwide basis . as a result of this agreement , pfizer paid us an up-front non-refundable signing fee of $ 21.0 million , which was initially recognized as revenue ratably over the term of our continuing involvement in the research and development of products with pfizer . the term was determined to be five years ( covering the initial two-year research term plus potential extensions permitted under the applicable agreement ) . during the initial two years of the collaboration period pfizer reimbursed us for certain costs incurred in the development of the licensed products including fte-based research payments . story_separator_special_tag payments made to us under these agreements are recognized over the period of performance for each arrangement . we may also be entitled to receive additional milestone payments and other contingent payments upon the occurrence of specific events . we have not generated any revenue from commercial product sales to date . as of june 2015 , our deferred revenue balance from the pfizer research and license agreement was fully amortized following the termination by pfizer of that agreement , and isu abxis represents 100 % of our total contract revenue for the year ended december 31 , 2016. due to the nature of the milestone payments under the remaining collaboration agreement and the nonlinearity of the earnings process associated with certain payments and milestones , we expect that our revenue will fluctuate in future periods , because of the uncertainty of timing related to achievement of milestones . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our product candidates . we recognize all research and development costs as they are incurred . 61 research and development expenses consist primarily of the following : employee-related expenses , which include salaries , benefits and stock-based compensation ; laboratory and vendor expenses , including payments to consultants , related to the execution of preclinical , non-clinical , and clinical studies ; the cost of acquiring and manufacturing preclinical and clinical materials and developing manufacturing processes ; performing toxicity studies ; and facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . the following table summarizes our research and development expenses during the years ended december 31 , 2016 and 2015 ( in thousands ) . replace_table_token_2_th the largest component of our total operating expenses has historically been our investment in research and development activities , including the clinical development of our product candidates . we are currently focusing substantially all of our resources and development efforts on our clinical and preclinical pipeline . our internal resources , employees and infrastructure are not directly tied to individual product candidates or development programs . as such , we do not maintain information regarding these costs incurred for these research and development programs on a project-specific basis . on september 3 , 2016 , our board of directors approved reducing our workforce by 10 employees , or approximately 50 % of our workforce consistent with a revised strategic plan to reallocate our resources to our hemostasis programs , including our highly potent next-generation factor viia variant marzeptacog alfa ( activated ) , and our highly potent next-generation factor ix cb 2679d/isu304 . this reduction in force was completed by the fourth quarter 2016 and we recorded restructuring charges of $ 1.0 million , respectively , for the year ended december 31 , 2016. in connection with the restructuring , we received proceeds of $ 0.9 million for property and equipment from the sale of excess equipment and other assets , which are recorded in other income . notwithstanding the reduction in force , we expect our aggregate research and development expenses will increase during the next few quarters as we continue the preclinical , manufacturing and clinical development of our product candidates in the united states , particularly the clinical development costs of marzeptacog alfa ( activated ) and cb 2679d/isu304 . due to the termination of the research and license agreement with pfizer , we will incur all costs for the marzeptacog alfa ( activated ) program . however , the incurrence of such costs is dependent on whether we will pursue the program on our own or sign a new collaboration and license arrangement with another pharmaceutical or biotech company . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving marketing approval for our product candidates . the probability of success of each product candidate may be affected by numerous factors , including clinical data , competition , manufacturing capability and commercial viability . thus , we are unable to determine the duration of and costs to complete our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . 62 successful development of current and future product candidates is highly uncertain . completion dates and costs for our research programs can vary significantly for each current and future product candidate and are difficult to predict . thus , we can not estimate with any degree of certainty the costs we will incur in the development 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 ea ch 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 p roduct candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . on may 20 , 2016 , we signed a development and manufacturing services agreement with cmc icos biologics , inc. ( “ cmc ” ) , pursuant to which cmc will conduct manufacturing development and , upon successful development of the manufacturing process , manufacture marzeptacog alfa ( activated ) that we intend to use in its clinical trials . we will own all intellectual property developed in such manufacturing development activities that are specifically related to marzeptacog alfa ( activated ) and will have a royalty-free and perpetual license to use cmc 's intellectual property to the extent reasonably necessary to make marzeptacog alfa ( activated ) , including commercial manufacturing .
| results of operations the following tables set forth our results of operations data for the periods presented ( in thousands ) : replace_table_token_3_th contract revenue contract revenue was $ 0.4 million and $ 1.8 million during the years ended december 31 , 2016 and 2015 , respectively , a decrease of $ 1.4 million , or 77 % . the decrease in contract revenue was due primarily to the termination of our collaboration agreement with pfizer in april 2015. we have recognized in revenue all amounts that had been previously deferred related to the terminated pfizer collaboration and , therefore , in future periods , will not recognize any additional revenue under our previous collaboration agreement with pfizer . research and development expenses research and development expenses were $ 11.6 million and $ 6.0 million during the years ended december 31 , 2016 and 2015 , respectively , an increase of $ 5.6 million , or 94 % . the increase was due primarily to an increase of $ 3.6 million related to manufacturing expenses for marzeptacog alfa ( activated ) , $ 1.0 million in personnel-related costs , driven by the strategic restructuring and an increase of $ 1.0 million in lab supply costs and costs related to preclinical third-party research and development service contracts . 64 based on our current programs and related commitments , we expect our research and development expenses for the year ending december 31 , 2017 to increase as compared with 2016 expenses , due primarily to costs a ssociated with manufacturing for our highly potent next-generation factor viia , marzeptacog alfa ( activated ) . general and administrative expenses general and administrative expenses were $ 9.3 million and $ 9.6 million during the years ended december 31 , 2016 and 2015 , respectively , a decrease of $ 0.3 million , or 3 % .
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this overview summarizes the md & a , which includes the following sections : executive summary an executive summary of our results of operations for 2013. critical accounting estimates a discussion of the accounting estimates that are most critical to fully understanding and evaluating our reported financial results and that require management 's most difficult , subjective or complex judgments . new accounting standards a discussion of recently issued accounting standards and their potential impact on our consolidated financial statements . results of operations an analysis of kforce 's consolidated results of operations for the three years presented in its consolidated financial statements . in order to assist the reader in understanding our business as a whole , certain metrics are presented for each of our segments . liquidity and capital resources an analysis of cash flows , off-balance sheet arrangements , stock repurchases and contractual obligations and commitments and the impact of changes in interest rates on our business . on march 31 , 2012 , kforce sold all of the issued and outstanding stock of kcr . see note 2 discontinued operations to the notes to consolidated financial statements , included in this annual report . the results presented in the accompanying consolidated statements of operations and comprehensive income ( loss ) for the years ended december 31 , 2012 and 2011 include activity relating to kcr as discontinued operations . except as specifically noted , our discussions below exclude any activity related to kcr , which is addressed separately in the discussion of income from discontinued operations , net of income taxes . 22 executive summary the following is an executive summary of what kforce believes are important 2013 highlights , which should be considered in the context of the additional discussions herein and in conjunction with the consolidated financial statements and notes thereto . we believe such highlights are as follows : net service revenues increased 6.4 % to $ 1.15 billion in 2013 from $ 1.08 billion in 2012. net service revenues increased 9.4 % for tech , 1.7 % for fa , 1.5 % for him , and 0.6 % for gs . flex revenues increased 6.6 % to $ 1.10 billion in 2013 from $ 1.03 billion in 2012. search revenues increased 2.5 % to $ 48.9 million in 2013 from $ 47.7 million in 2012. quarterly sequential revenues grew for three consecutive quarters , driving q4 revenue growth to 12.3 % year over year . flex gross profit margin increased 10 basis points to 29.1 % in 2013 from 29.0 % in 2012. flex gross profit margin increased 30 basis points for tech and 270 basis points for gs and decreased 20 basis points for fa and 320 basis points for him year over year . sg & a as a percentage of revenues for the year ended december 31 , 2013 was 28.1 % compared to 29.8 % in 2012. this decrease was primarily a result of the acceleration of substantially all long-term incentive awards ( ltis ) on march 31 , 2012 , which resulted in the acceleration of $ 31.3 million of compensation expense and payroll taxes recorded in 2012. the reduction in sg & a was partially offset by the investment in revenue generator headcount in the fourth quarter of 2012 and throughout 2013 and the severance and termination-related charge and compensation committee approved bonuses of $ 7.1 million and $ 3.6 million , respectively , incurred during the fourth quarter of 2013 as a result of the firm 's organizational realignment plan . net income from continuing operations of $ 10.8 million for 2013 increased $ 46.5 million from a net loss from continuing operations of $ 35.7 million in 2012. the results for 2013 include an after-tax goodwill impairment charge of $ 9.3 million as well as the previously mentioned organizational realignment charges . the results for 2012 include an after-tax goodwill impairment charge of $ 44.5 million as well as the previously mentioned acceleration of ltis during 2012. earnings per share from continuing operations for 2013 was $ 0.32 compared to a loss per share of $ 1.00 per share in 2012. during 2013 , kforce repurchased 1.8 million shares of common stock on the open market at a total cost of approximately $ 27.3 million . the firm amended its credit facility in december 2013 to increase borrowing capacity by $ 35.0 million to $ 135.0 million . the firm initiated a quarterly dividend program and declared and paid a cash dividend of $ 0.10 per share in the fourth quarter of 2013 resulting in a payout in cash of $ 3.3 million . the total amount outstanding under the credit facility increased $ 41.6 million to $ 62.6 million as of december 31 , 2013 as compared to $ 21.0 million as of december 31 , 2012 . 23 critical accounting estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events , and apply judgments that affect the reported amount of assets , liabilities , revenue , expenses and the related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends , and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . on a regular basis , management reviews the accounting policies , estimates , assumptions and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . story_separator_special_tag as a result of the potential impairment indication for the gs reporting unit , a step two analysis was performed , resulting in a pre-tax impairment charge of $ 14.5 million for the year ended december 31 , 2013. a deterioration in the assumptions discussed in note 6 goodwill and intangible assets to the notes to the consolidated financial statements included in item 8. financial statements and supplementary data of this annual report on form 10-k , could result in an additional impairment charge . 25 description judgments and uncertainties effect if actual results differ from assumptions self-insured liabilities we are self-insured for certain losses related to health insurance and workers ' compensation claims . however , we obtain third-party insurance coverage to limit our exposure to these claims . when estimating our self-insured liabilities , we consider a number of factors , including historical claims experience , plan structure , internal claims management activities , demographic factors and severity factors . periodically , management reviews its assumptions to determine the adequacy of our self-insured liabilities . our liabilities for health insurance and workers ' compensation claims as of december 31 , 2013 were $ 3.0 million and $ 1.7 million , respectively . our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate total cost to settle reported claims and claims incurred but not reported as of the balance sheet date . we have not made any material changes in the accounting methodologies used to establish our self-insured liabilities during the past three fiscal years . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . a 10 % change in our self-insured liabilities related to health insurance and workers ' compensation as of december 31 , 2013 would have impacted our net income for 2013 by approximately $ 0.3 million . description judgments and uncertainties effect if actual results differ from assumptions stock-based compensation we have stock-based compensation programs , which include options , stock appreciation rights ( sars ) and unvested share awards and an employee stock purchase plan . see note 1 summary of significant accounting policies , note 12 employee benefit plans , and note 14 stock incentive plans to the notes to consolidated financial statements , included in item 8. financial statements and supplementary data of this annual report on form 10-k for a complete discussion of our stock-based compensation programs . we have not granted any stock options or sars over the last three years . we determine the fair market value of our restricted stock based on the closing stock price of kforce 's common stock on the date of grant . we utilize a monte carlo model to determine the derived service period for any restricted stock which contain a market vesting condition . restricted stock which contain a market vesting condition require management to make assumptions regarding the likelihood of achieving market conditions during the vesting period , which are inherently difficult to estimate but are modeled using a monte carlo simulation model . the stock compensation expense recorded is impacted by our estimated forfeiture rates , which are based on historical employee turnover . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to changes in stock-based compensation expense that could be material or the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation . a 10 % change in unrecognized stock-based compensation expense would have impacted our net income by $ 0.5 million for 2013 . 26 description judgments and uncertainties effect if actual results differ from assumptions defined benefit pension plan u.s. we have a defined benefit pension plan that benefits certain named executive officers , the supplemental executive retirement plan ( serp ) and a defined benefit postretirement health plan , the supplemental executive retirement health plan ( serhp ) . see note 12 employee benefit plans to the notes to consolidated financial statements included in item 8. financial statements and supplementary data of this annual report on form 10-k for a complete discussion of the terms of these plans . neither the serp or serhp were funded as of december 31 , 2013 or 2012. when estimating the obligation for our pension and postretirement benefit plans , management is required to make certain assumptions and to apply judgment with respect to determining an appropriate discount rate , bonus percentage assumptions , expected health care and premium cost trends , applicability of health care regulations and expected future compensation increases for the participants in the plans , as they apply to our plans . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our obligation . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . a 10 % change in the discount rate used to measure the net periodic pension cost for the serp and serhp during 2013 would have had an insignificant impact on our net income for 2013. description judgments and uncertainties story_separator_special_tag significantly even in a relatively modest growth macro-economic environment . kforce remains optimistic about the growth prospects of the temporary staffing industry , the penetration rate , and in particular , our revenue portfolio .
| effect if actual results differ from assumptions accounting for income taxes see note 4 income taxes to the notes to consolidated financial statements , included in item 8. financial statements and supplementary data of this annual report on form 10-k for a complete discussion of the components of kforce 's income tax expense as well as the temporary differences that exist as of december 31 , 2013. our consolidated effective income tax rate is influenced by tax planning opportunities available to us in the various jurisdictions in which we conduct business . significant judgment is required in determining our effective tax rate and in evaluating our tax positions , including those that may be uncertain . kforce is also required to exercise judgment with respect to the realization of our net deferred tax assets . management evaluates all positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized . if appropriate , a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized . we do not believe that there is a reasonable likelihood that there will be a material change in our liability for uncertain income tax positions or our effective income tax rate . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses that could be material . kforce recorded a valuation allowance of $ 0.1 million as of december 31 , 2013 related primarily to state net operating losses . a 0.50 % change in our effective income tax rate from continuing operations would have impacted our net income for 2013 by approximately $ 0.1 million .
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the options are exercisable on or before august 23 , 2016 at a price of c $ 8.07 per share . the options vest as to one-third on august 23 , 2011 , one-third on august 23 , 2012 and the balance on august 23 , 2013. on july 28 , 2011 , the company granted incentive stock options to directors of the company to purchase 950,000 common shares story_separator_special_tag current business activities general livengood gold project developments during the year ended december 31 , 2012 and to the date of this report , the company advanced its livengood gold project in alaska with the continuation of activities in support of a feasibility study . completed fs work included advancement of metallurgical test programs ; geotechnical , condemnation , infrastructure , hydraulic gradient , borrow source , and large diameter well drill programs ; analyzing results thereof ; and the advancement of engineering and environmental studies . highlights of activities during and subsequent to the year ended december 31 , 2012 include : · environmental baseline data collection for the livengood gold project permitting activities continued , including data collection for groundwater hydrogeology ; rock characterization ; geohydrology ; surface water and hydrology ; meteorology and air quality ; wetlands and vegetation ; aquatic life and resources ; wildlife and habitat ; cultural resources ; and large-scale field testing of material geochemical characteristics . · in january 2012 , two major contracts were awarded : process engineering services and geotechnical infrastructure engineering services for the fs . feasibility level work commenced in february 2012 . · in march 2012 , results of the 2011 drill program validated the resource estimate used in the august 25 , 2011 ni43-101 technical report on the livengood gold project . · between february 25 and april 15 , 2012 , completion of a 47-hole , 1,936-metre chilled brine geotechnical drilling program . · in may 2012 the company commenced multi-faceted field drill programs consisting of condemnation and geotechnical drilling at livengood . these programs entail more than 70 holes and approximately 5,000 meters of drilling , utilizing core , sonic , and auger methods . · between may 1 and june 30 , 2012 , completion of a 4-hole , 1,378-metre pit slope stability geotechnical drilling program . · in june 2012 , the company determined that the most efficient and cost-effective path to permitting the livengood gold project is to incorporate results from current engineering and metallurgical test work directly into a definitive feasibility study . · in june 2012 , the company implemented a cost rationalization program to focus on field work necessary to support the completion of a feasibility study and the environmental work needed to keep its permitting schedule on track . the company postponed its district-wide exploration program and reduced its condemnation drill program . · between july 1 , 2012 and october 21 , 2012 , 2,536 meters were drilled in 26 holes for hydraulic gradient and infrastructure ; 1,292 meters were drilled in 7 holes for condemnation . in addition 2,695 meters were drilled in 73 holes for the geotechnical and borrow source program , and 1,031 meters were drilled in 7 holes for large diameter wells for pump tests . 41 · during the third quarter of 2012 , the company closed a two stage non-brokered private placement financing consisting of 11,384,719 common shares of the company at an average price of $ 2.60 per common share for gross proceeds of approximately $ 29.8 million . the proceeds of the offering will be used to complete the feasibility study as well as general corporate purposes . · on september 19 , 2012 , donald c. ewigleben was appointed president and chief executive officer of the company . mr. ewigleben has served as the chairman of the board since november 2011 and was involved during the early stages of livengood 's exploration and development in the 1990 's . he also has extensive experience on various mining projects in alaska over his 35 year career in the resource sector . · the development team made significant advancements on project design which are being driven by an extensive metallurgical test program . metallurgical studies have determined that the gold recovery for the four key rock types that comprise the majority of the livengood gold resource will range between 77 % and 88 % . based on this successful test program and related engineering tradeoff studies , the company has determined that a gravity circuit followed by a whole ore cil circuit will be the mill flow sheet developed in the feasibility study . other developments in december 2011 , the company completed two acquisitions in connection with the livengood gold project . the first acquisition consisted of the exercise of an existing lease buyout option with respect to certain mining claims leased by the company , thereby giving the company a 100 % ownership interest . the second acquisition was of certain placer mining claims and related rights in the vicinity of the livengood gold project , and included all of the shares of livengood placers , inc. ( which corporation holds some of the subject placer mining claims ) . this land was previously vacant or was used for placer gold mining . the acquisitions completed a planned lease buyout and also enables the company to pursue additional site facility locations and to investigate other land use opportunities including the potential for placer gold extraction . livengood gold project feasibility study the fs for the livengood gold project is currently underway . during the first quarter of 2012 , the company selected samuel engineering , inc. of greenwood village , colorado , to provide process engineering services for its fs . the company has also engaged amec environment & infrastructure , inc. of denver , colorado , to provide geotechnical infrastructure engineering services . a number of trade-off studies and project design alternatives have been evaluated during 2012 , including various grinding circuits , heap leaching and various reagent additions . story_separator_special_tag these results will provide the necessary information to support the fs . engineering expenditures were above plan to provide the detailed basis for fs completion . environmental baseline studies were less than originally planned but additional drilling and environmental sampling was incurred for baseline data analysis providing the required level of data for the 44 feasibility study . additional costs will be incurred in future permitting activities . expenditures for mining studies were below plan and additional mine planning work will be completed upon receipt of updated metallurgical recoveries . project integration costs were below plan due to additional completion of the metallurgical results and the engineering drilling results which delayed anticipated spending . the land purchases were not originally budgeted for the period prior to may , 2014 , but were accelerated to facilitate infrastructure engineering and permitting . much of the total budgeted spending from the above plan was accelerated in order to support the completion of the fs . the additional financing of $ 29.2 million completed by the company during the quarter ended september 30 , 2012 is expected to provide the company with resources necessary to complete the fs as well as for general working capital requirements through 2013. story_separator_special_tag included loss from discontinued operations of $ 1,037,912 as discussed below . share-based payment charges were $ 7,645,269 during the period ended december 31 , 2011 compared to $ 3,450,477 for the year ended may 31 , 2011. the increase in share-based payment charges during the period ended december 31 , 2011 was mainly the result of increased stock option grants at a higher weighted average exercise price and vesting of prior stock option grants . the company granted 2,700,000 options during the period ended december 31 , 2011 compared to 1,760,000 options during the year ended may 31 , 2011. share based payment charges were allocated as follows : replace_table_token_10_th during the seven month period ended december 31 , 2011 total mineral property exploration expenses were 46 $ 32,550,518 and the company acquired mineral property assets of $ 47,708,647. mineral property exploration expenses for the year ended may 31 , 2011 totaled $ 37,749,156 while the company acquired approximately $ 30,000 in mineral property assets . mineral property expenses during the period ended december 31 , 2011 were comprised of costs related to drilling , environmental baseline data gathering , field costs and engineering . during the year ended may 31 , 2011 mineral property expenses were comprised of drilling , field costs , geological/geophysical , assay work and land maintenance in preparation for an anticipated pre-feasibility study . excluding share-based payment charges of $ 6,051,362 during the period ended december 31 , 2011 and $ 1,960,617 ( may 31 , 2011 ) , wages and benefits for the period ended december 31 , 2011 increased to $ 3,948,874 from $ 3,506,836 ( may 31 , 2011 ) as a result of certain severance payments along with increased personnel and hiring of new officers during the period . excluding share-based payments , investor relations expense decreased to $ 252,348 ( may 31 , 2011 - $ 789,145 ) during the period ended december 31 , 2011 compared to the year ended may 31 , 2011. additional expense in the year ended may 31 , 2011 was incurred related to increased travelling and marketing related to the company 's spin-out of the corvus properties as discussed below . aside from the impact of share-based payment charges , most other expense categories reflected only moderate change period over period . other items amounted to a gain of $ 2,815,860 during the period ended december 31 , 2011 compared to a gain of $ 480,901 in year ended may 31 , 2011. the increased gain in the period ended december 31 , 2011 resulted from an unrealized gain of $ 2,300,000 on the revaluation of a derivative liability at december 31 , 2011. there was no derivative liability during the year ended may 31 , 2011. year ended may 31 , 2011 compared to the year ended may 31 , 2010 the following discussion highlights certain selected financial information and changes in operations between the year ended may 31 , 2011 and the year ended may 31 , 2010. the company had cash and cash equivalents of $ 114,766,876 at may 31 , 2011 compared to $ 41,648,028 at may 31 , 2010. the increase in cash and cash equivalents during the year ended may 31 , 2011 was the result of two private placements of common shares , a bought deal short form prospectus financing , and the exercise of stock options for total gross proceeds of approximately $ 117.7 million . the company incurred a net loss of $ 48,459,785 for the year ended may 31 , 2011 , compared to a net loss of $ 35,684,971 for the year ended may 31 , 2010. included in net loss for the years ended may 31 , 2011 and 2010 were losses from discontinued operations of $ 1,037,912 and $ 3,452,307 , respectively , as discussed below . share-based payment charges were $ 3,450,477 during the year ended may 31 , 2011 compared to $ 7,190,152 for the year ended may 31 , 2010. the decrease in share-based payment charges during the year ended may 31 , 2011 was mainly the result of increased stock option grants at a higher weighted average exercise price during the year ended may 31 , 2010. the company granted 1,760,000 options during the year ended may 31 , 2011 compared to 3,085,000 options during the year ended may 31 , 2010. share based payment charges were allocated as follows : replace_table_token_11_th during the year ended may 31 , 2011 total mineral property exploration expenses were $ 37,749,156 while the company acquired approximately $ 30,000 in mineral property assets . mineral property exploration expenses for the 47 year ended may 31 , 2010 totaled $ 20,518,379 while the company wrote off approximately $ 650,000 in mineral property assets .
| results of operations year ended december 31 , 2012 compared to the seven months ended december 31 , 2011 due to the company changing its fiscal year end to december 31 from may 31 during 2011 , the company 's results and activity may not be comparable between fiscal years ended december 31 , 2012 and 2011. the following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2012 and the seven month period ended december 31 , 2011. the company had cash and cash equivalents of $ 30,170,905 at december 31 , 2012 compared to $ 54,712,073 at december 31 , 2011. the company incurred a net loss of $ 56,643,462 for the year ended december 31 , 2012 , compared to a net loss of $ 43,309,957 for the seven month period ended december 31 , 2011. share-based payment charges were $ 9,206,975 during the year ended december 31 , 2012 compared to $ 7,645,269 for the seven month period ended december 31 , 2011. the increase in share-based payment charges during the period was mainly the result of stock option grants to new employees and vesting of prior stock option grants . the company granted 6,380,000 options during the year ended december 31 , 2012 compared to 2,700,000 options during the seven months ended december 31 , 2011. share based payment charges were allocated as follows : replace_table_token_9_th mineral property exploration expenses for the year ended december 31 , 2012 totaled $ 36,253,519 while the company acquired $ 2,127,693 in mineral property assets . during the seven month period ended december 31 , 2011 total mineral property exploration expenses were $ 32,550,518 and the company acquired mineral property assets of $ 47,708,647. mineral property expenses during 2012 were comprised of costs related to drilling for geotechnical investigations , environmental baseline data gathering , field costs and engineering .
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our business segments consist of climate and industrial , both with strong brands and leading positions within their respective markets . we generate revenue and cash primarily through the design , manufacture , sale and service of a diverse portfolio of industrial and commercial products that include well-recognized , premium brand names such as ingersoll-rand ® , trane ® , thermo king ® , american standard ® , aro ® , and club car ® . to achieve our mission of being a world leader in creating comfortable , sustainable and efficient environments , we continue to focus on growth by increasing our recurring revenue stream from parts , service , controls , used equipment and rentals ; and to continuously improve the efficiencies and capabilities of the products and services of our businesses . we also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash flows . trends and economic events we are a global corporation with worldwide operations . as a global business , our operations are affected by worldwide , regional and industry-specific economic factors , as well as political factors , wherever we operate or do business . our geographic and industry diversity , and the breadth of our product and services portfolios , have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results . given the broad range of products manufactured and geographic markets served , management uses a variety of factors to predict the outlook for the company . we monitor key competitors and customers in order to gauge relative performance and the outlook for the future . we regularly perform detailed evaluations of the different market segments we are serving to proactively detect trends and to adapt our strategies accordingly . in addition , we believe our order rates are indicative of future revenue and thus a key measure of anticipated performance . in those industry segments where we are a capital equipment provider , revenues depend on the capital expenditure budgets and spending patterns of our customers , who may delay or accelerate purchases in reaction to changes in their businesses and in the economy . current economic conditions continue to show mixed trends in each of the segments in which we participate . heating , ventilation , and air conditioning ( hvac ) equipment replacement and aftermarket continue to experience strong demand . in addition , residential and commercial new construction have seen continued momentum in the united states which is positively impacting the results of our hvac businesses . however , non-residential markets in both europe and asia remain challenged and global industrial markets remain flat , with some positive signs in our shorter-cycle businesses . going forward , we expect moderate growth within our climate segment and continued soft markets in our industrial segment , each benefiting from operational excellence initiatives , new product launches and continued productivity programs . despite the current market environment , we believe we have a solid foundation of global brands and leading market shares in all of our major product lines . our growing geographic and industry diversity coupled with our large installed product base provides growth opportunities within our service , parts and replacement revenue streams . in addition , we are investing substantial resources to innovate and develop new products and services which we expect will drive our future growth . significant events 2016 dividend increase and share repurchase program in october 2016 , we announced an increase in our quarterly share dividend from $ 0.32 to $ 0.40 per ordinary share . this reflects a 25 % increase that began with our december 2016 payment . in february 2016 , we increased our quarterly share dividend from $ 0.29 to $ 0.32 per ordinary share . in february 2014 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a share repurchase program that began in april 2014. share repurchases are made from time to time at the discretion of management subject to market conditions , regulatory requirements and other considerations . since the program 's inception , we have repurchased and settled 19.1 million shares for $ 1.1 billion . we have approximately $ 417 million remaining on the authorized plan . 22 in february 2017 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a new share repurchase program upon completion of the current share repurchase program . share repurchases will be made from time to time at the discretion of management subject to market conditions , regulatory requirements and other considerations . sale of hussmann minority interest during 2011 , we completed the sale of a controlling interest of our hussmann refrigerated display case business ( hussmann ) to a newly-formed affiliate ( hussmann parent ) of private equity firm clayton dubilier & rice , llc ( cd & r ) . per the terms of the agreement , cd & r 's ownership interest in hussmann at the acquisition date was 60 % with the remaining 40 % being retained by us . as a result , we accounted for our interest in hussmann using the equity method of accounting . on december 21 , 2015 , we announced we would sell our remaining equity interest in hussmann as part of a transaction in which panasonic corporation would acquire 100 percent of hussmann 's outstanding shares . the transaction was completed on april 1 , 2016. we received net proceeds of $ 422.5 million , including closing settlement amounts , for our interest and recognized a gain of $ 397.8 million on the sale . irs exam results in july 2015 , we entered into an agreement with the u.s. internal revenue service ( irs ) to resolve disputes related to withholding and income taxes for years 2002 through 2011 ( the irs agreement ) . story_separator_special_tag in addition , revenues in our thermo king refrigeration transport business improved through organic growth in north america and europe . revenues associated with acquisitions added incremental volume during the current period . however , these improvements were partially offset by unfavorable foreign currency exchange rate movements . industrial net revenues for the year ended december 31 , 2015 increased by 2.1 % , or $ 64.7 million , compared with the same period of 2014. the components of the period change are as follows : volume/product mix ( 1.6 ) % acquisitions 8.9 % pricing 0.4 % currency translation ( 5.6 ) % total 2.1 % the primary driver of the increase related to the acquisition of the engineered centrifugal compression business during the year . in addition , club car revenues increased as a result of gains in golf cars , utility vehicles and aftermarket sales . however , overall organic revenues decreased due to weak industrial markets . segment results were also negatively impacted by unfavorable foreign currency exchange rate movements . operating income/margin operating margin improved to 11.0 % for the year ended december 31 , 2015 , compared to 10.9 % for the same period of 2014. the increase was primarily due to productivity benefits in excess of other inflation ( 0.9 % ) , pricing improvements in excess of material inflation ( 0.3 % ) and favorable product mix and volume ( 0.3 % ) . these amounts were partially offset by increased investment and restructuring spending ( 0.5 % ) , unfavorable foreign currency exchange rate movements ( 0.5 % ) , primarily from the euro , and the inclusion of the engineered centrifugal compression business and related step-up amortization ( 0.4 % ) . our operating income and operating margin by segment are as follows : replace_table_token_13_th climate operating margin improved to 12.7 % for the year ended december 31 , 2015 , compared to 12.1 % for the same period of 2014. the improvement was primarily due to favorable product mix and volume ( 0.7 % ) and productivity benefits in excess of other inflation ( 0.5 % ) . these amounts were partially offset by increased investment spending ( 0.3 % ) and unfavorable foreign currency exchange rate movements ( 0.3 % ) , primarily from the euro . 28 industrial operating margin decreased to 12.1 % for the year ended december 31 , 2015 , compared to 14.7 % for the same period of 2014. the decrease was primarily due to the inclusion of the engineered centrifugal compression business and related step-up amortization ( 1.9 % ) , unfavorable volume/product mix ( 1.4 % ) , increased investment and restructuring spending ( 0.9 % ) and unfavorable foreign currency exchange rate movements ( 0.8 % ) . these amounts were partially offset by productivity benefits in excess of other inflation ( 1.8 % ) and pricing improvements in excess of material inflation ( 0.6 % ) . unallocated corporate expense unallocated corporate expense for the year ended december 31 , 2015 decreased by 7.3 % or $ 17.0 million , compared with the same period of 2014 primarily due to lower professional expenses . interest expense interest expense for the year ended december 31 , 2015 increased by $ 2.3 million compared with the same period of 2014 , primarily as a result of higher average debt balances during 2015 , partially offset by a lower weighted-average interest rate during the period . other income/ ( expense ) , net the components of other income/ ( expense ) , net , for the years ended december 31 are as follows : replace_table_token_14_th during the year ended december 31 , 2015 , we recognized a loss on foreign currency exchange of $ 36.2 million . this loss is comprised of a $ 42.6 million pre-tax charge recorded in the first quarter related to the remeasurement of net monetary assets denominated in venezuelan bolivar . this loss was partially offset by $ 6.4 million of foreign currency transaction gains resulting from the remeasurement of non-functional balance sheet positions into their functional currency . other activity , net in each period presented , primarily consists of insurance settlements on asbestos-related matters and the revaluation of asbestos recoveries . in addition , other activity , net for the year ended december 31 , 2014 includes a $ 6.0 million gain on the sale of an investment . provision for income taxes the 2015 effective tax rate was 43.3 % which is higher than the u.s. statutory rate of 35 % primarily due to the $ 227 million charge taken to settle the irs agreement , which increased our effective tax rate by 18.1 % . this effect was partially offset by a $ 65 million benefit from the settlement of an audit in a major tax jurisdiction , less a tax charge of $ 52 million from a change in permanent reinvestment assertions on earnings from certain of our subsidiaries in non-u.s. jurisdictions . the 2014 effective tax rate was 24.3 % . the 2014 effective tax rate is lower than the u.s. statutory rate of 35 % primarily due to earnings in non-u.s. jurisdictions , which in aggregate have a lower effective rate partially offset by u.s. state and local income taxes and u.s. tax on non-u.s. earnings . discontinued operations the components of gain ( loss ) from discontinued operations , net of tax for the years ended december 31 are as follows : replace_table_token_15_th discontinued operations for the years ended december 31 , 2015 and 2014 are primarily related to postretirement benefits , product liability , worker 's compensation , tax and legal costs ( mostly asbestos-related ) from previously sold businesses . in addition , we include amounts related to the 2013 spin-off of our commercial and residential security business , now an independent public company operating under the name of allegion . amounts related to allegion in both periods primarily represent adjustments for 29 certain tax matters .
| results of operations our climate segment globally delivers energy-efficient products and innovative energy services . it includes trane ® and american standard ® heating & air conditioning which provide heating , ventilation and air conditioning ( hvac ) systems , and commercial and residential building services , parts , support and controls ; energy services and building automation through trane building advantage and nexia ; and thermo king ® transport temperature control solutions . our industrial segment delivers products and services that enhance energy efficiency , productivity and operations . it includes compressed air and gas systems and services , power tools , material handling systems , aro ® fluid management equipment , as well as club car ® golf , utility and consumer low-speed vehicles . segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for performance reviews , compensation and resource allocation . for these reasons , we believe that segment operating income represents the most relevant measure of segment profit and loss . we define segment operating margin as segment operating income as a percentage of net revenues . year ended december 31 , 2016 compared to the year ended december 31 , 2015 replace_table_token_6_th net revenues net revenues for the year ended december 31 , 2016 increased by 1.6 % , or $ 208.2 million , compared with the same period of 2015. the components of the period change are as follows : volume/product mix 2.2 % acquisitions 0.1 % pricing 0.3 % currency translation ( 1.0 ) % total 1.6 % the increase was primarily driven by higher volumes in our climate segment . improved pricing , along with incremental revenues from acquisitions , further contributed to the year-over-year increase . these amounts were partially offset by lower volumes in our industrial segment and overall unfavorable foreign currency exchange rate movements .
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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 american southern ) in the property and casualty insurance industry , and bankers fidelity life insurance company and bankers fidelity assurance company ( together known as bankers fidelity ) 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 ( gaap ) 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 30 % of the company 's total liabilities at december 31 , 2015. this liability includes estimates for : 1 ) unpaid losses on claims reported prior to december 31 , 2015 , 2 ) future development on those reported claims , 3 ) unpaid ultimate losses on claims incurred prior to december 31 , 2015 but not yet reported and 4 ) unpaid loss adjustment expenses for reported and unreported claims incurred prior to december 31 , 2015. quantification of loss estimates for each of these components involves a significant 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 , 2015 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 . 16 future policy benefits comprised 34 % of the company 's total liabilities at december 31 , 2015. 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 . if actual results differ from the initial assumptions , the amount of the company 's recorded liability could require adjustment . deferred acquisition costs comprised 9 % of the company 's total assets at december 31 , 2015. deferred acquisition costs are commissions , premium taxes , and other costs that vary with and are primarily related to the acquisition of new and renewal business and are generally deferred and amortized . the deferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner . traditional life insurance and long-duration health insurance deferred policy acquisition costs are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the related liability for policy benefit reserves . deferred acquisition costs for property and casualty insurance and short-duration health insurance are amortized over the effective period of the related insurance policies . deferred policy acquisition costs are expensed when such costs are deemed not to be recoverable from future premiums ( for traditional life and long-duration health insurance ) and from the related unearned premiums and investment income ( for property and casualty and short-duration health insurance ) . assessments of recoverability for property and casualty and short-duration health insurance are extremely sensitive to the estimates of a subsequent year 's projected losses related to the unearned premiums . projected loss estimates for a current block of business for which unearned premiums remain to be earned may vary significantly from the indicated losses incurred in any previous calendar year . receivables are amounts due from reinsurers , insureds and agents , and any sales of investment securities not yet settled , and comprised 8 % of the company 's total assets at december 31 , 2015. insured and agent balances are evaluated periodically for collectibility . story_separator_special_tag on a consolidated basis , the company had net income of $ 4.4 million , or $ 0.19 per diluted share , in each of 2015 and 2014. operating income was $ 0.9 million in 2015 compared to $ 2.6 million in 2014. the decrease in operating income during 2015 was primarily attributable to less favorable loss experience and a decrease in premium revenue in the life and health operations coupled with a decline in investment income from lower average yields on the company 's investments in fixed maturities . also contributing to the decrease in operating income was an increase in other expense of $ 1.4 million due to increased legal and consulting fees . partially offsetting the decrease in operating income during 2015 was the reduction in interest expense from the decrease in the outstanding balance of the company 's junior subordinated debentures as well as increased profitability in the property and casualty operations . total revenue was $ 165.9 million in 2015 as compared to $ 166.3 million in 2014. premium revenue decreased to $ 150.9 million in 2015 from $ 153.5 million in 2014. the decrease in premium revenue was primarily attributable to a decrease in medicare supplement business in the life and health operations resulting from a decline in both first year and renewal premiums . also included in total revenue were net realized investment gains of $ 4.9 million in 2015 compared to net realized investment gains of $ 1.6 million in 2014. 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 $ 160.2 million in 2015 as compared to $ 161.4 million in 2014. as a percentage of premiums , insurance benefits and losses incurred and commissions and underwriting expenses were 95.8 % in both 2015 and 2014. a more detailed analysis of the operating companies and other corporate activities follows . 19 story_separator_special_tag than $ 0.1 million and $ 0.2 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 2015 was $ 0.1 million less than that in 2014. after considering the impact on contingent commissions and other related accruals , the $ 0.1 million decrease in the redundancy resulted in a decrease in income from operations before tax of approximately $ 0.1 million in 2015 as compared to 2014. 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 60 % 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 . bankers fidelity the following summarizes , for the periods indicated , bankers fidelity 's premiums , losses and expenses : replace_table_token_14_th premium revenue at bankers fidelity decreased $ 4.5 million , or 4.4 % , during 2015 as compared to 2014. premiums from the medicare supplement line of business decreased $ 4.1 million , or 4.8 % , in 2015 as compared to 2014 , due primarily to a decline in both first year and renewal premiums . other health product premiums increased $ 0.1 million , or 2.4 % , during 2015 as compared to 2014 , primarily as a result of new sales of the company 's group health products . premiums from the life insurance line of business decreased $ 0.4 million , or 4.0 % , in 2015 from 2014 due to the redemption and settlement of existing policy obligations exceeding the level of new sales activity . in both 2015 and 2014 , the company 's five principal states in terms of premium revenue were georgia , indiana , ohio , pennsylvania , and tennessee , which accounted for approximately 43 % and 44 % of total premiums for 2015 and 2014 , respectively . benefits and losses decreased $ 1.7 million , or 2.5 % , during 2015 as compared to 2014. as a percentage of premiums , benefits and losses were 68.8 % in 2015 compared to 67.5 % in 2014. the increase in the loss ratio was primarily attributable to the company 's initiative to moderate price increases in medicare supplement product offerings in certain competitive markets . underwriting expenses decreased $ 1.1 million , or 3.2 % , during 2015 as compared to 2014. as a percentage of earned premiums , these expenses were 34.0 % in 2015 compared to 33.6 % in 2014. the slight increase in the expense ratio was primarily due to earned premiums decreasing at a higher rate than the decrease in underwriting expenses . investment income and realized gains investment income decreased $ 0.3 million , or 2.7 % , in 2015 as compared to 2014. the decrease in investment income was primarily attributable to a decrease in the average yield on the company 's investments in fixed maturities .
| 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 increased $ 4.4 million , or 7.8 % , during 2015 as compared to 2014. the increase in gross written premiums was primarily attributable to an increase of $ 2.3 million in automobile physical damage written premiums resulting from two programs as well as an increase in surety business of $ 2.5 million from an existing agency . also contributing to the increase in gross written premiums was a $ 0.7 million increase from a new private passenger automobile liability program which began in 2015. offsetting the increases in gross written premiums in 2015 was a decrease of $ 1.0 million in the commercial automobile liability line of business due primarily to the cancellation of an agency in 2014. in 2015 , american southern 's five principal states in terms of written premiums were alabama , florida , georgia , south carolina , and tennessee , which accounted for approximately 72 % of total written premiums for 2015. american southern 's five principal states in terms of written premiums in 2014 were alabama , florida , georgia , south carolina , and texas , which then accounted for approximately 70 % of the total written premiums . ceded premiums decreased $ 0.9 million , or 15.3 % , during 2015 as compared to 2014. 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 primarily to a decrease in earned premiums from certain commercial automobile liability accounts cancelled in 2014 , which had been subject to reinsurance .
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statements that are not historical are forward-looking and involve risks and uncertainties , including those discussed under item 1a risk factors and elsewhere in this report . overview the corporation has two reportable segments : office furniture and hearth products . the corporation is the second largest office furniture manufacturer in the world and the nation 's leading manufacturer and marketer of gas and wood burning fireplaces . the corporation utilizes its split and focus , decentralized business model to deliver value to its customers with various brands and selling models . the corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth . the corporation delivered profitable growth in 2012 despite challenging market conditions , decrease in federal government sales and economic uncertainty . growth in the supplies-driven channel was strong despite the heavy weight of economic and political uncertainty on small business confidence . growth in the contract channel of the office furniture segment was modest as many large corporations delayed or postponed major projects in reaction to economic uncertainty . the corporation 's hearth products segment leveraged its leading market position to increase sales and drive significant profit improvement as the housing market began to recover . the corporation remained committed to long-term profitable growth across its core businesses and increased the amount of focused investments in selling , marketing , manufacturing and product initiatives . the corporation completed the acquisition of bp ergo limited , a manufacturer and marketer of office furniture in india , during 2012. net sales during 2012 were $ 2.0 billion , an increase of 9.3 percent , compared to net sales of $ 1.8 billion in 2011 . the sales increase was driven by increased volume in both the supplies-driven and contract channels of the office furniture segment , acquisitions in the office furniture segment , and increased volume in the new construction channel of the hearth products segment . management is optimistic about the office furniture and hearth markets . the corporation will continue to invest in selling , marketing and product initiatives and remain focused on improving operations and reducing cost . - 23 - story_separator_special_tag inability to claim a federal research and development credit along with other items . on january 2 , 2013 the american tax relief act of 2012 was enacted into law , which included an extension of the federal research and development tax credit and other tax credits through december 31 , 2013. as a result the corporation expects its income tax provision for the first quarter of fiscal 2013 will include $ 0.9 million of discrete tax benefit . - 25 - income from continuing operations income from continuing operations in 2012 , which excludes the corporation 's discontinued business ( see discontinued operations in the notes to consolidated financial statements ) was $ 48.3 million compared to $ 45.7 million in 2011 , a 5.6 percent increase . income from continuing operations in 2011 was $ 45.7 million compared to $ 29.7 million in 2010 , a 54.1 percent increase . income from continuing operations per diluted share increased by 5.9 percent to $ 1.07 in 2012 compared to $ 1.01 in 2011 and $ 0.65 in 2010. discontinued operations during 2010 , the corporation completed the sale of a non-core business in the office furniture segment and a small non-core component of its hearth products segment . revenues and expenses associated with these components are presented as discontinued operations for all periods presented . refer to discontinued operations in the notes to consolidated financial statements for further information . net income attributable to hni corporation net income attributable to hni corporation increased 6.5 percent to $ 49.0 million in 2012 compared to $ 46.0 million in 2011 and $ 26.9 million in 2010 . net income per diluted share increased 5.9 percent to $ 1.07 in 2012 compared to $ 1.01 in 2011 and $ 0.59 in 2010. office furniture office furniture comprised 84 percent , 83 percent and 83 percent of consolidated net sales for 2012 , 2011 and 2010 , respectively . net sales for office furniture increased $ 159 million or 10.4 percent in 2012 to $ 1.7 billion compared to $ 1.5 billion in 2011 . acquisitions contributed $ 93 million of sales in 2012. organic sales increased $ 66 million or 4.3 percent including increased price realization of $ 41 million . the corporation experienced growth in both the supplies-driven and contract channels partially offset by a large decline in sales to the federal government . net sales for office furniture increased 8.8 percent in 2011 to $ 1.5 billion compared to $ 1.4 billion in 2010 . acquisitions contributed $ 8 million of sales in 2011. organic sales increased $ 115 million or 8.2 percent including increased price realization of $ 21 million . the corporation experienced growth in both the supplies-driven and contract channels as the economy continued to stabilize . bifma reported 2012 shipments down 1 percent from 2011 levels which were up 13 percent from 2010 levels . operating profit as a percent of net sales was 5.4 percent in 2012 , 6.5 percent in 2011 and 6.2 percent in 2010 . the decrease in operating margins in 2012 was due to unfavorable mix , investments to improve operations , new product ramp-up , investments in growth initiatives and impact of acquisitions . these were partially offset by increased volume , better price realization and lower restructuring costs . the increase in operating margins in 2011 was due to higher volume , better price realization and lower restructuring costs . these were partially offset by higher input costs , higher mix of lower margin products and investments in strategic growth and selling initiatives . hearth products hearth products sales increased $ 11 million or 3.7 percent in 2012 to $ 317 million compared to $ 305 million in 2011 including increased price realization of $ 5 million . story_separator_special_tag the corporation also extended the term to the earlier of ( i ) september 28 , 2016 or ( ii ) the date 90 days prior to the maturity date of the corporation 's senior notes ( april 6 , 2016 ) , subject to certain exceptions . the corporation effectively decreased interest costs . amounts borrowed under the credit agreement may be borrowed , repaid and reborrowed from time to time . the corporation paid approximately $ 1.2 million of debt issuance costs that are being amortized - 27 - straight-line over the term of the credit agreement . during 2012 net borrowings under the revolving credit facility peaked at $ 80 million . as of december 29 , 2012 , there were no amounts outstanding under the revolving credit facility . in 2006 , the corporation refinanced $ 150 million of borrowings outstanding under its prior revolving credit facility with 5.54 percent , ten-year unsecured senior notes due in 2016 issued through the private placement debt market . interest payments are due semi-annually on april 1 and october 1 of each year and the principal is due in a lump sum in 2016. additional borrowing capacity of $ 250 million , less amounts used for designated letters of credit , is available through the revolving credit facility in the event cash generated from operations should be inadequate to meet future needs . the corporation does not currently expect access to future capital to be a constraint on planned growth . long-term debt , including capital lease obligations , was 26 % of total capitalization as of december 29 , 2012 , 26 % as of december 31 , 2011 and 27 % as of january 1 , 2011 . the credit agreement governing the revolving credit facility and the note purchase agreement pertaining to the senior notes contain covenants that , among other things , restrict , subject to certain exceptions , our ability to : incur additional indebtedness and lease obligations and make guarantees ; create liens on assets ; engage in any material line of business substantially different from existing lines of business ; sell assets ; make investments , loans and advances , including acquisitions ; engage in sale-leaseback transactions in excess of $ 50 million in the aggregate ; repay the senior notes or enter into certain amendments thereof ; and engage in certain transactions with affiliates . the credit agreement governing the revolving credit facility contains a number of covenants , including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter : a consolidated interest coverage ratio of not less than 4.0 to 1.0 , based upon the ratio of ( a ) consolidated ebitda ( as defined in the credit agreement ) for the last four fiscal quarters to ( b ) the sum of consolidated interest charges ; and a consolidated leverage ratio of not greater than 3.0 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness ( as defined in the credit agreement ) to ( b ) consolidated ebitda for the last four fiscal quarters ; or a consolidated leverage ratio of not greater than 3.5 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness to ( b ) consolidated ebitda for the last four fiscal quarters following any qualifying debt financed acquisition . the note purchase agreement governing the senior notes also contains a number of covenants , including a covenant requiring maintenance of consolidated debt to consolidated ebitda ( as defined in the note purchase agreement ) of not greater than 3.5 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness ( as defined in the note purchase agreement ) to ( b ) consolidated ebitda for the last four fiscal quarters . the revolving credit facility and senior notes are the primary sources of committed funding from which the corporation finances its planned capital expenditures , strategic initiatives such as repurchases of common stock and certain working capital needs . non-compliance with the various financial covenant ratios could prevent the corporation from being able to access further borrowings under the revolving credit facility , require immediate repayment of all amounts outstanding with respect to the revolving credit facility and senior notes and increase the cost of borrowing . the most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.0 to 1.0 included in the credit agreement governing the revolving credit facility . under the credit agreement , adjusted ebitda is defined as consolidated net income before interest expense , income taxes and depreciation and amortization of intangibles , as well as non-cash nonrecurring charges and all non-cash items increasing net income . at december 29 , 2012 , the corporation was well below this ratio and was in compliance with all of the covenants and other restrictions in the credit agreement and note purchase agreement . the corporation currently expects to remain in compliance over the next twelve months . in 2008 , the corporation entered into an interest rate swap agreement with one of its relationship banks , designated as a cash flow hedge , for purposes of managing its benchmark interest rate fluctuation risk . the fair value of the swap arrangement changes based on fluctuations in market interest rates . changes in fair value are recorded as a component of accumulated other comprehensive income in the equity section of the corporation 's consolidated balance sheet . this interest rate swap had the effect of increasing total interest expense by $ 0.9 million in 2011. the interest rate swap agreement matured on may 27 , 2011 .
| results of operations the following table sets forth the percentage of consolidated net sales represented by certain items reflected in the corporation 's consolidated statements of income for the periods indicated . replace_table_token_3_th net sales net sales during 2012 were $ 2.0 billion , an increase of 9.3 percent , compared to net sales of $ 1.8 billion in 2011 . both the office furniture segment and the hearth products segment experienced increased volume and better price realization . acquisitions contributed $ 93.0 million or 5.1 percent sales growth in 2012. net sales during 2011 were $ 1.8 billion , an increase of 8.7 percent , compared to net sales of $ 1.7 billion in 2010 . both the office furniture segment and the hearth products segment experienced increased volume and better price realization . acquisitions contributed $ 8.2 million or 0.5 percent sales growth in 2011. gross profit gross profit as a percent of net sales decreased 0.5 percentage points in 2012 as compared to 2011 due to unfavorable mix , investments to improve operations , new product ramp-up and impact of acquisitions offset partially by higher volume , better price realization and lower material costs . gross profit as a percent of net sales increased 0.2 percentage points in 2011 as compared to 2010 due to higher volume , better price realization and lower restructuring and transition costs offset partially by increased material costs . selling and administrative expenses selling and administrative expenses increased 8.2 percent in 2012 and 7.0 percent in 2011 . the increase in 2012 was due to volume related expenses , investments in selling and growth initiatives , higher incentive-based compensation and costs associated with acquisitions .
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the capitalized oil and gas property costs , less accumulated amortization , are limited to an amount ( the ceiling limitation ) equal to the sum of : ( a ) the present value of estimated future net revenues from the projected production of proved oil and gas reserves , calculated using the average oil and natural gas sales price received by the company as of the first trading day of each month over the preceding twelve months ( such prices are held constant throughout the life of the properties ) and a discount factor of 10 % ; ( b ) the cost of unproved and unevaluated properties excluded from the costs being amortized ; ( c ) the lower of cost or estimated fair value of unproved properties included in the costs being amortized ; and ( d ) related income tax effects . costs in excess of this ceiling are charged to proved properties impairment expense . unevaluated oil and gas properties . unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating undeveloped leases , net of an allowance for impairment and transfers to depletable oil and gas properties . when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2010 and 2009 : replace_table_token_13_th the carrying value of unevaluated oil and gas prospects includes $ 9,647,631 and $ 2,993,732 expended for properties in south america at december 31 , 2010 and december 31 , 2009 , respectively . we are maintaining our interest in these properties and development has or is anticipated to commence within the next twelve months . stock-based compensation . we account for stock-based compensation in accordance with the provisions of fasb asc topic 718. we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . 33 story_separator_special_tag font style= '' font-style : italic ; display : inline '' > income tax expense/benefit . we reported an income tax expense of approximately $ 9.4 million in 2010 as compared to a benefit of $ 737,406 in 2009. the income tax expense during 2010 was entirely attributable to operations in colombia and reflects increased sales and profitability in colombia , as well as the taxes applicable to the proceeds received on sale of oil and gas properties discussed above . the income tax benefit during 2009 was primarily attributable to net operating losses generated in colombia and the united states and the refund during 2009 of approximately $ 548,000 of colombian taxes . the income tax benefit during 2009 was attributable $ 402,663 to the u.s. and $ 334,743 to colombia . at december 31 , 2010 , we had no foreign tax credit carryovers . year ended december 31 , 2009 compared to year ended december 31 , 2008 oil and gas revenues . total oil and gas revenues decreased 23.6 % , to $ 8,116,275 in 2009 from $ 10,622,050 in 2008. the decrease in oil and gas revenue was due to a decline in oil and gas prices received during 2009 ( approximately $ 84,000 based on lower average gas prices realized during 2009 and approximately $ 2.8 million based on lower average oil prices ) . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2009 and 2008 : replace_table_token_17_th 35 production volumes were less then what they otherwise would have been in 2009 due to the sale of our caracara interest during 2008 ( accounting for 29,954 barrels of production and $ 3,005,140 of revenues during 2008 ) and the cessation of production and sales from the majority of our colombian properties for 52 days in early 2009 as a result of unfavorable commodity prices , partially offset by increased production in fields in which we hold higher working interests ( 12.5 % vs. 1.6 % in caracara ) . giving pro forma effect to exclude sales revenues from the caracara interest , which was sold in june 2008 , oil and gas revenues for 2008 would have been $ 7,616,910. the decline in average sales prices realized reflects the sharp worldwide economic decline , and accompanying decline in commodity prices , during the second half of 2008 continuing through 2009. oil and gas sales revenues for 2009 and 2008 by region were as follows : replace_table_token_18_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , increased 41 % to $ 4,746,295 in 2009 from $ 3,366,740 in 2008. the increase in lease operating expenses as a percentage of revenues , from 32 % of revenues in 2008 to 58 % of revenues in 2009 , was primarily attributable to the temporary cessation of production from a majority of our colombian properties during the 2009 period as discussed above , the steep decline in oil and gas prices and an increase in our average working interest following the caracara sale , as well as increased cost in colombia relating to personnel expenses , facilities and equipment expenses story_separator_special_tag the capitalized oil and gas property costs , less accumulated amortization , are limited to an amount ( the ceiling limitation ) equal to the sum of : ( a ) the present value of estimated future net revenues from the projected production of proved oil and gas reserves , calculated using the average oil and natural gas sales price received by the company as of the first trading day of each month over the preceding twelve months ( such prices are held constant throughout the life of the properties ) and a discount factor of 10 % ; ( b ) the cost of unproved and unevaluated properties excluded from the costs being amortized ; ( c ) the lower of cost or estimated fair value of unproved properties included in the costs being amortized ; and ( d ) related income tax effects . costs in excess of this ceiling are charged to proved properties impairment expense . unevaluated oil and gas properties . unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating undeveloped leases , net of an allowance for impairment and transfers to depletable oil and gas properties . when leases are developed , expire or are abandoned , the related costs are transferred from unevaluated oil and gas properties to oil and gas properties subject to amortization . additionally , we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments , and prospective discounted future economic benefit attributable to the leases . unevaluated oil and gas properties not subject to amortization include the following at december 31 , 2010 and 2009 : replace_table_token_13_th the carrying value of unevaluated oil and gas prospects includes $ 9,647,631 and $ 2,993,732 expended for properties in south america at december 31 , 2010 and december 31 , 2009 , respectively . we are maintaining our interest in these properties and development has or is anticipated to commence within the next twelve months . stock-based compensation . we account for stock-based compensation in accordance with the provisions of fasb asc topic 718. we use the black-scholes option-pricing model , which requires the input of highly subjective assumptions . these assumptions include estimating the volatility of our common stock price over the expected life of the options , dividend yield , an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently , the related amount recognized on the statements of operations . 33 story_separator_special_tag font style= '' font-style : italic ; display : inline '' > income tax expense/benefit . we reported an income tax expense of approximately $ 9.4 million in 2010 as compared to a benefit of $ 737,406 in 2009. the income tax expense during 2010 was entirely attributable to operations in colombia and reflects increased sales and profitability in colombia , as well as the taxes applicable to the proceeds received on sale of oil and gas properties discussed above . the income tax benefit during 2009 was primarily attributable to net operating losses generated in colombia and the united states and the refund during 2009 of approximately $ 548,000 of colombian taxes . the income tax benefit during 2009 was attributable $ 402,663 to the u.s. and $ 334,743 to colombia . at december 31 , 2010 , we had no foreign tax credit carryovers . year ended december 31 , 2009 compared to year ended december 31 , 2008 oil and gas revenues . total oil and gas revenues decreased 23.6 % , to $ 8,116,275 in 2009 from $ 10,622,050 in 2008. the decrease in oil and gas revenue was due to a decline in oil and gas prices received during 2009 ( approximately $ 84,000 based on lower average gas prices realized during 2009 and approximately $ 2.8 million based on lower average oil prices ) . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2009 and 2008 : replace_table_token_17_th 35 production volumes were less then what they otherwise would have been in 2009 due to the sale of our caracara interest during 2008 ( accounting for 29,954 barrels of production and $ 3,005,140 of revenues during 2008 ) and the cessation of production and sales from the majority of our colombian properties for 52 days in early 2009 as a result of unfavorable commodity prices , partially offset by increased production in fields in which we hold higher working interests ( 12.5 % vs. 1.6 % in caracara ) . giving pro forma effect to exclude sales revenues from the caracara interest , which was sold in june 2008 , oil and gas revenues for 2008 would have been $ 7,616,910. the decline in average sales prices realized reflects the sharp worldwide economic decline , and accompanying decline in commodity prices , during the second half of 2008 continuing through 2009. oil and gas sales revenues for 2009 and 2008 by region were as follows : replace_table_token_18_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , increased 41 % to $ 4,746,295 in 2009 from $ 3,366,740 in 2008. the increase in lease operating expenses as a percentage of revenues , from 32 % of revenues in 2008 to 58 % of revenues in 2009 , was primarily attributable to the temporary cessation of production from a majority of our colombian properties during the 2009 period as discussed above , the steep decline in oil and gas prices and an increase in our average working interest following the caracara sale , as well as increased cost in colombia relating to personnel expenses , facilities and equipment expenses
| results of operations year ended december 31 , 2010 compared to year ended december 31 , 2009 oil and gas revenues . total oil and gas revenues increased 140.37 % , to $ 19,508,894 in 2010 from $ 8,116,275 in 2009. the increase in revenue is principally due to ( 1 ) higher average sales prices for oil and gas during 2010 reflecting increased commodity pricing due to improved global macroeconomic conditions compared to 2009 and ( 2 ) increased oil production due to new wells brought onto production and production from our colombian properties for the full period in 2010 as compared to 2009 , when production was temporarily shut-in for 52 days due to market conditions . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2010 and 2009 : replace_table_token_14_th ( 1 ) as noted elsewhere , we sold our indirect interest in four colombian concessions in december 2010. of the wells and production shown in 2010 , the concessions sold in december 31 , 2010 account for 19 gross wells , 2.375 net wells and 254,785 bbls of net oil production . as noted , production volumes were less then what they otherwise would have been in 2009 due to the cessation of production and sales from the majority of our colombian properties for 52 days in early 2009 as a result of unfavorable commodity prices . oil and gas sales revenues for 2010 and 2009 by region were as follows : replace_table_token_15_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , increased 71.5 % to $ 8,142,444 in 2010 from $ 4,746,295 in 2009. following is a summary comparison of lease operating expenses for the periods .
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additionally , we have other arrangements currently classified as operating leases which will be recorded as a right of use asset and corresponding liability on the balance sheet . we are currently evaluating the impact these changes will have on the consolidated financial statements . other applicable standards in august 2017 , the fasb issued accounting standards update no . 2017-12 targeted improvements to accounting for hedging activities . this standard simplifies the recognition and presentation of changes in the fair value of hedging instruments . the asu is effective for annual periods beginning december 15 , 2018. the company does not expect the impact from adoption of this standard to be material to its consolidated financial statements and disclosures . in may 2017 story_separator_special_tag forward looking statements the following “ management 's discussion and analysis of financial condition and results of operations ” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks , uncertainties and other factors that may cause actual results , levels of activity , performance or achievements to be materially different from those expressed or implied by these forward-looking statements . the reader is urged to carefully consider these risks and factors , including those listed under item 1a , “ risk factors. ” in some cases , the reader can identify forward-looking statements by terminology such as “ may ” , “ anticipates ” , “ believes ” , “ estimates ” , “ predicts ” , or the negative of these terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these forward-looking statements relate only to events as of the date on which the statements are made and the company undertakes no obligation , other than any imposed by law , to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . executive overview our operations are organized , managed and classified into five reportable business segments : grain , ethanol , plant nutrient , rail , and retail . each of these segments is based on the nature of products and services offered . the agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices . therefore , increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit . as a result , changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to gross profit . grain group the grain group 's performance reflects continued recovery from the prior year . holding corn , beans , and wheat has led to higher space income . additionally , our risk management services , trading income , and earnings from affiliates have improved . while the 2017 harvest quality and yield was good , a drawn out harvest prevented strong margins on bushels sold . the group continues to refine its portfolio and signed an agreement in february 2018 to sell three of its tennessee locations . assets associated with these locations have been classified as held for sale , including approximately 3.4 million bushels of inventory . total grain storage capacity , including temporary pile storage , is approximately 150 million bushels as of december 31 , 2017 , similar to capacity at december 31 , 2016 . grain inventories on hand at december 31 , 2017 were 113.8 million bushels , of which 1.0 million bushels were stored for others . this compares to 108.4 million bushels on hand at december 31 , 2016 , of which 0.9 million bushels were stored for others . the group estimates that growers will plant 87 to 90 million acres of corn in 2018 , perhaps slightly below the 90 million acres planted in 2017. soybean planted acres are expected to be 89 to 92 million , compared to 90 million acres planted last year . total wheat acres planted have been reported to be approximately 46 million in 2017 compared to 50 million in 2016. normal weather conditions during planting and growing seasons should create good storage and merchandising opportunities in the coming year . ethanol group the ethanol group 's results reflect record industry production and excess supply in the market leading to lower margins on ethanol sold . additionally , higher input costs negatively impacted margins . ddg margins were also impacted by vomitoxin issues remaining from the 2016 harvest . weak ethanol and ddg margins were partially offset by high ethanol export demand and strong e-85 and corn oil sales . ddg margins rebounded at year-end , in part due to a lack of significant vomitoxin issues noted in the 2017 harvest . as we move into 2018 , we expect margins to continue to be impacted by high industry production and inventory levels . 20 volumes shipped for the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_7_th the above table shows only shipped volumes that flow through the company 's revenues . total ethanol , ddg , and corn oil production by the unconsolidated llcs is higher . however , the portion of this volume that is sold directly to their customers is excluded here . plant nutrient group the plant nutrient group 's results reflect a continued , depressed nutrient market . the oversupply of base nutrients in the market has continued to put pressure on prices , which has compressed overall margins , while volumes remained steady . story_separator_special_tag other income increased $ 1.4 million primarily as a result of a $ 4.7 million gain on the sale of farm center locations in florida in the first quarter of 2017. this increase was partially offset by a $ 1.8 million legal settlement , net of insurance recoveries , in the third quarter of 2017 . 24 rail group replace_table_token_13_th operating results for the rail group declined $ 7.6 million compared to the full year 2016 results . sales and merchandising revenues increased $ 8.5 million . revenue from car sales increased by $ 11.0 million due to a higher volume of car sales and repair and other revenue increased $ 2.0 million as a result of revenue generated by new shops . these increases were partially offset by a $ 4.5 million decrease in leasing revenues due to average utilization of 85.0 % in the current year and 87.8 % in the prior year , as well as a 2 % decrease in lease rates compared to the prior year . cost of sales and merchandising revenues increased $ 11.9 million due to an $ 11.0 million increases in car sales and $ 0.8 million related to leasing costs . as a result of these factors , rail gross profit decreased $ 3.5 million compared to the prior year . operating expenses increased by $ 4.3 million , largely due to higher labor and benefit costs from opening new repair shops . interest expense increased due to higher rates and more debt resulting from purchases in 2017. retail group replace_table_token_14_th operating results for the retail group improved $ 1.5 million compared to the prior year . sales and merchandising revenues decreased $ 86.4 million while cost of sales and merchandising revenues decreased $ 57.7 million . these decreases were due to lower volumes as a result of the closure of the retail business during the second quarter of 2017. additionally , inventory liquidation markdowns caused a significant decrease in margins leading to a $ 28.6 million decrease in gross profit . operating , administrative and general expenses decreased by $ 13.3 million as a result of the mid-year closure . this decrease was partially offset by one time exit charges of $ 11.5 million , most of which was for severance costs . other income increased $ 10.2 million primarily from gains on the sale of three store properties and fixtures . 25 other replace_table_token_15_th the other operating loss not allocated to business segments decreased $ 3.6 million compared to the prior year primarily due to a reduction in it costs and higher severance costs in the prior year . income taxes income tax benefit of $ 63.1 million was provided at 307.6 % . in 2016 , income tax expense of $ 6.9 million was provided at 32.3 % . the higher effective tax rate in 2017 relative to the loss before income taxes was due primarily to the us enacted tax cuts and jobs act , also commonly referred to as “ us tax reform ” and non-deductible goodwill impairment charges . 26 comparison of 2016 with 2015 grain group replace_table_token_16_th operating results for the grain group decreased $ 6.2 million compared to full year 2015 results . sales and merchandising revenues decreased $ 126.5 million compared to 2015. this was partially offset by a decrease of cost of sales and merchandising revenues of $ 110.9 million for a net unfavorable gross profit impact of approximately $ 15.6 million . the decrease was driven by $ 6.0 million in gross profit reduction from the 2016 sale of underperforming assets in iowa as well as $ 4.4 million of decrease in margins on sale of grain . we also saw a significant decline in opportunities for basis appreciation compared to 2015 for a negative gross profit variance of $ 14.2 million compared to the prior year . this was caused by a poor harvest causing elevated basis levels in the fourth quarter of 2015. these items were partially offset by $ 4.5 million of increased income from blending operations , $ 3.9 million of increased earnings on risk management fees , and a $ 1.7 million favorable variance on trading income . operating , administrative and general expenses were $ 9.3 million lower than in 2015. the decrease was primarily due to $ 8.2 million in reduced costs from the sale of iowa facilities with cost reductions in labor and benefits at remaining facilities accounting for an additional $ 1.7 million . the decreases were offset by $ 2.7 million of additional allocation charges , including amortization and support costs for the company 's new enterprise resource planning system . the grain group recognized a goodwill impairment charge of $ 46.4 million in 2015 driven by compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets , including oil and ethanol , as well as foreign currency exchange impacts . equity in earnings of affiliates decreased $ 23.4 million due to the reduced operating results of ltg and thompsons limited . the declines were largely driven by reduced performance at ltg caused by historically soft margins at grain handling facilities . also included in our equity results is a charge of $ 1.5 million ( our proportional share ) related to an ltg debt refinancing completed in the fourth quarter of 2016. this refinancing should result in lower relative interest charges in future years . other income decreased $ 20.3 million , which is attributable to a prior year gain of $ 23.1 million from equity ownership transactions in ltg which reduced our ownership from 39 percent to 31 percent . 27 ethanol group replace_table_token_17_th operating results for the ethanol group decreased $ 3.8 million from full year 2015 results . sales and merchandising revenues decreased $ 11.6 million which was partially offset by a decrease in cost of sales and merchandising revenues of $ 7.6 million for a net gross profit impact of $ 4.0 million .
| operating results on february 14 , 2018 , we furnished a current report on form 8-k to the sec that included a press release issued that same day announcing the fourth quarter and full-year financial results for the period ended december 31 , 2017 , which was furnished as exhibit 99.1 thereto ( the earnings release ) . the earnings release reported : ( a ) net income attributable to the andersons , inc. of $ 68.4 million and $ 41.2 million ; and ( b ) diluted earnings per common share attributable to the andersons , inc. shareholders of $ 2.42 and $ 1.46 , each for the three and twelve months ended december 31 , 2017. the consolidated statements of operations and accompanying notes in this annual report on form 10-k reports ( a ) net income attributable to the andersons , inc. of $ 69.7 million and $ 42.5 million ; and ( b ) diluted earnings per common share attributable to the andersons , inc. shareholders of $ 2.47 and $ 1.50 , each for the three and twelve months ended december 31 , 2017. subsequent to the earnings release , we recorded additional tax benefit of $ 1.3 million as we finalized our tax provision . the following discussion focuses on the operating results as shown in the consolidated statements of operations with a separate discussion by segment . additional segment information is included in note 13 to the company 's consolidated financial statements in item 8. replace_table_token_9_th 22 comparison of 2017 with 2016 grain group replace_table_token_10_th operating results for the grain group improved $ 28.5 million compared to full year 2016 results . sales and merchandising revenues decreased $ 250.7 million compared to 2016 due to a 24 % decrease in bushels sold . this decrease was driven by two main factors .
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these statements may be identified by the use of phrases such as “ anticipate , ” “ believe , ” “ expect , ” “ forecasts , ” “ projects , ” “ will , ” “ can , ” “ would , ” “ should , ” “ could , ” “ may , ” or other similar terms . there are a number of factors , many of which are beyond the company 's control that could cause actual results to differ materially from those contemplated by the forward-looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , among others , the following possibilities : ( 1 ) local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact ; ( 2 ) changes in the level of nonperforming assets and charge-offs ; ( 3 ) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements ; ( 4 ) the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board ( `` frb '' ) ; ( 5 ) inflation , interest rate , securities market and monetary fluctuations ; ( 6 ) political instability ; ( 7 ) acts of war or terrorism ; ( 8 ) the timely development and acceptance of new products and services and perceived overall value of these products and services by users ; ( 9 ) changes in consumer spending , borrowings and savings habits ; ( 10 ) changes in the financial performance and or condition of the company 's borrowers ; ( 11 ) technological changes ; ( 12 ) acquisitions and integration of acquired businesses ; ( 13 ) the ability to increase market share and control expenses ; ( 14 ) changes in the competitive environment among financial holding companies ; ( 15 ) the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and its subsidiaries must comply , including those under the dodd-frank act ; ( 16 ) the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board ( `` fasb '' ) and other accounting standard setters ; ( 17 ) changes in the company 's organization , compensation and benefit plans ; ( 18 ) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews ; ( 19 ) greater than expected costs or difficulties related to the integration of new products and lines of business ; and ( 20 ) the company 's success at managing the risks involved in the foregoing items . the company cautions readers not to place undue reliance on any forward-looking statements , which speak only as of the date made , and advises readers that various factors , including , but not limited to , those described above and other factors discussed in the company 's annual and quarterly reports previously filed with the securities and exchange commission , could affect the company 's financial performance and could cause the company 's actual results or circumstances for future periods to differ materially from those anticipated or projected . unless required by law , the company does not undertake , and specifically disclaims any obligations to , publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements . general the financial review that follows focuses on the factors affecting the consolidated financial condition and results of operations of the company and its wholly-owned subsidiaries , the bank , nbt financial services and nbt holdings during 2018 and , in summary form , the preceding two years . collectively , the registrant and its subsidiaries are referred to herein as “ the company. ” net interest margin is presented in this discussion on a fully taxable equivalent ( `` fte '' ) basis . average balances discussed are daily averages unless otherwise described . the audited consolidated financial statements and related notes as of december 31 , 2018 and 2017 and for each of the years in the three-year period ended december 31 , 2018 should be read in conjunction with this review . amounts in prior period consolidated financial statements are reclassified whenever necessary to conform to the 2018 presentation . critical accounting policies the company has identified policies as being critical because they require management to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions . these policies relate to the allowance for loan losses , pension accounting and provision for income taxes . management of the company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations . while management 's current evaluation of the allowance for loan losses indicates that the allowance is appropriate , the allowance may need to be increased under adversely different conditions or assumptions . for example , if historical loan loss experience significantly worsened or if current economic conditions significantly deteriorated , additional provision for loan losses would be required to increase the allowance . story_separator_special_tag % , from 2017 to 2018. the fte yield on average afs securities was 2.24 % for 2018 compared to 2.14 % in 2017. the average balance of securities held to maturity ( `` htm '' ) increased from $ 507.6 million in 2017 to $ 567.1 million in 2018. at december 31 , 2018 , htm securities were comprised primarily of tax-exempt municipal securities and government-sponsored collateralized mortgage obligations ( `` cmos '' ) . the fte yield on htm securities decreased from 2.66 % in 2017 to 2.58 % in 2018. the average balance of federal reserve bank and fhlb stock increased to $ 48.2 million in 2018 from $ 46.7 million in 2017. the fte yield from investments in federal reserve bank and fhlb stock increased from 5.64 % in 2017 to 6.39 % in 2018. securities portfolio replace_table_token_11_th the company 's mortgage-backed securities , u.s. agency notes and cmos are all “ prime/conforming ” and are guaranteed by fannie mae , freddie mac , the fhlb , the federal farm credit banks or ginnie mae ( “ gnma ” ) . gnma securities are considered equivalent to u.s. treasury securities , as they are backed by the full faith and credit of the u.s. government . currently , there are no subprime mortgages in our investment portfolio . 35 the following tables set forth information with regard to contractual maturities of debt securities at december 31 , 2018 : replace_table_token_12_th funding sources and corresponding interest expense the company utilizes traditional deposit products such as time , savings , now , money market and demand deposits as its primary source for funding . other sources , such as short-term fhlb advances , federal funds purchased , securities sold under agreements to repurchase , brokered time deposits and long-term fhlb borrowings are utilized as necessary to support the company 's growth in assets and to achieve interest rate sensitivity objectives . the average balance of interest-bearing liabilities increased $ 173.0 million from 2017 and totaled $ 5.9 billion in 2018. the rate paid on interest-bearing liabilities increased from 0.45 % in 2017 to 0.65 % in 2018. this increase in rates and increase in average balances caused an increase in interest expense of $ 12.7 million , or 49.1 % , from $ 25.9 million in 2017 to $ 38.6 million in 2018. deposits average interest bearing deposits increased $ 148.6 million , or 3.0 % , from 2017 to 2018 , due primarily to organic deposit growth . average money market deposits increased $ 9.4 million , or 0.6 % during 2018 compared to 2017. average now accounts increased $ 37.6 million , or 3.3 % during 2018 as compared to 2017. the average balance of savings accounts increased $ 52.5 million , or 4.3 % during 2018 compared to 2017. these average balance of time deposits increased $ 49.0 million , or 6.0 % , from 2017 to 2018. the average balance of demand deposits increased $ 103.5 million , or 4.7 % , during 2018 compared to 2017. this growth in demand deposits was driven principally by increases in accounts from retail , municipal and commercial customers . the rate paid on average interest-bearing deposits was 0.44 % for 2018 and 0.30 % for 2017. the rate paid for money market deposit accounts increased from 0.23 % during 2017 to 0.49 % during 2018. the rate paid for now deposit accounts increased from 0.09 % in 2017 to 0.16 % in 2018. the rate paid for savings deposits was 0.06 % for 2018 and 2017. the rate paid for time deposits increased from 1.09 % during 2017 to 1.29 % during 2018. the following table presents the maturity distribution of time deposits of $ 250,000 or more : ( in thousands ) december 31,2018 within three months $ 36,943 after three but within twelve months 64,334 after one but within three years 33,322 over three years 11,524 total $ 146,123 borrowings average short-term borrowings increased to $ 727.6 million in 2018 from $ 690.0 million in 2017 funding earning asset growth . the average rate paid on short-term borrowings increased from 0.87 % in 2017 to 1.45 % in 2018. average long-term debt decreased from $ 93.4 million in 2017 to $ 80.2 million in 2018. the average balance of junior subordinated debt remained at $ 101.2 million in 2018. the average rate paid for junior subordinated debt in 2018 was 4.09 % , up from 3.11 % in 2017. short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements , which generally represent overnight borrowing transactions and other short-term borrowings , primarily fhlb advances , with original maturities of one year or less . the company has unused lines of credit with the fhlb and access to brokered deposits available for short-term financing of approximately $ 1.9 billion and $ 2.0 billion at december 31 , 2018 and 2017 , respectively . securities collateralizing repurchase agreements are held in safekeeping by non-affiliated financial institutions and are under the company 's control . long-term debt , which is comprised primarily of fhlb advances , are collateralized by the fhlb stock owned by the company , certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans . 36 noninterest income noninterest income is a significant source of revenue for the company and an important factor in the company 's results of operations .
| overview significant factors management reviews to evaluate the company 's operating results and financial condition include , but are not limited to : net income and earnings per share , return on average assets and equity , net interest margin , noninterest income , operating expenses , asset quality indicators , loan and deposit growth , capital management , liquidity and interest rate sensitivity , enhancements to customer products and services , technology advancements , market share and peer comparisons . the following information should be considered in connection with the company 's results for the fiscal year ended december 31 , 2018 : ● diluted earnings per share up 37 % from prior year ● earnings in excess of $ 100 million for the first time in the 163 year history of the company ● loan growth for the year ended december 31 , 2018 of 4.6 % ● average demand deposits for the year ended december 31 , 2018 up 4.7 % over 2017 ● fte net interest margin of 3.58 % for year ended december 31 , 2018 up 11 bps from 2017 ● full cycle deposit beta of 6.9 % through the quarter ended december 31 , 2018 1 ( 1 ) the change in the company 's quarterly deposit costs from december 31 , 2015 to december 31 , 2018 of 0.15 % divided by the change in frb 's target fed funds rate from december 31 , 2015 to december 31 , 2018 of 2.25 % .
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overview company description we are a leading north american onshore completion services provider that targets unconventional oil and gas resource development . we partner with our e & p customers across all major onshore basins in both the u.s. and canada as well as abroad to design and deploy downhole solutions and technology to prepare horizontal , multistage wells for production . we focus on providing our customers with cost-effective and comprehensive completion solutions designed to maximize their production levels and operating efficiencies . we believe our success is a product of our culture , which is driven by our intense focus on performance and wellsite execution as well as our commitment to forward-leaning technologies that aid us in the development of smarter , customized applications that drive efficiencies . we provide ( i ) cementing services , which consist of blending high-grade cement and water with various solid and liquid additives to create a cement slurry that is pumped between the casing and the wellbore of the well , ( ii ) an innovative portfolio of completion tools , including those that provide pinpoint frac sleeve system technologies as well as a portfolio of completion technologies used for completing the toe stage of a horizontal well and fully-composite , dissolvable , and extended range frac plugs to isolate stages during plug-and-perf operations , ( iii ) wireline services , the majority of which consist of plug-and-perf completions , which is a multistage well completion technique for cased-hole wells that consists of deploying perforating guns and isolation tools to a specified depth , and ( iv ) coiled tubing services , which perform wellbore intervention operations utilizing a continuous steel pipe that is transported to the wellsite wound on a large spool in lengths of up to 30,000 feet and which provides a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well . how we generate revenue and the costs of conducting our business we generate our revenues by providing completion services to e & p customers across all major onshore basins in both the u.s. and canada as well as abroad . we primarily earn our revenues pursuant to work orders entered into with our customers on a job-by-job basis . we typically will enter into an msa with each customer that provides a framework of general terms and conditions of our services that will govern any future transactions or jobs awarded to us . each specific job is obtained through competitive bidding or as a result of negotiations with customers . the rate we charge is determined by location , complexity of the job , operating conditions , duration of the contract , and market conditions . in addition to msas , we have entered into a select number of longer-term contracts with certain customers relating to our wireline and cementing services , and we may enter into similar contracts from time to time to the extent beneficial to the operation of our business . these longer-term contracts address pricing and other details concerning our services , but each job is performed on a standalone basis . the principal expenses involved in conducting our business include labor costs , materials and freight , the costs of maintaining our equipment , and fuel costs . our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment . another key component of labor costs relates to the ongoing training of our field service employees , which improves safety rates and reduces employee attrition . how we evaluate our operations we evaluate our performance based on a number of financial and non-financial measures , including the following : revenue : we compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year . we monitor our revenue to analyze trends in the performance of our operations compared to historical revenue drivers or market metrics . we are particularly interested in identifying positive or negative trends and investigating to understand the root causes . adjusted gross profit ( loss ) : adjusted gross profit ( loss ) is a key metric that we use to evaluate operating performance . we define adjusted gross profit ( loss ) as revenues less direct and indirect costs of revenues 37 ( excluding depreciation and amortization ) . costs of revenues include direct and indirect labor costs , costs of materials , maintenance of equipment , fuel and transportation freight costs , contract services , crew cost , and other miscellaneous expenses . for additional information , see “ non-gaap financial measures ” below . adjusted ebitda : we define adjusted ebitda as net income ( loss ) before interest , taxes , and depreciation and amortization , further adjusted for ( i ) goodwill , intangible asset , and or property and equipment impairment charges , ( ii ) transaction and integration costs related to acquisitions , ( iii ) loss or gain on revaluation of contingent liabilities , ( iv ) gain on the extinguishment of debt , ( v ) loss or gain on the sale of subsidiaries , ( vi ) restructuring charges , ( vii ) stock-based compensation expense , ( viii ) loss or gain on sale of property and equipment , and ( ix ) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business , such as legal expenses and settlement costs related to litigation outside the ordinary course of business . for additional information , see “ non-gaap financial measures ” below . return on invested capital ( “ roic ” ) : we define roic as after-tax net operating profit ( loss ) , divided by average total capital . story_separator_special_tag we have experienced inefficiencies and logistical challenges surrounding stay-at-home orders and remote work arrangements , travel restrictions , and an inability to commute to certain facilities and job sites , as we provide services and products to our customers . during the pandemic , we have maintained our commitment to the safety of our employees , customers , vendors , and community at large , and we have taken , and are continuing to take , a proactive approach to navigating the pandemic . to mitigate exposure and risk , we have implemented processes and procedures across our entire organization based on federal , regional , and local guidelines and mandates , and our health , safety & environment and management teams are in frequent communication with our entire employee base to ensure they are receiving updated guidelines , processes , and procedures . in response to the pandemic , we have implemented the following changes , for example : at the field level , we are working closely with our customers and vendors to update standard operating procedures , based on social distancing , hand washing , and other recommended best practices set forth by the centers for disease control and prevention ; electronic assessments have been employed to check the health of employees prior to reporting to work , to ensure facilities are being properly cleaned and sanitized , and to check visitor health before arrival to our locations ; internal case managers have been identified to handle all coronavirus-related cases , and all confirmed and potential cases are tracked through closure ; many of our corporate and office employees are working virtually to avoid unnecessary risk and exposure ; and we have significantly limited any work-related travel . we are actively monitoring updates from regulatory and government bodies and evolving our strategy accordingly in an effort to keep our workforce and communities healthy . other significant factors that are likely to affect commodity prices moving forward include the extent to which members of opec+ and other oil exporting nations continue to reduce oil export prices and increase production ; the effect of energy , monetary , and trade policies of the u.s. ; the pace of economic growth in the u.s. and throughout the world , including the potential for macro weakness ; geopolitical and economic developments in the u.s. and globally ; new energy policies put in place by the new administration and epa ; and overall north american oil and natural gas supply and demand fundamentals , including the pace at which export capacity grows . even with price improvements in oil and natural gas , operator activity may not materially increase , as operators remain focused on operating within their capital plans , and uncertainty remains around supply and demand fundamentals . in this challenging environment , we will nevertheless continue to focus on generating returns and cash flow . due to our high level of variable costs and the asset-light make-up of our business , we were able to quickly implement cost-cutting measures and will continue our efforts to adapt as the market dictates . generally , operators have continued to improve operational efficiencies in completions design , increasing the complexity and difficulty , making oilfield service selection more important . this increase in high-intensity , high-efficiency completions of oil and gas wells further enhances the demand for our services . we compete for the most complex and technically demanding wells in which we specialize , which are characterized by extended laterals , increased stage spacing , multi-well pads , cluster spacing , and high proppant loads . these well characteristics lead to increased operating leverage and returns for us , as we are able to complete more jobs and stages with the same number of units and crews . service providers for these projects are selected based on their technical expertise and ability to execute safely and efficiently , rather than only price . nonetheless , we have experienced increased pricing pressures , and an increase in customer focus on price over performance , with respect to certain of our products and services , including our dissolvable frac plugs . as a result , although we expect our sales of dissolvable frac plugs to increase , due to significant pricing pressures from customers , increased competition , and our inability to proportionately reduce our materials costs , our ability to profit from such sales may be limited . 39 other significant events production solutions divestiture on august 30 , 2019 , we sold our production solutions segment for approximately $ 17.1 million in cash . in connection with this divestiture , we recorded a loss of $ 15.9 million during the year ended december 31 , 2019. for additional information on this divestiture , see note 16 – segment information included in item 8 of part ii of this annual report . magnum acquisition on october 25 , 2018 , pursuant to the terms of a securities purchase agreement , dated october 15 , 2018 , we acquired all of the equity interests of magnum oil tools international , ltd , magnum oil tools gp , llc , and magnum oil tools canada ltd. ( such entities collectively , “ magnum ” and such acquisition , the “ magnum acquisition ” ) for approximately $ 334.5 million in upfront cash consideration , subject to customary adjustments , and 5.0 million shares of our common stock , which were issued to the sellers of magnum in a private placement . 40 story_separator_special_tag decreased $ 32.0 million to $ 49.3 million in 2020. the decrease in comparison to 2019 was primarily related to a $ 22.1 million decrease in employee costs due mainly to headcount and salary reductions , including the suspension of matching contributions under the nine energy service 401 ( k ) plan , across the organization .
| results of operations replace_table_token_1_th ( 1 ) we sold the production solutions segment to brigade energy service llc on august 30 , 2019. for additional information on the divestiture of the production solutions segment , see note 16 – segment information . revenues revenues decreased $ 522.1 million , or 63 % , to $ 310.9 million in 2020 which was primarily related to reduced activity and pricing pressure caused by poor market conditions , including an economic recession associated with the coronavirus pandemic , as well as international pricing and production disputes , in comparison to 2019. we depend , to a significant extent , on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in north america . in turn , activity and capital spending are strongly influenced by current and expected oil and natural gas prices . during 2020 , the average closing price was $ 39.16 per barrel of wti , and the average closing price of natural gas was $ 2.03 per mmbtu . during 2019 , the average closing price was $ 56.98 per barrel of wti , and the average closing price of natural gas was $ 2.56 per mmbtu . additional information with respect to revenues by historical reportable segment is discussed below . completion solutions : revenues decreased $ 463.8 million , or 60 % , to $ 310.9 million in 2020. the decrease was 41 prevalent across all lines of service and was a direct reflection of pricing pressures caused by reasons described above .
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pnmr shared services ' administrative and general expenses , which represent costs that are primarily driven by corporate level activities , are charged to the business segments . these services are billed at cost . other significant intercompany transactions between pnmr , pnm , and tnmp include transmission and distribution services ; lease , interest , and income tax sharing payments ; and equity transactions . all intercompany transactions and balances have been eliminated . see note 18. accounting for the effects of certain types of regulation the company maintains its accounting records in accordance with the uniform system of accounts prescribed by ferc and adopted by the nmprc and story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations for pnmr is presented on a combined basis , including certain information applicable to pnm and tnmp . the md & a for pnm and tnmp is presented as permitted by form 10-k general instruction i ( 2 ) . a reference to a “ note ” in this item 7 refers to the accompanying notes to consolidated financial statements included in part ii , item 8 , unless otherwise specified . certain of the tables below may not appear visually accurate due to rounding . md & a for pnmr executive summary overview and strategy pnmr is a holding company with two regulated utilities serving approximately 746,000 residential , commercial , and industrial customers and end-users of electricity in new mexico and texas . in the latter part of 2011 , pnmr exited both of its competitive businesses , first choice and optim energy , and repositioned itself as a holding company solely operating its electric utilities , pnm and tnmp . strategic goals pnmr is focused on achieving the following strategic goals : earning authorized returns on its regulated businesses maintaining investment grade credit ratings providing a top-quartile total return to investors in conjunction with these goals , pnm and tnmp are dedicated to : achieving industry-leading safety performance maintaining strong plant performance and system reliability delivering a superior customer experience demonstrating environmental leadership in its business operations earning authorized returns on regulated businesses pnmr 's success in accomplishing its strategic goals is highly dependent on continued favorable regulatory treatment for its utilities and their strong operating performance . the company has multiple strategies to achieve favorable regulatory treatment , all of which have as their foundation a focus on the basics : safety , operational excellence , and customer satisfaction , while engaging stakeholders to build productive relationships . both pnm and tnmp seek cost recovery for their investments through general rate cases and various rate riders . the puct has approved mechanisms that allow tnmp to recover capital invested in transmission and distribution projects without having to file a general rate case , which allows for more timely recovery . the nmprc has approved rate riders for renewable energy and energy efficiency that also allow for more timely recovery of investments and improve the ability to earn authorized returns from pnm 's retail customers . in 2012 , pnm saw additional progress toward achieving authorized returns for its ferc regulated transmission and generation services . pnm currently has a pending case before ferc in which it is requesting an increase in rates charged to transmission customers based on a formula rate mechanism . additional information about rate filings is provided in note 17. fair and timely rate treatment from regulators is crucial to pnmr achieving its strategic goals because it leads to pnm and tnmp earning their allowed returns . pnmr believes that if the utilities earn their allowed returns , it would be viewed positively by credit rating agencies and would further improve the company 's ratings , which could lower costs to utility customers . also , earning allowed returns should result in increased earnings for pnmr , which would lead to increased total returns to investors . pnm 's interest in pvngs unit 3 is currently excluded from nmprc jurisdictional rates . while pvngs unit 3 's financial results are not included in the authorized returns on its regulated business , it impacts pnm 's earnings and has been demonstrated to be a valuable asset . power generated from pnm 's 134 mw interest in pvngs unit 3 is currently sold into the wholesale market and any earnings or losses are attributable to shareholders . pnm has requested nmprc approval to include pvngs unit a- 28 3 as a jurisdictional resource in the determination of rates charged to customers in new mexico beginning in 2018 as part of compliance with the requirements for bart at sjgs discussed below . maintaining investment grade credit ratings pnm is committed to maintaining investment grade credit ratings . see the subheading liquidity included in the full discussion of liquidity and capital resources below for the specific credit ratings for pnmr , pnm , and tnmp . s & p raised the corporate credit ratings and senior debt ratings for pnmr , pnm , and tnmp , as well as the preferred stock rating for pnm , on april 5 , 2013. s & p retained the outlook as stable for all entities . on june 21 , 2013 , moody 's changed the ratings outlook for pnmr , pnm , and tnmp to positive from stable . on january 30 , 2014 , moody 's raised the credit ratings for pnmr , pnm and tnmp by one notch , while maintaining the positive outlook . all of the company 's credit ratings are now investment grade by both moody 's and s & p . providing top-quartile total returns to investors pnmr 's strategic goal to provide top quartile total return to investors over the 2012 to 2016 period is based on five-year ongoing earnings per share growth plus five-year average dividend yield from a group of regulated electric utility companies with similar market capitalization . top quartile total return currently is equal to an average annual rate of 10 percent to 13 percent . story_separator_special_tag the facility was the nation 's first solar storage facility fully integrated into a utility 's power grid . pnm also purchases 204 mw of wind power and power from a customer-owned distributed solar generation program having an installed capacity of 30.5 mw at the end of 2013. these renewable resources are key means for pnm to meet the rps and related regulations , which require pnm to achieve prescribed levels of energy sales from renewable sources , if that can be accomplished without exceeding the rct cost limit set by the nmprc . in 2013 , pnm made renewable procurements consistent with the 2013 plan approved by the nmprc . pnm believes its currently planned resources will enable it to comply with the nmprc 's diversity requirements , as amended in december 2012. pnm will continue to procure renewable resources while balancing the bill impact to customers in order to meet new mexico 's escalating rps requirements . sjgs pnm continues its efforts to comply with the epa regional haze rule in a manner that minimizes the cost impact to customers while still achieving broad environmental benefits . additional information about bart at sjgs is contained in note 16. in august 2011 , epa issued a fip for regional haze that would require the installation of scrs on all four units at sjgs by september 2016. following approval by the majority of the other sjgs owners , pnm , nmed , and epa agreed on february 15 , 2013 to pursue a revised plan that could provide a new bart path to comply with federal visibility rules at sjgs . the terms of the non-binding agreement would result in the retirement of sjgs units 2 and 3 by the end of 2017 and the installation of sncrs on units 1 and 4 by the later of january 31 , 2016 or 15 months after epa approval of a revised sip from the state of new mexico . the revised sip has been approved by the eib and submitted to epa for its approval . epa action is projected for late 2014. contemporaneously with the signing of the non-binding agreement , epa indicated in writing that if the above plan does not move forward due to circumstances outside of the control of pnm and nmed , epa will work with the state of new mexico and pnm to create a reasonable fip compliance schedule to reflect the time used to develop the new state plan . on december 20 , 2013 , pnm made a filing with the nmprc requesting certain approvals necessary to effectuate the revised sip . in this filing , pnm requests authorization to : a- 30 retire sjgs units 2 and 3 at december 31 , 2017 and to recover over 20 years their net book value at that date along with a regulated return on those costs include pnm 's ownership of pvngs unit 3 as a resource to serve new mexico retail customers effective january 1 , 2018 allow cost recovery for the installation of sncr equipment and the additional equipment to comply with naaqs requirements on sjgs units 1 and 4 exchange ownership of 78 mw of pnm 's capacity in sjgs unit 3 for 78 mw in sjgs unit 4 pnm requested the nmprc issue its final ruling on the application no later than december 2014. on february 11 , 2014 , pnm 's application was determined to be complete . the hearing examiner indicated the nmprc should proceed with the review of pnm 's application and establish a schedule that would allow nmprc action on the application by the end of 2014. the hearing examiner indicated that he will schedule a public hearing to begin on august 19 , 2014. the december 20 , 2013 filing also identifies a new 177 mw natural gas fired generation source and 40 mw of new utility-scale solar generation to replace a portion of pnm 's share of the reduction in generating capacity due to the retirement of sjgs units 2 and 3. specific approvals to acquire these facilities and the treatment of associated costs will be requested in future filings . in connection with the implementation of the revised plan and the proposed retirement of sjgs units 2 and 3 , some of the sjgs participants have expressed a desire to exit their ownership in the plant . as a result , the sjgs participants are attempting to negotiate a restructuring of the ownership in sjgs , as well as addressing the obligations of the exiting participants for plant decommissioning , mine reclamation , environmental matters , and certain ongoing operating costs , among other items . the sjgs participants have engaged a mediator to assist in facilitating resolution of a number of outstanding matters among the owners . although discussions are continuing , no agreements have been reached . owners of the affected units also may seek approvals of their utility commissions or governing boards . pnm is unable to predict the outcome of the negotiations . pnm , as the sjgs operating agent , presented the sncr project to the participants in unit 1 and unit 4 for approval in late october 2013. the project was approved for unit 1 , but the unit 4 project did not obtain the required percentage of votes for approval . other capital projects related to unit 4 were also not approved by the participants . the sjppa provides that pnm is authorized and obligated to take reasonable and prudent actions necessary for the successful and proper operation of sjgs pending resolution by the participants . pnm is evaluating its responsibilities and obligations as operating agent under the sjppa regarding the sjgs unit 4 capital projects that were not approved by the participants and will take reasonable and prudent actions as it deems necessary . pnm can not predict the outcome of this matter . this revised bart plan would achieve similar visibility improvements as the installation of scrs on all four units at sjgs .
| results of operations a summary of net earnings attributable to pnmr is as follows : replace_table_token_12_th the components of the changes in earnings from continuing operations attributable to pnmr by segment are : replace_table_token_13_th pnmr 's operational results were affected by the following : rate increases for pnm and tnmp - additional information about these rate increases is provided in note 17 lower retail load at pnm partially offset by higher retail load in at tnmp milder weather fluctuating prices for sales of power from pvngs unit 3 increased income tax expense due to impairments of state tax credits and a change in state tax rate ( note 11 ) exit from unregulated businesses - pnmr sold first choice in 2011 , resulting in a pre-tax gain of $ 174.9 million , which was included in the corporate and other segment . the results of operations only include first choice through october 31 , 2011. decrease in the number of common and common equivalent shares , primarily due to pnmr 's purchase of its equity as described in note 6 other factors impacting results of operation for each segment are discussed under results of operations below liquidity and capital resources the company has revolving credit facilities that provide capacities for short-term borrowing and letters of credit of $ 300.0 million for pnmr and $ 400.0 million for pnm , both of which expire in october 2018. in addition , pnm has a $ 50.0 million revolving credit facility , which expires in january 2018 , with banks having a significant presence in new mexico and tnmp has a $ 75.0 million revolving credit facility , which expires in september 2018. total availability for pnmr on a consolidated basis was $ 718.5 million at february 21 , 2014. the company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures .
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the company completed and delivered these two roads to the story_separator_special_tag the following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of china hgs real estate inc. for the fiscal years ended september 30 , 2017 and 2016 and should be read in conjunction with such financial statements and related notes included in this report . preliminary note regarding forward-looking statements . we make forward-looking statements in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us . forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “ business and overview , ” “ liquidity and capital resources , ” and other statements throughout this report preceded by , followed by or that include the words “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” “ plans , ” “ estimates ” or similar expressions . forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements , including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the sec . we therefore caution you not to rely unduly on any forward-looking statements . the forward-looking statements in this report speak only as of the date of this report , and we undertake no obligation to update or revise any forward-looking statement , whether as a result of new information , future developments or otherwise . these forward-looking statements include , among other things , statements relating to : · our ability to sustain our project development · our ability to obtain additional land use rights at favorable prices ; · the market for real estate in tier 3 and 4 cities and counties ; · our ability to obtain additional capital in future years to fund our planned expansion ; or · economic , political , regulatory , legal and foreign exchange risks associated with our operations . our business overview we conduct substantially all of our business through shaanxi guangsha investment and development group co. , ltd , in hanzhong , shaanxi province . since the initiation of our business , we have been focused on expanding our business in certain tier 3 and tier 4 cities and counties in china . 26 for fiscal 2017 , our sales , gross profit and net income were $ 58,671,424 , $ 11,865,119 and $ 6,329,114 respectively , representing an approximately 44.6 % , 21.0 % and 26.1 % increase in sales , gross profit and net income from fiscal 2016 , respectively . the increase in sales , gross profit and net income mainly resulted from increased gfa sold during fiscal 2017. the company adopted the percentage of completion method to account for real estate sales from large high rise residential projects with construction periods over 18 to 24 months . total revenue recognized under the percentage of completion method for fiscal 2017 was $ 13,360,556 ( 2016 - $ 25,243,962 ) , representing 22.8 % of total revenue for the fiscal 2017 ( 2016 – 62.2 % ) . the related costs of these real estate sales was $ 11,872,162 ( 2016 - $ 18,777,467 ) for fiscal 2017 , representing 26.0 % ( 2016 – 65.5 % ) of the real estate costs for fiscal 2016. the gross profit before sales taxes from the percentage of completion method was $ 1,488,394 ( 2016 - $ 6,466,495 ) , representing 11.4 % ( 2016 - 54.3 % ) of the total gross profits before sales taxes for fiscal 2017. for fiscal 2017 , our average selling price ( “ asp ” ) for real estate projects ( excluding sales of parking spaces ) located in yang county was approximately $ 461 per square meter , consistent with the asp of $ 456 per square meter for fiscal 2016. the asp of our hanzhong real estate projects ( excluding sales of parking spaces ) was approximately $ 529 per square meter for 2017 , decreased by 11.8 % as compared to the asp of $ 600 per square meter for fiscal 2016. the decrease in asp in 2017 was because the company reduced the selling price in both hanzhong to promote the sales of completed real estate residential units to reduce the inventory stockpile , which has limited models available to buyers . in addition , sales of commercial units in 2017 also decreased due to limited availability . market outlook in the balance of 2017 and looking forward into 2018 , the macro-economic backdrop will continue to be uncertain with unrelenting downside pressure , while the overall inventory level of properties will remain high . the central government will continue to adopt policies aimed to ensure stability , economic growth and improved employment . the details of implementation by local government will vary among different prc cities . in 2018 , the company expects to focus on the development of the liangzhou road related project . these projects will comprise of residential for end-users and upgraders , shopping malls as well as serviced apartments and offices to satisfy different market demands . our customers continue to experience growth of their disposable income . with a lower housing price to family disposable income ratio and an increasing urbanization level , there is a growing demand for high quality residential housing . from this perspective , the company is positive about the outlook for the local real estate market in a long term . in the meantime , the company is diversifying its revenue and developing more commercial and municipal projects . story_separator_special_tag we expect these initiatives will help us during this difficult period and better position us to capitalize on opportunities from a future market upturn . summary of real estate projects completion status actual ( estimated ) completion time of construction estimated time to sell of the property development completed hanzhong city mingzhu garden ( mingzhu nanyuan & mingzhu beiyuan ) majority was completed during the third quarter of fiscal 2012 2018 hanzhong city nan dajie ( mingzhu xinju ) phase one completed in 2010 and phase two completed in 2011 2018 hanzhong city mingzhu garden phase ii completed by fiscal 2015 2018 hanzhong city oriental pearl garden completed by fiscal 2016 2018 yang county yangzhou pearl garden phase ii completed by fiscal 2015 2018 yang county yangzhou pearl garden majority completed in 2011 and 2012 2018 under development : estimated completion time of construction yang county yangzhou palace to be completed in the beginning of 2018 hanzhong city shijin project under planning stage hanzhong city hanfeng beiyuan east road to deliver the road to government in early 2018 hanzhong city liangzhou road and related projects the road construction to be completed in december 2017 , the related projects will be completed in 2018 and later years . hanzhong city beidajie project under planning stage yang county east 2 nd ring road to be completed in early 2018 29 story_separator_special_tag payment for three consecutive months , we are required to refund the loan proceeds back to the bank , although we have the right to keep the customer 's deposit and resell the property to a third party . once the certificate of property has been issued by the relevant government authority , our loan guarantee terminates . if the buyer then defaults on his or her mortgage loan , the bank has the right to take the property back and sell it and use the proceeds to pay off the loan . the company is not liable for any shortfall that the bank may incur in this event . to date , no buyer has defaulted on his or her mortgage payments during the mortgage loan guarantee period and the company has not had to refund any loan proceeds pursuant to its mortgage loan guarantees . for municipal road construction projects , fees are generally recognized by the full accrual method at the time of the projects are completed . revenue recognized under full accrual method the following table summarizes revenue recognized under full accrual method from sales of completed real estate projects for the years ended september 30 , 2017 and 2016 , respectively : replace_table_token_5_th our revenues are derived from the sale of residential buildings , commercial store-fronts and parking spaces in projects that we have developed . comparing to fiscal 2016 , revenues before sales tax increased by 195.5 % to approximately $ 45.3 million for the year ended september 30 , 2017 from approximately $ 15.3 million . the total gfa sold during fiscal 2017 was 86,248 square meters , representing a significant increase from the 29,392 square meters completed and sold during fiscal 2016. our mingzhu garden phase i and phase ii , yangzhou pearl garden phase i and phase ii and oriental garden phase i have all been completed in prior years , the related revenues have been included in revenue recognized from completed projects , which resulted in higher revenue reported for the year ended september 30 , 2017 as compared to 2016. for the completed real estate properties , only limited models are available for customer selection . in order to promote the sales of the remaining units , we lowered our selling price in 2017 , which led to more gfa sold during 2017 than in 2016 . 31 the sales tax for fiscal 2017 was $ 0.5 million , increased by 67.6 % from last year , primarily as a result of increase in revenue . in may of 2016 , the business tax has been incorporated into value added tax in china , which means there will be no more business tax and accordingly some business operations previously taxed in the name of business tax will be taxed in the manner of vat thereafter . the company is subject to 5 % of vat for all its exiting real estate project based on the local tax authority 's practice . as our revenue is reported net of vat , the company does not expect the overall gross margin for the existing real estate properties will be significantly affected by the change from business tax to vat . revenue recognized under percentage completion method replace_table_token_6_th we started to recognize revenue under the percentage of completion method for yangzhou palace real estate property since second quarter of fiscal 2017. for yangzhou palace real estate property under development , total qualified contract sales as of september 30 , 2017 were $ 16,770,130 ( september 30 , 2016 - $ nil ) . total gfa sold under qualified contract sales as of september 30 , 2017 was 36,133 square meters ( september 30 , 2016 – 0 ) . the average unit price under contract sales was $ 464 per square meters ( september 30 , 2016 - $ nil ) . replace_table_token_7_th ( 1 ) percentage of completion is calculated by dividing total costs incurred by total estimated costs for the relevant buildings in each real estate building , estimated as of the date of our financial statements as of and for the year indicated . ( 2 ) qualified contract sales only include all contract sales with customer deposits balance as of september 30 , 2017 and 2016 equal or greater than 30 % of contract sales amount and related individual of buildings were sold over 20 % . 32 ( 3 ) the actual gfa will be re-measured when the real estate project is completed , which could be slightly different from the estimated gfa at the beginning of the real estate projects .
| results of operations year ended september 30 , 2017 as compared to year ended september 30 , 2016 revenues the following is a breakdown of revenue for the years ended september 30 , 2017 and 2016 : replace_table_token_4_th percentage of completion method real estate sales for our long term real estate projects are recognized under percentage completion method . revenue and profit from the sales of long term development properties are recognized by the percentage of completion method on the sale of individual units when all the following criteria are met : a. construction is beyond a preliminary stage . b. the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit or interest . c. sufficient units have already been sold to assure that the entire property will not revert to rental property . d. sales prices are collectible . e. aggregate sales proceeds and costs can be reasonably estimated . if any of the above criteria is not met , proceeds shall be accounted for as deposits until the criteria are met . under the percentage of completion method , revenues from condominium units sold and related costs are recognized over the course of the construction period , based on the completion progress of a project . in relation to any project , revenue is determined by calculating the ratio of incurred costs , including land use rights costs and construction costs , to total estimated costs and applying that ratio to the contracted sales amounts . cost of sales is recognized by determining the ratio of contracted sales during the period to total estimated sales value , and applying that ratio to the incurred costs . current period amounts are calculated based on the difference between the life-to-date project totals and the previously recognized amounts .
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the fair value of the customer list was valued using the cost approach , as the company obtained an independent third-party valuation . in addition , the market approach was utilized to determine the fair value of the trade name and recipes . the purchase price was allocated to the net assets acquired based on their estimated fair values as follows : stock $ 18,600,000 contingent consideration 800,000 purchase price $ 19,400,000 accounts receivable $ 186,658 inventories 798,098 prepaid expenses and other current assets 198,882 property and equipment , net 22,191 other intangible assets acquired ( trade names , recipes and customer lists ) 9,281,365 accounts payable and accrued expenses ( 505,146 ) 9,982,048 goodwill 9,417,952 $ 19,400,000 f-17 new age beverages corporation notes to consolidated financial statements note 4 – 2017 acquisitions ( continued ) in connection with the acquisition of marley , the company incurred minimal transactional costs , which has been recognized as expense as of the closing date . pro forma : the following unaudited pro forma financial results reflects the historical operating results of the company , including the unaudited pro forma results of xing group , maverick , pmc and marley for the years ended december 31 , 2017 and 2016 , respectively , as if xing group , maverick , pmc and marley were acquired on january 1 , 2016. no adjustments have been made for synergies that are resulting and planned from the acquisitions . these combined results are not indicative of the results that may have been achieved had the companies been combined as of such dates or periods , or of the company 's consolidated future operating results . replace_table_token_12_th the decline in revenues on a pro forma basis resulted from changes in strategic shifts by the former owners . those changes in monetization resulted in declining revenues . note 5 – inventories inventories consist of brewing materials , tea ingredients , bulk packaging and finished goods . the cost elements of work in process and finished goods inventory consist of raw materials and direct labor . provisions for excess inventory are included in cost of goods sold and have historically been immaterial but adequate to provide for losses on its raw materials . inventories are stated at the lower of cost , determined on the first-in , first-out basis , or market . inventories consisted of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected financial data ” and our financial statements and related notes included elsewhere in this information statement . some of the information contained in this discussion and analysis or set forth elsewhere in this information statement , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . see “ cautionary note regarding forward-looking statements. ” our actual results may differ materially from those described below . you should read the “ risk factors ” section of this information statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a colorado-based healthy beverage company engaged in the development and commercialization of a portfolio organic , natural and other better-for-you healthy beverages . we market a full portfolio of rtd better-for-you beverages including competitive offerings in the kombucha , tea , coffee , functional waters , relaxation drinks , energy drinks , rehydrating beverages , and functional medical beverage segments . we differentiate our brands through superior functional performance characteristics and ingredients and offer products that are 100 % organic and natural , with no hfcs , no gmos , no preservatives , and only all natural flavors , fruits , and ingredients . our products are currently distributed in 10 countries internationally , and in 50 states domestically through a hybrid of four routes to market including our own dsd system that reaches more than 6,000 outlets , and to more than 35,000 other outlets throughout the united states directly through customer 's warehouses , through our network of dsd partners , and through our network of brokers and natural product distributors . our products are sold through multiple channels including major grocery retail , natural food retail , specialty outlets , hypermarkets , club stores , pharmacies , convenience stores and gas stations . we market our products using a range of marketing mediums including in-store merchandising and promotions , experiential marketing , events , and sponsorships , digital marketing and social media , direct marketing , and traditional media including print , radio , outdoor , and tv . we rank as the 58 th largest non-alcoholic beverage company in the world , one of largest healthy beverage companies , and the fastest growing . we intend to become the world 's leading healthy beverage company , with leading brands , leading growth for retailers and distributors , and leading return on investment for shareowners . our target market is currently health conscious consumers , who are becoming more interested and better educated on what is included in their diets , causing them to shift away from less healthy options such as carbonated soft drinks or other high caloric beverages , and towards alternative beverages choices . consumer awareness of the benefits of healthier lifestyles and the availability of heathier beverages is rapidly accelerating worldwide , and new age is capitalizing on that shift . story_separator_special_tag roman ; font-size : 13px '' > management defines ebitda as earnings before income tax , depreciation and amortization , one-time compensation and acquisition charges , interest expense , shared-based compensation and other acquisition-related integration charges . story_separator_special_tag any failure by us to raise additional funds on terms favorable to us , or at all , will limit our ability to expand our business operations and could harm our overall business prospects . during the year ended december 31 , 2017 , the company eliminated $ 200,000 of convertible promissory notes and all other debts . the company did assume a $ 1,500,000 obligation when it acquired the coco-libre brand , and has also utilized $ 2,000,000 of its previous line of credit with us bank . 26 working capital replace_table_token_5_th current assets are primarily comprised of accounts receivable and inventories . current liabilities are comprised of accounts payable and accrued expenses as of december 31 , 2017 and 2016 , and a current portion of a note payable totaling $ 3,427,051 and $ 4,562,179 , as of december 31 , 2017 and 2016. cash flows replace_table_token_6_th operating activities net cash ( used in ) operating activities for the year ended december 31 , 2017 was $ ( 8,410,777 ) net cash provided by operating activities for the year ended december 31 , 2016 was $ 975,176. the change was attributable to one-time charges incurred for the acquisitions , gain on sale of the building and changes in working capital . investing activities net cash provided by investing activities is primarily driven by our sale of the building and purchase of maverick brands , llc was $ 6,227,421. net cash used in investing activities for the year ended december 31 , 2016 was $ ( 8,547,198 ) and primarily driven by our acquisition of xing . financing activities for the year ended december 31 , 2017 , net cash provided by financing activities was $ 1,939,513 , was due to proceeds from the issuance of our common stock in connection with our nasdaq uplisting in february 2017 for approximately $ 15,400,000 ( net of issuance costs and fees ) and repayments of note payables of approximately $ 15,500,000. in addition , we obtained additional financing of approximately $ 2,000,000 from us bank . for the year ended december 31 , 2016 , net cash provided by financing activities of $ 8,057,254 was due to us borrowing ( i ) $ 10,700,000 from us bank to finance the xing acquisition . the $ 10.7 million in debt was secured in two separate notes with u.s. bank ; one note for $ 4.8 million , which is secured by our denver , colorado property ; and another revolving note of $ 5.9 million , which is secured by the company 's inventories and receivables . $ 2,200,000 of the $ 10,700,000 was used to pay off the balance from the previous mortgagor and the remaining $ 8.5 million was used to fund the xing acquisition . there was additional debt of ( ii ) $ 200,000 from an unrelated party pursuant to a convertible note payable ( that has since been converted ) . 27 off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders . effects of inflation we do not believe that inflation has had a material impact on our business , revenues or operating results during the periods presented . critical accounting policies and estimates our significant accounting policies are more fully described in the notes to our consolidated financial statements included herein for the year ended december 31 , 2017 and 2016 , respectfully . newly issued accounting pronouncements during the year ended december 31 , 2017 , we early adopted the new lease accounting standards issued by the fasb asu no . 2016-02 , leases . this asu establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . this asu is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . the impact of adopting this standard resulted in an rou and lease liability on the consolidated balance sheet of approximately $ 4mm . we do not believe that any other recently issued , but not yet effective accounting pronouncements , if adopted , would have a material effect on our consolidated financial statements . inventories and provision for excess or expired inventory inventories consist of tea ingredients , packaging and finished goods and are stated at the lower of cost ( first-in , first-out basis ) or market value . provisions for excess inventory are included in cost of goods sold and have historically been immaterial but adequate to provide for losses on its raw materials . long-lived assets our long-lived assets consisted of property and equipment and customer relationships and are reviewed for impairment in accordance with the guidance of the fasb topic asc 360 , property , plant , and equipment . we test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . for the years ended december 31 , 2017 and 2016 , respectively , we had not recognized impairment losses on our long-lived assets as management determined that there were no indicators that a carrying amount of the asset may not be recoverable .
| highlights we generate revenue through the commercialization of our portfolio of brands to consumers via our retailer partners and directly via our own ecommerce system . the following are highlights of our operating results for the year ended december 31 , 2017 : 22 we believe that on a consolidated basis , and with the reductions in operating expenses in each of the acquired companies in 2016 and 2017 , the integrated company will generate sufficient cash flow internally to meet its needs . in addition , as a subsequent event in march 2018 , the company received approval of a credit facility with pnc bank of $ 15 million , at an estimated annual interest rate of ~3.5 % . we previously had a small revolving credit line in place with another bank , which is being replaced by the new accordion line with pnc . the new facility with pnc bank is in the process of closing , so the company recently effectuated a small confidentially marketed offering to facilitate purchase of inventory to meet customer demand in the interim . the following are highlights of our operating results for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 : revenue . during the year ended december 31 , 2017 , we generated gross revenue of $ 56,636,287 compared to $ 27,323,213 for the year ended december 31 , 2016 , an increase of 107 % . our revenue for the period is primarily attributed to the growth and scale of our core xing and búcha brands and our dsd distribution business that has grown consecutively for nine years . the growth was also impacted by the acquisitions of coco-libre and marley brands . the additions of the coco-libre brand for nine months of the year , and the marley brands for six months of the year , coupled with the launch of new products under both of these newly acquired brands .
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the changes in the warranty reserve for the years ended december 31 , 2015 , 2014 and 2013 , are as follows : replace_table_token_18_th 54 freightcar america , inc. and subsidiaries notes to consolidated financial statements ( continued ) for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except for share and per share data ) adjustments to prior warranties includes changes in the warranty reserve for warranties issued in prior periods due to expiration of the warranty period , revised warranty cost estimates and other factors . note 11 state and local incentives during the year ended december 31 , 2015 , story_separator_special_tag overview you should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements . see forward-looking statements. we are a diversified manufacturer of railcars and railcar components . we design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in north america , including open top hoppers , covered hoppers , and gondolas along with intermodal and non-intermodal flat cars . we and our predecessors have been manufacturing railcars since 1901. over the last several years , we have introduced a number of new or redesigned railcar types . we believe we are the leading manufacturer of aluminum-bodied railcars including coal cars in north america , based on the number of railcars delivered . our railcar manufacturing facilities are located in cherokee , alabama ( shoals ) , danville , illinois and roanoke , virginia . our shoals facility is an important part of our long-term growth strategy as we continue to expand our railcar product and service offerings outside of our traditional coal car market . while our danville and roanoke facilities will continue to support our coal car products , our shoals facility allows us to produce a broader variety of railcars in a cost-effective and efficient manner . during the fourth quarter of 2014 , we announced a $ 10 million expansion at our shoals facility to add additional production capacity to meet demand for our new types of railcars . the new production capacity became operational in the second quarter of 2015. during 2015 , we added approximately 360 employees to support increased production levels at our shoals facility . our danville facility resumed production in june 2014 after being idled for 14 months . we will continue to adjust salaried and hourly labor personnel levels at all of our facilities to coincide with production requirements . given the challenged coal market and the completion of our recent rebuild program , operations at our danville facility will be significantly curtailed in 2016. we also refurbish and rebuild railcars and sell forged , cast and fabricated parts for all of the railcars we produce , as well as those manufactured by others . between november 2010 , when we acquired the business assets of dte rail services , inc. , and september 2015 when we sold our repair and maintenance services business , we provided railcar repair and maintenance for all types of freight railcars through our fcrs subsidiary . the sale allows us to increase our focus on our railcar manufacturing , parts and leasing business as we continue to broaden our product portfolio through the introduction of new railcar types and implement operational improvements , enhancing productivity through training , technology and automation . fcrs had repair and maintenance facilities in grand island , nebraska and hastings , nebraska and serviced freight cars and unit coal trains utilizing key rail corridors in the midwest and western regions of the united states . we also lease freight cars through our jaix leasing company subsidiary . as of december 31 , 2015 , the value of leased railcars was $ 24.7 million . railcar deliveries totaled 8,980 units , consisting of 6,280 new railcars , 2,600 rebuilt railcars and 100 railcars leased , for the year ended december 31 , 2015 , compared to 7,102 units , consisting of 3,937 new railcars , 3,090 rebuilt railcars and 75 railcars leased , delivered in 2014. our total backlog of firm orders for railcars decreased by 4,951 railcars , from 14,791 railcars as of december 31 , 2014 to 9,840 railcars as of december 31 , 2015. our primary customers are railroads , shippers and financial institutions . through september 30 , 2015 , the company 's operations comprised two reportable segments , manufacturing and services . as of october 1 , 2015 , the company 's operations comprise two operating segments , manufacturing and parts , and one reportable segment , manufacturing . the company 's manufacturing segment includes new railcar manufacturing , used railcar sales , railcar leasing and major railcar rebuilds . the company 's parts operating segment is not expected to be of continuing significance for separate reporting and has been combined with corporate and other non-operating activities as corporate and other . the north american railcar market is highly cyclical and the trends in the railcar industry are closely related to the overall level of economic activity . we expect the railroads , operating lessors and shippers to continue to evaluate freight demand for dry bulk commodities and containerized freight and to continue to repair , maintain and upgrade their fleets to maximize the productivity of their railcar equipment . 20 financial statement presentation revenues our manufacturing segment revenues are generated primarily from sales of the railcars that we manufacture . our manufacturing segment sales depend on industry demand for new railcars , which is driven by overall economic conditions and the demand for railcar transportation of various products , such as coal , steel products , minerals , cement , motor vehicles , forest products and agricultural commodities . story_separator_special_tag net income ( loss ) as a result of the foregoing , our net income was $ 31.8 million for the year ended december 31 , 2015 compared to $ 5.9 million for the year ended december 31 , 2014. for the year ended december 31 , 2015 , our basic and diluted net income per share were $ 2.59 and $ 2.58 , respectively , on basic and diluted shares outstanding of 12,175,955 and 12,217,755 , respectively . for the year ended december 31 , 2014 , our basic and diluted net income per share were $ 0.49 on basic and diluted shares outstanding of 12,001,587 and 12,103,520 , respectively . year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues our consolidated revenues for the year ended december 31 , 2014 were $ 598.5 million compared to $ 290.4 million for the year ended december 31 , 2013. manufacturing segment revenues for the year ended december 31 , 2014 23 were $ 562.7 million compared to $ 253.8 million for the year ended december 31 , 2013. the increase in manufacturing segment revenues reflects the significant increase in the number of railcars delivered and product mix changes . our manufacturing segment delivered 7,102 units , consisting of 3,937 new railcars , 3,090 rebuilt railcars and 75 railcars leased , for the year ended december 31 , 2014 , compared to 3,821 units , consisting of 992 new railcars , 99 used railcars , 2,530 rebuilt railcars and 200 railcars leased , for the year ended december 31 , 2013. manufacturing segment revenues for the year ended december 31 , 2014 included the sale of 274 leased railcars , of which 74 were delivered during 2014 and 200 were delivered in 2013. corporate and other revenues for the year ended december 31 , 2014 were $ 35.8 million compared to $ 36.6 million for the year ended december 31 , 2013 and reflected lower repair volumes , which were partially offset by higher parts sales . the severe winter weather during 2014 led to higher coal train utilization , which reduced the volume of coal cars released for maintenance and reduced the repair volumes through our repair shops and sales of repair parts . gross profit our consolidated gross profit for the year ended december 31 , 2014 was $ 42.3 million compared to $ 13.2 million for the year ended december 31 , 2013 , representing an increase of $ 29.1 million . the increase in our consolidated gross profit for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 reflects an increase in gross profit from our manufacturing segment of $ 30.8 million , which was partially offset by a decrease in corporate and other gross profit of $ 1.7 million . the increase in gross profit for our manufacturing segment reflects the significant increase in deliveries and lower production inefficiencies at our idled danville facility and our shoals facility as it continued to ramp up production levels to support our backlog growth and product expansion . costs associated with the continued ramp up of production volumes at our shoals facility , carrying costs associated with our idled danville facility and incremental costs associated with the restart of production at danville totaled $ 6.5 million for the year ended december 31 , 2014. gross profit for our manufacturing segment for the year ended december 31 , 2014 was negatively impacted by multiple weather-related production shutdowns , supply disruptions and related inefficiencies during the first quarter of 2014 totaling $ 1.9 million . gross profit for our manufacturing segment for the year ended december 31 , 2013 included start-up costs of our shoals facility and carrying costs associated with our idled danville facility totaling $ 9.5 million . gross profit for our manufacturing segment for the year ended december 31 , 2013 also included a $ 1.7 million charge for projected costs in excess of selling price related to an order that was delivered in 2014. customer lead times on this order required us to source key components from higher-priced suppliers in order to meet the customer 's delivery requirements . the decrease in corporate and other gross profit for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 reflects lower repair volumes caused by increased utilization of trains and a less profitable mix of parts sales and repair services , partially offset by higher parts sales volumes . corporate and other gross profit for the year ended december 31 , 2014 also was negatively impacted by the severe winter weather , which reduced the repair volumes through our repair shops and sales of repair parts during the first quarter of 2014. our consolidated gross profit margin was 7.1 % for the year ended december 31 , 2014 compared to 4.6 % for the year ended december 31 , 2013. selling , general and administrative expenses consolidated selling , general and administrative expenses for the year ended december 31 , 2014 were $ 35.3 million compared to $ 27.5 million for the year ended december 31 , 2013 , representing an increase of $ 7.8 million . selling , general and administrative expenses for the year ended december 31 , 2014 included increases in the provision for incentive compensation of $ 3.5 million , sales commissions of $ 0.5 million and legal costs of $ 0.3 million , which were partially offset by decreases in shoals start-up costs . during the year ended december 31 , 2013 , we settled the bral litigation ( see note 17 to our consolidated financial statements ) , which resulted in a $ 3.9 million reduction in litigation reserves . manufacturing segment selling , general and administrative expenses for the year ended december 31 , 2014 were $ 11.0 million compared to $ 7.3 million for the year ended december 31 , 2013. corporate and other selling , general and administrative expenses for the year ended december 31 , 2014 were $ 24.3
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 revenues our consolidated revenues for the year ended december 31 , 2015 were $ 772.9 million compared to $ 598.5 million for the year ended december 31 , 2014. manufacturing segment revenues for the year ended december 31 , 2015 were $ 745.7 million compared to $ 562.7 million for the year ended december 31 , 2014. the increase in manufacturing segment revenues reflects the increase in the number of railcars delivered , a higher mix of new versus rebuilt railcars and changes in the product mix of new railcars . our manufacturing segment delivered 8,980 units , consisting of 6,280 new railcars , 2,600 rebuilt railcars and 100 railcars leased , for the year ended december 31 , 2015 , compared to 7,102 units , consisting of 3,937 new railcars , 3,090 rebuilt railcars and 75 railcars leased , for the year ended december 31 , 2014. manufacturing segment revenues for the year ended december 31 , 2014 included the sale of 274 leased railcars , of which 74 were delivered during 2014 and 200 were delivered in 2013. corporate and other revenues for the year ended december 31 , 2015 were $ 27.1 million compared to $ 35.8 million for the year ended december 31 , 2014. the decrease in corporate and other revenues for 2015 compared to 2014 reflects the sale of fcrs on september 30 , 2015 . 21 gross profit our consolidated gross profit for the year ended december 31 , 2015 was $ 82.7 million compared to $ 42.3 million for the year ended december 31 , 2014. the increase reflects increases in gross profit from our manufacturing segment of $ 38.5 million and increases in gross profit from corporate and other of $ 1.8 million .
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we have a strategic business alliance with national geographic founded on a shared interest in exploration , research , technology and conservation . this relationship includes a co-selling , co-marketing and branding arrangement whereby our owned vessels carry the national geographic name and national geographic sells our expeditions through its internal travel division . we collaborate with national geographic on voyage planning to enhance the guest experience by having national geographic experts , including photographers , writers , marine biologists , naturalists , field researchers and film crews , join our expeditions . guests have the ability to interface with these experts through lectures , excursions , dining and other experiences throughout their voyage . 28 we deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximized yields . we use our charter inventory as a mechanism to both increase travel options of our existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs . due to the specific geographies in which we operate and the cost of providing access to fuel in our remote destinations , we have historically not experienced significant fluctuations in fuel costs with changes in world fuel commodity prices . fuel costs represented 3.2 % , 3.4 % and 4.3 % of our lindblad segment tour revenues for the years ended december 31 , 2017 , 2016 and 2015 , respectively . in november 2017 , the company executed a contract to build a polar ice class vessel targeted to be competed in january 2020 , with potential accelerated delivery to november 2019 , with a total purchase price of 1,066.0 million norwegian kroner ( nok ) . subsequently , lme exercised its right to make payments in united states dollars , which resulted in a purchase price of $ 134.6 million , including hedging costs . the first twenty percent of the purchase price was paid shortly after execution of the agreement with the remaining eighty percent due upon delivery and acceptance of the vessel . the polar ice class contract includes options to build two additional ice class vessels , the first for delivery twelve months after the initial vessel and the second for delivery twelve months thereafter . the new build process exposes us to certain risks typically associated with new ship construction , which we manage through detailed planning and close monitoring by our internal marine team . in december 2015 , we entered into two separate contracts with ice floe llc , to build the national geographic quest and the national geographic venture . management considers this investment to be an important step to meet increasing demand for our expedition cruise offerings . the national geographic quest launched in the third quarter of 2017 and operated in alaska and british columbia during the summer of 2017 before voyaging to costa rica and panama to provide expeditions for the northern hemisphere winter season . in december 2016 , we launched the national geographic endeavour ii , which replaced the national geographic endeavour . endeavour ii will operate year-round in the galápagos islands . national geographic endeavour was fully depreciated and we incurred a $ 0.8 million loss on disposal of the vessel during the fourth quarter of 2016 . in the fourth quarter of 2016 , the national geographic orion experienced an issue with its main engine and as a result we cancelled one voyage in 2016 and four voyages during the first quarter of 2017 for necessary engine repairs and in the first quarter of 2017 , the national geographic sea lion cancelled two voyages to repair the onboard air conditioning system . in addition , the delayed delivery of the national geographic quest caused the cancellation of four highly booked voyages . the company estimates that the impact of these cancellations was approximately $ 12.4 million in tour revenues and $ 9.0 million adjusted ebitda in 2017. on may 4 , 2016 , we expanded our land-based offerings by acquiring an 80.1 % ownership interest in natural habitat , inc. ( “ natural habitat ” ) , an adventure travel and ecotourism company based in colorado . natural habitat was founded by benjamin l. bressler , who retains a 19.9 % noncontrolling interest in natural habitat . examples of natural habitat 's expeditions include african safaris in botswana , grizzly bear adventures in alaska and polar bear tours in canada . since 2003 , natural habitat has partnered with the world wildlife fund ( “ wwf ” ) to offer conservation travel , sustainable travel that directly protects nature . this agreement with wwf extends through 2023. on march 7 , 2016 , we entered into a restated credit agreement with credit suisse , amending our existing senior secured credit facility with credit suisse ( “ restated credit facility ” ) . the restated credit facility provides for our company 's existing $ 175.0 million senior secured first lien term loan facility and a new $ 45.0 million senior secured incremental revolving credit facility ( “ revolving credit facility ” ) , which includes a $ 5.0 million letter of credit sub facility . our obligations under the restated credit facility are secured by substantially all our assets . see note 7 – long-term debt in the notes to the consolidated financial statements in item 8 of this annual report on form 10-k for additional information regarding the restated credit agreement . story_separator_special_tag net cruise cost represents gross cruise cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues . net cruise cost excluding fuel represents net cruise cost excluding fuel costs . net revenue represents tour revenues less insurance proceeds , commissions and direct costs of other tour revenues . net yield represents net revenue divided by available guest nights . number of guests represents the number of guests that travel with us in a period . occupancy is calculated by dividing guest nights sold by available guest nights . voyages represent the number of ship expeditions completed during the period . foreign currency translation the u.s. dollar is the functional currency in our foreign operations and re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the consolidated statements of operations . seasonality lindblad tour revenues from the sale of guest tickets are mildly seasonal , historically larger in the first and third quarters . the seasonality of our operating results increases due to our vessels being taken out of service for scheduled maintenance or drydocking , which is typically during non-peak demand periods , in the second and fourth quarters . our drydock schedules are subject to cost and timing differences from year to year due to the availability of shipyards for certain work , drydock locations based on ship itineraries , operating conditions experienced especially in the polar regions , and the applicable regulations of class societies in the maritime industry , which require more extensive reviews periodically . drydocking impacts operating results by reducing tour revenues and increasing cost of tours . natural habitat is a seasonal business , with the majority of its tour revenue recorded in the fourth quarter from polar bear tours . 31 results of operations – consolidated we reported consolidated tour revenues , cost of tours , operating expenses , operating income and net income for the years ended december 31 , 2017 , 2016 and 2015 as shown in the following table : replace_table_token_5_th comparison of years ended december 31 , 2017 and december 31 , 2016 - consolidated tour revenues tour revenues increased $ 24.2 million , or 10 % , to $ 266.5 million in 2017 compared to $ 242.3 million in 2016. the lindblad segment increased tour revenues by $ 9.0 million driven primarily by the launch of the national geographic quest and the national geographic endeavour ii , as well as additional charter expeditions , partially offset by the cancellation of four highly booked voyages on the national geographic orion and two highly booked voyages on the national geographic sea lion . tour revenues at the natural habitat segment , which was acquired in the second quarter of 2016 , increased $ 15.2 million primarily due to a full twelve months of operations in 2017. it is estimated that total company tour revenues would have increased approximately $ 36.5 million , or 15 % , over the prior year to $ 278.9 million excluding the impact of the voyage cancellations on the national geographic orion and the national geographic sea lion and the delayed delivery of the national geographic quest . cost of tours cost of tours increased $ 16.5 million , or 14 % , to $ 135.5 million in 2017 compared to $ 119.0 million in 2016. at the lindblad segment , cost of tours increased $ 8.3 million primarily related to the launch of the national geographic quest , as well as additional charter expeditions and costs related to cancelled voyages , partially offset by lower drydock expense . at the natural habitat segment cost of tours increased $ 8.0 million primarily due to a full twelve months of operations in 2017. general and administrative expenses general and administrative expenses increased by $ 8.6 million , or 17 % , to $ 60.5 million in 2017 compared to $ 51.9 million in 2016. at the lindblad segment , general and administrative expenses increased $ 4.5 million primarily due to a $ 5.2 million increase in stock based compensation , which was mainly associated with the ceo share allocation plan , as well as $ 1.4 million in executive severance costs . the increase was partially offset by lower personnel and consulting costs . at the natural habitat segment , general and administrative expenses increased $ 4.2 million primarily due to a full twelve months of operations in 2017 . 32 selling and marketing expenses selling and marketing expenses increased $ 3.3 million , or 8 % , to $ 42.4 million in 2017 compared to $ 39.1 million in 2016 primarily due to a $ 2.1 million increase at the lindblad segment as result of increased commission and royalty expense associated with the higher tour revenues . at the natural habitat segment , selling and marketing expenses increased $ 1.2 million primarily due to a full twelve months of operations in 2017. depreciation and amortization expenses depreciation and amortization expenses decreased $ 1.1 million , or 6 % , to $ 17.4 million in 2017 compared to $ 18.4 million in 2016 primarily related to accelerated depreciation of $ 5.0 million associated with the retirement of the national geographic endeavour in 2016 , which was partially offset by depreciation in 2017 related to the addition of the national geographic endeavour ii and the national geographic quest to the fleet . other ( expense ) income other expenses were $ 8.3 million in 2017 compared to $ 12.1 million in 2016. the $ 3.8 million change was primarily due to the following factors : ● in 2017 , we recorded a $ 1.1 million gain in foreign currency translation compared to a loss of $ 0.7 million in 2016 due to the strength of the u.s. dollar in relation to the canadian dollar and the euro .
| general and administrative expenses general and administrative expenses increased by $ 12.9 million , or 33 % , to $ 51.9 million in 2016 compared to $ 39.0 million in 2015. the increase was primarily a result of $ 6.3 million in added expenses from the acquisition of natural habitat and an increase at the lindblad segment , resulting from $ 5.3 million in additional personnel and public company costs . selling and marketing expenses selling and marketing expenses increased $ 4.0 million , or 11 % , to $ 39.1 million in 2016 compared to $ 35.1 million in 2015. the increase was primarily a result of $ 2.7 million in expenses from the acquisition of natural habitat and a $ 1.5 million increase in national geographic fee amortization . merger-related expenses merger-related expenses for the year ended december 31 , 2015 were $ 13.3 million consisting of one-time professional fees associated with the merger transaction that was completed in july 2015 . 33 depreciation and amortization expenses depreciation and amortization expenses for the years ended december 31 , 2016 and 2015 were $ 18.4 million and $ 11.6 million , respectively . the $ 6.8 million increase was primarily related to the $ 5.0 million of accelerated depreciation for the national geographic endeavour described in item 8 of this annual report in note 2 – summary of significant accounting policies . other ( expense ) income other expenses were $ 12.1 million in 2016 compared to other income of $ 1.6 million in 2015. the $ 13.7 million change was primarily due to the following factors : ● a $ 0.8 million loss on disposal of national geographic endeavour in 2016 compared to the $ 5.0 million success fee income and the gain on the disposal of assets of $ 7.5 million in 2015 .
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the purchase price was five hundred thousand dollars ( $ 500,000 ) of which three hundred thousand dollars ( $ 300,000 ) was paid in cash at close and emr issued a three ( 3 ) year convertible promissory note ( “ emrg note ” ) for two hundred thousand dollars ( $ 200,000 ) . on november 7 , 2016 , an additional purchase price payment of $ 11,907 was paid to susan turcotte for net revenues earned for the period from september 1 , 2016 through september 25 , 2016. f- 10 the acquisition date estimated fair value of the consideration transferred consisted of the following : tangible assets acquired $ 18,119 liabilities assumed ( 6,395 ) net tangible assets 11,724 non-compete agreements 4,121 customer list 346,018 software 1,127,294 total purchase price $ 1,489,157 effective january 1 , 2017 ( the “ effective date ” ) , emr entered into a purchase agreement ( “ agreement ” ) by and among empower technologies , inc. , a nevada corporation ( “ eti ” ) , and its sole shareholder dr. john f. stagl ( the “ seller ” and together with eti and the company , the “ parties ” ) . pursuant to the agreement , the company purchased all of the capital stock ( as defined in the agreement ) of eti from the seller ( the “ eti shares ” ) in exchange for ( i ) $ 500,000 , subject to certain post-closing adjustments for working capital and deferred revenue , consisting of ( a ) $ 300,000 in cash , and ( b ) a convertible promissory note ( the “ note ” ) issued in favor of the seller in the principal amount of $ 150,000 payable over a 36 month period , with 6 % annual interest , convertible into common stock of the company at a price of $ 3.00 per share ( the “ purchase price ” ) . on january 16 , 2017 , in accordance with the terms and conditions of the agreement , eti became a wholly owned subsidiary of the company ( the “ closing date ” ) . the post-closing adjustments referenced above consisted of $ 4,648 reduction in cash at closing for working capital and a reduction of the convertible promissory note of $ 50,000 for deferred revenue . the acquisition date estimated fair value of the consideration transferred consisted of the following : liabilities assumed $ ( 89,911 ) net liabilities assumed ( 89,911 ) non-compete agreements 53,103 customer list 482,160 total purchase price $ 535,263 effective january 1 , 2017 ( the “ effective date ” ) , emr technologies , inc. , a nevada corporation ( the “ company ” ) entered into a purchase agreement ( “ agreement ” ) by and among digital medical solutions , inc. , a florida corporation ( “ dmsi ” ) , and its sole shareholder dr. joseph j. memminger iii ( the “ seller ” and together with dmsi and the company , the “ parties ” ) . pursuant to the agreement , the company purchased all of the capital stock ( as defined in the agreement ) of dmsi from the seller ( the “ dmsi shares ” ) in exchange for ( i ) $ 1,000,000 , subject to certain post-closing adjustments for working capital and earnings before interest , taxes , depreciation , and amortization , consisting of ( a ) $ 750,000 in cash , and ( b ) a convertible promissory note ( the “ note ” ) issued in favor of the seller in the principal amount of $ 250,000 payable over a 36 month period , with 6 % annual interest , convertible into common stock of the company at a price of $ 3.00 per share ( the “ purchase price ” ) . on march 15 , 2017 , in accordance with the terms and conditions of the agreement , dmsi became a wholly owned subsidiary of the company ( the “ closing date ” ) . the acquisition date estimated fair value of the consideration transferred consisted of the following : tangible assets acquired $ 300,932 liabilities assumed ( 135,219 ) net tangible assets 165,713 customer list 384,287 software 450,000 total purchase price $ 1,000,000 f- 11 the agreements resulted in the purchase of 100 % of the outstanding shares of fms , emrg , eti , and dmsi . as of december 31 , 2017 , the company has recorded an estimated fair value of the intangible assets of fms , emrg , eti , and dmsi based on a preliminary purchase price allocation prepared by management . as a result , during the preliminary purchase price allocation period , which may be up to one year from the business combination date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . after the preliminary purchase price allocation period , we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined . pro-forma financial information the following unaudited pro-forma information presents the combined results of operations for the periods as if the acquisition of fms , emrg , story_separator_special_tag this form 10-k and other reports filed by the company from time to time with the sec ( collectively , the “ filings ” ) contain or may contain forward-looking statements and information that are based upon beliefs of , and information currently available to , the company 's management as well as estimates and assumptions made by company 's management . story_separator_special_tag the company has experienced recurring losses from operations which have caused an accumulated deficit of $ 3,571,502 at december 31 , 2017. the ability of the company to continue its operations as a going concern is dependent on management 's plans , which include the raising of capital through debt and or equity markets with some additional funding from other traditional financing sources , including term notes , until such time that funds provided by operations are sufficient to fund working capital requirements . the company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives . the company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future . there can be no assurance that financing will be available in amounts or terms acceptable to the company , if at all . the accompanying financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . these financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern . off-balance sheet arrangements as of december 31 , 2017 , the company had no off-balance sheet arrangements . critical accounting policies we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “ management 's discussion and analysis of financial condition and results of operation. ” revenue recognition the company follows paragraph 605-10-s99-1 of the fasb accounting standards codification for revenue recognition . the company recognizes revenue when it is realized or realizable and earned . the company considers revenue realized or realizable and earned when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) title has passed to the customer , ( iii ) the sales price is fixed or determinable , and ( iv ) collectability is reasonably assured . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . 16 the company 's significant accounting estimates and assumptions affecting the consolidated financial statements were the estimates and assumptions used in valuation of equity and derivative instruments . those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions , and certain estimates or assumptions are difficult to measure or value . management bases its estimates on historical experience and on various 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 . management regularly reviews its estimates utilizing currently available information , changes in facts and circumstances , historical experience and reasonable assumptions . after such reviews , and if deemed appropriate , those estimates are adjusted accordingly . actual results could differ from those estimates . stock based compensation all stock-based payments to employees , non-employee consultants , and to nonemployee directors for their services as directors , including any grants of restricted stock and stock options , are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period . stock- based payments to nonemployees are recognized as an expense over the period of performance . such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed . in addition , for awards that vest immediately and are non-forfeitable the measurement date is the date the award is issued . fair value of financial instruments we follow paragraph 825-10-50-10 of the fasb accounting standards codification for disclosures about fair value of our financial instruments and paragraph 820-10-35-37 of the fasb accounting standards codification ( “ paragraph 820-10-35-37 ” ) to measure the fair value of our financial instruments . paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and expands disclosures about fair value measurements . to increase consistency and comparability in fair value measurements and related disclosures , paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels . the fair value hierarchy gives the highest priority to quoted prices ( unadjusted ) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs . recent accounting pronouncements in april 2016 , the fasb issued asu 2016–10 revenue from contract with customers ( topic 606 ) : identifying performance obligations and licensing “ the amendments in this update do not change the core principle of the guidance in topic 606. rather , the amendments in this update clarify the following two aspects of topic 606 : identifying performance obligations and the licensing implementation guidance , while retaining the related principles for those areas . topic 606 includes implementation guidance on ( a ) contracts with customers to transfer goods and services in exchange for consideration and ( b ) determining whether an entity 's promise to grant a license provides a customer with either a right to use the entity 's intellectual property ( which is satisfied at a point in
| results of operations summary of statements of operations for the years ended december 31 , 2017 and december 31 , 2016. replace_table_token_1_th revenues revenues of $ 635,765 for the year ended december 31 , 2017 , increased by $ 577,572 over revenues of $ 58,193 for the year ended december 31 , 2016. this was primarily attributable to the acquisitions of eti in january 2017 and dmsi in march 2017 along with a full year of operations from emrg . 14 cost of revenues cost of revenues of $ 145,217 for the year ended december 31 , 2017 , increased by $ 118,950 over cost of revenues of $ 26,267 for the year ended december 31 , 2016. this was primarily attributable to the acquisitions of eti in january 2017 and dmsi in march 2017. selling , general and administrative expenses selling , general and administrative expenses of $ 934,313 for the year ended december 31 , 2017 , decreased by $ 1,077,702 over selling , general and administrative expenses of $ 2,012,015 for the year ended december 31 , 2016. the decrease in selling , general and administrative expenses was primarily attributable to consulting fees of $ 1,620,000 in 2016 offset by an increase in selling , general , and administrative expenses resulting from the acquisitions of eti in january 2017 and dmsi in march 2017. amortization expense amortization expense of $ 846,510 for the for the year ended december 31 , 2017 , increased by $ 725,608 over amortization expense of $ 120,902 for the year ended december 31 , 2016. this was primarily attributable to a full year of amortization for fms and emrg as well as the acquisitions of eti in january 2017 and dmsi in march 2017. other expense other expense of $ 87,141 the year ended december 31 , 2017 , increased by $ 1,795 over other expense of $ 88,936 for the period ended december 31 , 2016. this was primarily due to the
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- f-9 - brixmor property group inc. and subsidiaries consolidated statements of cash flows ( in thousands ) year ended december 31 , 2014 2013 2012 operating activities : net income ( loss ) $ 132,851 $ ( 118,883 ) $ ( 160,713 ) adjustments to reconcile net income ( loss ) to net cash provided by operating activities : depreciation and amortization 442,236 450,279 510,435 debt premium and discount amortization ( 20,413 ) ( 20,973 ) ( 25,314 ) deferred financing cost amortization 8,691 10,831 10,272 above- and below-market lease intangible amortization ( 45,536 ) ( 51,379 ) ( 50,881 ) provisions of impairment — 46,653 13,913 gain on disposition of operating properties , disposition of investments in unconsolidated joint ventures and acquisition of joint venture interest ( 17,369 ) ( 5,615 ) ( 5,870 ) equity based compensation 9,452 36,395 ( 687 ) other ( 325 ) ( 1,165 ) 6,420 ( gain ) loss on extinguishment of debt , net ( 245 ) 16,498 — changes in operating assets and liabilities : restricted cash 16,920 5,562 ( 8,144 ) receivables ( 5,347 ) ( 17,055 ) ( 11,793 ) deferred charges and prepaid expenses ( 29,413 ) ( 22,826 ) ( 24,422 ) other assets 409 2,901 ( 2,692 ) accounts payable , accrued expenses and other liabilities ( 12,701 ) 767 18,323 net cash provided by operating activities 479,210 331,990 268,847 investing activities : improvements to and story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes thereto . historical results and percentage relationships set forth in the consolidated statements of operations and contained in the consolidated financial statements and accompanying notes , including trends which might appear , should not be taken as indicative of future operations . executive summary our company brixmor property group inc. and subsidiaries ( collectively , “ bpg ” ) is an internally-managed reit brixmor operating partnership lp and subsidiaries ( collectively , the “ operating partnership ” ) is the entity through which bpg conducts substantially all of its operations and owns substantially all of its assets . bpg owns 100 % of the common stock of bpg subsidiary inc. ( “ bpg sub ” ) , which , in turn , is the sole member of brixmor op gp llc ( the “ general partner ” ) , the sole general partner of the operating partnership . unless otherwise expressly stated or the context otherwise requires , “ we , ” “ us , ” and “ our ” as used herein refer to each of bpg and the operating partnership , collectively . we operate the largest wholly-owned portfolio of grocery-anchored community and neighborhood shopping centers in the united states . our high quality nation portfolio is diversified by geography , tenancy and retail format , and our shopping centers are primarily anchored by market-leading grocers . bpg has been organized and operated in conformity with the requirements for qualification and taxation as a reit under the united states federal income tax laws , commencing with our taxable year ended december 31 , 2011 , and has maintained such requirements for our taxable year ended december 31 , 2014 , and expect to satisfy such requirements for subsequent taxable years . as of december 31 , 2014 , bpg beneficially owned , through its direct and indirect interest in bpg sub and the general partner , 97.5 % of the outstanding op units . certain investments funds affiliated with the blackstone group l.p. and certain members of our current and former management collectively owned the remaining 2.5 % of the outstanding op units . we use the term “ outstanding op units ” to refer to the op units not held by bpg , bpg sub or the general partner . holders of outstanding op units may redeem their op units for cash based upon the market value of an equivalent number of shares of bpg 's common stock or , at our election , exchange their op units for shares of our common stock on a one-for-one basis subject to customary conversion rate adjustments for splits , unit distributions and reclassifications . the number of op units in the operating partnership beneficially owned by bpg is equivalent to the number of outstanding shares of bpg 's common stock , and the entitlement of all op units to quarterly distributions and payments in liquidation is substantially the same as those of bpg 's common stockholders . our primary objective is to maximize total returns to bpg 's stockholders through a combination of growth and value-creation at the asset level supported by stable cash flows . we seek to achieve this through ownership of a large , high quality , diversified portfolio of primarily grocery-anchored community and neighborhood shopping centers and by creating meaningful noi growth from this portfolio . we expect that the major drivers of this growth will be a combination of occupancy increases across both our anchor and small shop space , positive rent spreads from below-market in-place rents and significant near-term lease rollover , annual contractual rent increases across the portfolio and the realization of embedded anchor space repositioning / redevelopment opportunities . we expect the following set of core competencies to position us to execute on our growth strategies : - 35 - anchor space repositioning / redevelopment expertise - we have been a top redeveloper over the past decade , according to chain store age magazine , having completed anchor space repositioning / redevelopment projects totaling approximately $ 1 billion since january 1 , 2003. expansive retailer relationships - we believe that given the scale of our asset base and our nationwide footprint , we have a competitive advantage in supporting the growth plans of the nation 's largest retailers . we believe that we are the largest landlord by gross leasable area ( “ gla ” ) to kroger and tjx companies , as well as a key landlord to all major grocers and most major retail category leaders . story_separator_special_tag story_separator_special_tag increase in rental income for the year ended december 31 , 2014 of $ 73.2 million , as compared to the corresponding period in 2013 , was primarily due to a $ 72.3 million increase in abr driven by ( i ) an increase in billed occupancy from 90.7 % as of december 31 , 2013 to 91.3 % as of december 31 , 2014 , ( ii ) an increase in leasing spreads of 12.6 % for both new and renewal leases , and ( iii ) $ 46.8 million of abr from the acquired properties , partially offset by ( iv ) a decrease in the amortization of above and below market lease intangibles and lease settlement income due to the expiration and termination of leases . expense reimbursements the increase in expense reimbursements for the year ended december 31 , 2014 of $ 25.2 million , as compared to the corresponding period in 2013 , was primarily due to ( i ) an $ 11.2 million increase in reimbursable expenses related to the acquired properties , ( ii ) an increase in the recovery percentage for properties owned for the entirety of both periods to 86.8 % for 2014 , as compared to 85.2 % for the same period in 2013. the increased percentage of recoveries from tenants is primarily attributable to increased occupancy of our portfolio , and ( iii ) a $ 7.7 million increase in reimbursable operating expenses from properties owned for the entirety of both periods . other revenues the decrease in other revenues for the year ended december 31 , 2014 of $ 8.3 million as compared to the corresponding period in 2013 , was primarily due to $ 6.1 million of non-cash management fee income recorded in connection the vesting of equity incentive awards in the acquired properties in 2013. certain of our employees have been granted equity incentive awards in the acquired properties . these awards were granted with service conditions and performance and market conditions . as the awards were granted to the employees under our management agreement with the owners of the acquired properties , we considered the amounts earned by the employees for the amortization of the awards at their fair value as measured at each reporting period to be a component of our management fees , and then recorded a corresponding amount for compensation expense . in connection with the ipo , based on the terms of these awards , all of such awards granted to our employees vested . in exchange for the vested incentive awards , the holders received vested operating partnership units . at the time of the ipo , we recorded $ 6.1 million of additional management fee income and additional compensation expense based upon the fair value of the operating partnership units issued at the date of grant . the remaining decrease is primarily due to a decrease in fee revenues resulting from the acquisition of the acquired properties at the time of the ipo , which were managed by the company prior to the ipo and a reduction in the number of properties managed subsequent to the ipo . - 38 - operating expenses ( in thousands ) replace_table_token_11_th operating costs the increase in operating costs for the year ended december 31 , 2014 of $ 12.6 million , as compared to the corresponding period in 2013 , was due to $ 8.2 million of operating costs for the acquired properties , increased weather related expenses including snow removal expenses , utility expenses , roof and parking lot repairs and maintenance expenses . real estate taxes the increase in real estate taxes for the year ended december 31 , 2014 of $ 11.0 million , as compared to the corresponding period in 2013 , was primarily due to the acquisition of the acquired properties , the purchase of 100 % ownership in a previously unconsolidated joint venture and increased tax assessments on several of our properties primarily in texas , california and illinois . depreciation and amortization the increase in depreciation and amortization for the year ended december 31 , 2014 of $ 3.1 million , as compared to the corresponding period in 2013 , was primarily due to $ 34.9 million of depreciation and amortization recorded in connection with the acquired properties , partially offset by a decrease in intangible asset amortization due to tenant lease expirations and lease terminations . provision for doubtful accounts the increase in provisions for doubtful accounts for the year ended december 31 , 2014 of $ 0.6 million , as compared to the corresponding period in 2013 , was primarily due to the acquired properties . general and administrative the decrease in general and administrative costs for the year ended december 31 , 2014 of $ 40.9 million , as compared to the corresponding period in 2013 , was primarily due to a $ 3.2 million decrease in expense associated with the acceleration of certain of our long term incentive plans in connection with our ipo , a $ 33.1 million decrease in share based compensation expense in connection with our ipo and a decrease in personnel related expenses associated with the realignment of certain corporate functions in 2013 . - 39 - other income and expenses ( in thousands ) replace_table_token_12_th dividends and interest dividends and interest remained approximately the same for the year ended december 31 , 2014 , as compared to the corresponding period in 2013. interest expense the decrease in interest expense for the year ended december 31 , 2014 of $ 80.4 million , as compared to the corresponding period in 2013 , was primarily due to the 2013 repayment of $ 2.6 billion of debt with a weighted-average interest rate of 5.71 % and the 2014 repayment of $ 1.0 billion of debt with a weighted-average interest rate of 5.59 % , which decreased interest expense by $ 116.6 million , partially offset by an increase of $ 36.6 million of interest expense on our unsecured credit facility and term loan .
| portfolio and financial highlights as of december 31 , 2014 , we owned interests in 521 shopping centers , including 520 wholly owned shopping centers and one shopping center held through an unconsolidated joint venture . billed occupancy for the portfolio was 91.3 % and 90.7 % as of december 31 , 2014 and 2013 , respectively . leased occupancy for the portfolio was 92.8 % and 92.4 % at december 31 , 2014 and 2013 , respectively . during 2014 , we executed 2,082 leases in our portfolio totaling 13.1 million square feet of gla , including 787 new leases totaling 3.8 million square feet of gla and 1,295 renewals totaling 9.2 million square feet of gla . the average annualized cash base rent abr under the new leases increased 31.2 % from the prior tenant 's abr and increased 12.6 % for both new and renewal leases on comparable space from the abr under the prior leases . the average abr per leased square foot of these new leases in our portfolio is $ 13.45 and the average abr per leased square foot of these new and renewal leases in our portfolio is $ 12.53. the cost per square foot for tenant improvements and leasing commissions for new leases was $ 16.21 and $ 2.80 , respectively . the cost per square foot for tenant improvements and leasing commissions for renewal leases was $ 0.75 and $ 0.04 , respectively . during 2013 , we executed 2,244 leases in our portfolio totaling 12.8 million square feet of gla , including 787 new leases totaling 3.4 million square feet of gla and 1,457 renewals totaling 9.4 million square feet of gla . the abr under the new leases increased 29.5 % from the prior tenant 's abr and increased 9.8 % for both new and renewal leases on comparable space from the abr under the prior leases .
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for additional information regarding accounting for leases , see the leases section within this footnote below and note 6 , leases . f-13 contract costs the company offers a variety of commission plans to the company 's salesforce . certain compensation under these plans is earned by sales representatives solely as a result of obtaining a customer contract . these are considered incremental costs of obtaining a contract and are eligible for capitalization under asc topic 340-40 , other assets and deferred costs – contracts with customers , to the extent they are recoverable . incremental costs story_separator_special_tag financial condition and results of operations . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks , uncertainties and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please see the “ risk factors ” section for a discussion of the uncertainties , risks and assumptions associated with these statements . spin-off on october 1 , 2020 , pdl completed a spin-off of lensar , inc. , its medical device business segment . the spin-off was in the form of a dividend involving the distribution of substantially all outstanding shares of lensar common stock owned by pdl to holders of pdl common stock . the spin-off created a separate , independent , publicly traded global medical device company focused on designing , developing and marketing an advanced femtosecond laser system for the treatment of cataracts and the management of pre-existing or surgically induced corneal astigmatism . in connection with this spin-off , our stock began trading under the symbol “ lnsr ” on nasdaq . our financial statements prior to october 1 , 2020 were prepared on a stand-alone basis and were derived from pdl 's consolidated financial statements and accounting records . our financial statements reflect , in conformity with accounting principles generally accepted in the united states , our financial position , results of operations , and cash flows as the business was historically operated as part of pdl prior to the spin-off . the statements of operations include direct expenses for cost of revenue ; research and development ; selling , general and administrative expenses ; and amortization , as well as allocated expenses for certain corporate support functions that were provided by pdl , such as administration and organizational oversight , including employee benefits , finance and accounting , treasury and risk management , professional and legal services , among others . these expenses were allocated to us on the basis of direct usage when identifiable , with the remainder allocated on a proportional basis of our expenses and expenses of pdl . our management and pdl 's management considered the basis on which the expenses have been allocated to be a reasonable reflection of utilization of services provided to or to the benefit received by us during the periods presented . these allocations may not be reflective of the expenses that would have been incurred had we operated as a separate , unaffiliated entity apart from pdl . actual costs that would have been incurred if we had been a stand-alone , public company would depend on multiple factors , including the chosen organizational structure and strategic decisions made in various areas , including information technology and infrastructure . transactions with pdl that were expected to be settled for cash are reflected in our balance sheet as of december 31 , 2019. these transactions primarily included payables to pdl related to certain historical cross charge cost allocations . the cash flows related to payables due to pdl for these certain historical cross charge cost allocations are reflected in our statements of cash flows as operating activities . the cash flows , prior to our recapitalization related to the note payable due to pdl and our series a preferred stock are reflected in our statements of cash flows as financing activities since these balances represent amounts financed by pdl . transactions with pdl that were not historically settled in cash have been included in the balance sheets as a component of equity and are reflected in our statements of cash flows as financing activities . in july 2020 , we entered into a contribution and exchange agreement with pdl , whereby we issued to pdl a total of 2.8 million shares of our common stock in exchange for the extinguishment of the $ 32.6 million outstanding , including accrued interest , we owed to pdl under the term loan facility we entered into with pdl in may 2017 and amended in july 2020 , or the credit agreement . in july 2020 , we issued to pdl a total of 3.4 million shares of our common stock in exchange for the extinguishment of all 30,000 shares of our series a preferred stock , including any accrued and unpaid dividends thereon . we currently do not have any shares of series a preferred stock outstanding . on september 10 , 2020 , we amended and restated our certificate of incorporation to effect a one-for-nine reverse stock split of our common stock . all issued and outstanding shares of common stock , other common stock share numbers , equity awards and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented . story_separator_special_tag we are subject to risks common to medical device companies , including risks inherent in : our laser system development and commercialization efforts ; clinical trials ; uncertainty of regulatory actions and marketing approvals ; reliance on a network of international distributors and a network of suppliers ; levels of coverage and reimbursement by government or other third-party payors for procedures using our products ; patients ' willingness and ability to pay for procedures with significant costs not covered by or reimbursable through government or other third-party payors ; enforcement of patent and proprietary rights ; the need for future capital ; the ongoing impact of the covid-19 pandemic and all safety requirements and suggestions regarding patient treatment as required or suggested by health care authorities ; and competition associated with our products . 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 . our revenues and operating expenses are also difficult to predict and depend on several factors , including the level of ongoing research and development requirements necessary to complete development of our ally laser system , the number of laser systems we manufacture , sell , and lease on an annual basis , the availability of capital and direction from regulatory agencies , which are difficult to predict . we may be able to control the timing and level of research and development and selling , general and administrative expenses , but many of these expenditures will occur irrespective of our actions due to contractually committed activities and payments . on march 11 , 2020 , the world health organization declared a global pandemic , as the outbreak of a novel strain of coronavirus spread throughout the world . the outbreak of covid-19 has significantly disrupted our business operations and adversely impacted our business , as non-essential medical procedures , including cataract surgeries , were suspended or significantly decreased in many geographic areas in which we operate for approximately three months . actions taken to mitigate coronavirus have had , and are expected to continue to have , an adverse impact on the geographical areas in which we operate , and we are making adjustments intended to assist in protecting the safety of our employees and communities while continuing our business activities where possible and legally permitted . to date , implementation of these measures has not required material expenditures , but the temporary suspension of non-essential medical services significantly impacted our revenues and cash flows as well as increasing our inventories , and the pandemic continues to disrupt our commercial operations . during the second quarter of 2020 , we made lease concessions to several customers related to the effects of the covid-19 pandemic , which adversely impacted revenue recognized during the period . in return for these concessions , the related contracts were extended by the same number of months waived . although procedure volume has returned to pre-pandemic levels in the united states and europe , the covid-19 pandemic continues to negatively influence our ability to grow system placements at historical levels . we have also experienced minor supply chain disruptions as a result of covid-19 . we are continuing to monitor 75 developments with respect to the outbreak and its potential impacts on our operations and those of our employees , distributors , partners , suppliers , and regulators . as a result of these and other factors , our historical results are not necessarily indicative of future performance , and any interim results we previously presented are not indicative of the results that may be expected for the full fiscal year . components of our results of operations revenue total revenue comprises product revenue , service revenue and lease revenue . we derive product revenue from the sale of our laser systems and sales of our pid and procedure licenses to our surgeon customers and to our distributors outside the united states . a pid and procedure license , which may also be referred to as an application license , is required to perform each procedure using our laser system . a procedure license represents a one-time right to utilize the lensar laser system surgical application in connection with a surgery procedure . service revenue is derived from the sale of extended warranties for our laser systems that provide additional maintenance and service beyond our standard limited warranty . in some situations , we lease our laser systems to surgeons , primarily through non-cancellable leases with a fixed lease payment . we consider all components of our revenue to be recurring source revenue , with the exception of sales of our lensar laser systems . for the year ended december 31 , 2020 , approximately 85 % of our revenue was attributable to recurring sources , compared to 79 % for the year ended december 31 , 2019. cost of revenue total cost of revenue comprises cost of product revenue , cost of lease revenue and cost of service revenue . cost of product revenue primarily consists of the raw materials used in the manufacture of our products , plant and equipment overhead , salaries and wages , including stock-based compensation and benefits , packaging costs , depreciation expense , freight and other related costs , which include shipping , inspection and excess and obsolete inventory charges . cost of service revenue primarily consists of costs associated with providing maintenance services under the extended warranty contracts . cost of lease revenue primarily consists of depreciation expense associated with leased equipment and shipping costs associated with delivery of these systems . selling , general and administrative expense our selling , general and administrative expenses consist primarily of personnel costs , such as salaries and wages , including stock-based compensation and benefits , professional and legal fees , marketing , insurance , travel and other expenses .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th revenue total revenue for the year ended december 31 , 2020 was $ 26.4 million , a decrease of 13.6 % when compared to total revenue of $ 30.5 million for the year ended december 31 , 2019. the decrease was primarily driven by the impact of 77 the covid-19 pandemic and the associated decline in elective surgical procedures and sales of lensar l aser s ystems . product revenue for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 decreased by $ 3.4 million , or 14.7 % . the decrease was primarily attributable to a decrease of $ 2.4 million related to net sales of lensar laser systems . furthermore , product revenue declined due to a decrease in procedures performed . the number of procedures performed decreased by 10 % for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , primarily driven by the impact of the covid-19 pandemic and the associated decline in elective surgical procedures . service revenue for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 decreased by $ 0.1 million primarily due to decreased sales of our extended warranty services due to the impact of the covid-19 pandemic . geographically , the decrease in product and service revenue was primarily attributable to lower international net revenues due to decreased sales volume . changes in price did not have a material impact . our international sales represented 49 % and 59 % of product and service revenues for the years ended december 31 , 2020 and 2019 , respectively . the decline was primarily driven by a decrease in product sales , specifically systems , pids and procedure licenses , and was comprised of a $ 4.8 million decrease in south korea , which was partially offset by a $ 0.5
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” management overview we are a leader in performance marketing products and technologies . we specialize in customer acquisition for clients in high value , information-intensive markets or “ verticals , ” including financial services , education , home services and business-to-business technology . our clients include some of the world 's largest companies and brands in those markets . while the majority of our operations and revenue are in north america , we also have emerging businesses in brazil and india . we deliver measurable and cost-effective marketing results to our clients , typically in the form of a qualified lead , inquiry , click , call , application , or customer . leads , inquiries , clicks , calls , and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them . we are typically paid by clients when we deliver qualified leads , inquiries , clicks , calls , applications , or customers as defined by our agreements with them . references to the delivery of customers means a sale or completed customer transaction ( e.g. , bound insurance policies or customer appointments with clients ) . because we bear the costs of media , our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us . to deliver leads , inquiries , clicks , calls , applications , and customers to our clients , generally we : own or access targeted media through business arrangements ( e.g. , revenue sharing arrangements ) or by purchasing media ( e.g. , clicks from major search engines ) ; run advertisements or other forms of marketing messages and programs in that media to create visitor responses typically in the form of leads or inquiries ( e.g. , contact information ) , clicks ( to further qualification or matching steps , or to online client applications or offerings ) , calls ( to our owned and operated call centers or that of our clients or their agents ) , applications ( e.g. , for enrollment or a financial product ) , or customers ( e.g. , bound insurance policies ) ; match these leads , inquiries , clicks , calls , applications , or customers to client offerings or brands that we believe can meet visitor interests or needs and client targets and requirements ; and optimize client matches and media costs such that we achieve desired results for clients and a sound financial outcome for us . our primary financial objective has been and remains creating revenue growth from sustainable sources , at target levels of profitability . our primary financial objective is not to maximize profits , but rather to achieve target levels of profitability while investing in various growth initiatives , as we continue to believe we are in the early stages of a large , long-term market opportunity . our business derives its net revenue from fees earned through the delivery of qualified leads , inquiries , clicks , calls , applications , or customers and , to a lesser extent , display advertisements , or impressions . through a vertical focus , targeted media presence and our technology platform , we are able to deliver targeted , measurable marketing results to our clients . our two largest client verticals are financial services and education . our financial services client vertical represented 70 % , 62 % and 52 % of net revenue in fiscal years 2018 , 2017 and 2016. our education client vertical represented 19 % , 24 % and 30 % of net revenue in fiscal years 2018 , 2017 and 2016. our other client vertical , consisting of home services and business-to-business technology , represented 11 % , 14 % and 18 % of net revenue in fiscal years 2018 , 2017 and 2016. we generated the majority of our revenue from sales to clients in the united states . trends affecting our business client verticals to date , we have generated the majority of our revenue from clients in our financial services and education client verticals . we expect that a majority of our revenue in fiscal year 2019 will continue to be generated from clients in these two client verticals . 31 our financial services client vertical has been challenged by a number of factors in the past , including the limited availability of high quality media at acceptable margins caused by acquisition of media sources by competitors , increased competition for h igh quality media and changes in search engine algorithms . these effects may impact our business in the future again . to offset this impact , we have enhanced our product set to provide greater segmentation , matching , transparency and right pricing of media that have enabled better monetization to provide greater access to high quality media sources . moreover , we have entered into strategic partnerships and acquisitions to incr ease and diversify our access to quality media and client budgets . our financial services client vertical also benefits from more spending by clients in digital media and performance marketing as digital marketing continues to evolve . our education client vertical has been significantly challenged by regulations and enforcement activity affecting u.s. for-profit education institutions over the past several years . for example , in july 2015 , the federal trade commission initiated an investigation of a publicly traded u.s. for-profit education client with respect to its recruiting and enrollment practices . these and other similar regulatory and enforcement activities have affected and are expected to continue to affect our clients ' businesses and marketing practices , which have and may continue to , result in a decrease in these clients ' spending with us and other vendors and fluctuations in the volume and mix of our business with these clients . story_separator_special_tag operating expenses we classify our operating expenses into three categories : product development , sales and marketing , and general and administrative . our operating expenses consist primarily of personnel costs and , to a lesser extent , professional services fees , facilities fees and other costs . personnel costs for each category of operating expenses generally include salaries , stock-based compensation expense , bonuses , commissions and employee benefit costs . product development . product development expenses consist primarily of personnel costs , facilities fees and professional services fees related to the development and maintenance of our products and media management platform . we are constraining expenses generally to the extent practicable . sales and marketing . sales and marketing expenses consist primarily of personnel costs , facilities fees and professional services fees . we are constraining expenses generally to the extent practicable . general and administrative . general and administrative expenses consist primarily of personnel costs of our finance , legal , employee benefits and compliance , technical support and other administrative personnel , as well as accounting and legal professional services fees and facilities fees . we are constraining expenses generally to the extent practicable . interest and other income ( expense ) , net interest and other income ( expense ) , net , consists primarily of interest income , interest expense , and other income and expense . interest income represents interest earned on our cash and cash equivalents , which may increase or decrease depending on market interest rates and the amounts invested . interest expense is related to our revolving loan facility which matured in june 2017 , promissory notes issued in connection with our acquisitions , and imputed interest on non-interest bearing notes . we have no borrowing agreements outstanding as of june 30 , 2018 ; however interest expense could increase if , among other things , we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing . other income and expense includes gains and losses on foreign currency exchange , gains and losses on sales of websites and domain names that were not considered to be strategically important to our business , impairment of investments and other non-operating items . benefit from ( provision for ) income taxes we are subject to tax in the united states as well as other tax jurisdictions or countries in which we conduct business . earnings from our limited non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . 33 story_separator_special_tag higher media and marketing costs as a percentage of revenue . operating expenses replace_table_token_12_th product development expenses product development expenses increased $ 0.3 million , or 2 % , in fiscal year 2018 compared to fiscal year 2017 , primarily due to increased travel expense of $ 0.3 million mainly attributable to travel costs incurred in connection with our foreign operations . product development expenses decreased $ 3.0 million , or 18 % , in fiscal year 2017 compared to fiscal year 2016 , primarily due to decreased personnel costs of $ 1.9 million and decreased stock-based compensation expense of $ 0.5 million . the decrease in personnel costs was related to our corporate restructuring announced in november 2016 and decreased performance incentive compensation associated with the lower achievement of performance objectives . 35 sales and marketing expenses sales and marketing expenses increased $ 1.2 million , or 13 % , in fiscal year 2018 compared to fiscal year 2017 , primarily due to increased personnel costs associated with higher compensation costs and increased performance incentive compensation associated with the achievement of higher performance objectives . sales and marketing expenses decreased $ 2.8 million , or 24 % , in fiscal year 2017 compared to fiscal year 2016 , primarily due to decreased personnel costs of $ 1.7 million and decreased stock-based compensation expense of $ 0.7 million . the decrease in personnel costs was related to our corporate restructuring announced in november 2016 and decreased performance incentive compensation associated with the lower achievement of performance objectives . general and administrative expenses general and administrative expenses increased $ 2.6 million , or 16 % , in fiscal year 2018 compared to fiscal year 2017 , primarily due to increased personnel costs of $ 0.8 million , increased legal expense of $ 0.6 million , and increased professional fees of $ 0.6 million . the increase in personnel costs was related to increased performance incentive compensation associated with the higher achievement of performance objectives . the increase in legal expense was due to higher expenses related to compliance matters . the increase in professional services fees was due to the material weakness identified in fiscal year 2017. general and administrative expenses decreased $ 1.2 million , or 7 % , in fiscal year 2017 compared to fiscal year 2016 , primarily due to decreased personnel costs of $ 0.7 million and decreased litigation expense of $ 0.5 million . the decrease in personnel costs was related to our corporate restructuring announced in november 2016 and decreased performance incentive compensation associated with the lower achievement of performance objectives . the decrease in litigation expense was due to lower legal settlements . restructuring charges in november 2016 , we announced a corporate restructuring in order to accelerate margin expansion and grow cash flow . as a result , we recognized total cash and non-cash restructuring costs of $ 2.4 million related to employee severance and benefits in the fiscal year ended june 30 , 2017 , which represented substantially all costs expected to be incurred associated with the corporate restructuring .
| results of operations the following table sets forth our consolidated statements of operations for the periods indicated : replace_table_token_9_th ( 1 ) cost of revenue and operating expenses include stock-based compensation expense as follows : replace_table_token_10_th gross profit replace_table_token_11_th net revenue net revenue increased $ 104.6 million , or 35 % , in fiscal year 2018 compared to fiscal year 2017. our financial services client vertical revenue increased $ 98.3 million , or 53 % , primarily due to our enhanced product set that provides greater segmentation , matching , transparency , and right pricing of media which have enabled access to more media and client budgets and to additional strategic partnerships that have increased and diversified our access to quality media and client budgets . our education client vertical revenue increased $ 5.1 million , or 7 % , primarily due to increased client demand from not-for-profit education clients . revenue from other client vertical increased by $ 1.1 million , or 3 % , primarily due to increased client demand in our home services client vertical , partially offset by decreased client demand in our business-to-business technology vertical . 34 net revenue increased $ 2.1 million , or 1 % , in fiscal year 2017 compared to fiscal year 2016. our financial services client vertical revenue increased $ 29.6 million , or 19 % , primarily due to our enhanced product set that provides greater segmentation , transparency , and right pricing of media which have enabled access to more media and client budgets and to additional strategic partnerships that have increased and diversified our access to quality media and client budgets . our education client vertical revenue decreased $ 18.0 million , or 20 % , primarily due to exits from the channel of some for-profit education clients , decreased client demand as a result of client initiatives which include campus closures and discontinuation of certain education programs and lower budgets from certain education clients .
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notes to financial statements december 31 , 2011 , 2010 and 2009 note b - subordinated borrowings and secured demand note receivable the subordinated debt consists of the following : replace_table_token_28_th ( a ) consists of a secured demand note collateral agreement payable to muriel siebert & co. , inc. ( siebert ) , a member of the company , in the amount of $ 1,200,000 bearing 4 % interest and due august 31 , 2013. on november 1 , 2010 , the company entered into a temporary subordinated loan agreement with siebert in the amount of $ 10,000,000 bearing interest at 2 % and maturing on december 15 , 2010. the note was repaid in december 2010. interest expense paid to siebert for each of the years ended december 31 , 2011 , 2010 and 2009 amounted to $ 48,000 , $ 73,000 and $ 48,000 , respectively . ( b ) on december 14 , 2011 , the company entered into a temporary subordinated loan agreement with national financial services , its clearing broker , in the amount of $ 6,000,000 , bearing interest at the federal funds rate plus 4 % ( 4.04 % at december 31 , 2011 ) and maturing january 27 , 2012. the note was repaid on january 27 , 2012. interest expense accrued in 2011 amounted to approximately $ 11,000 . the subordinated borrowings are available in computing net capital under the securities and exchange commission 's ( sec ) uniform net capital rule . to the extent that such borrowing is required for the company 's continued compliance with minimum net capital requirements , it may not be repaid . the secured demand note receivable of $ 1,200,000 is collateralized by cash equivalents of siebert of approximately $ 1,538,000 at december 31 , 2011 and $ 1,536,000 at december 31 , 2010. interest earned on the collateral paid by siebert to sbs amounted to approximately $ 2,500 , $ 3,500 and $ 10,000 in 2011 , 2010 and 2009 , respectively . note c - furniture , equipment and leasehold improvements , net furniture , equipment , and leasehold improvements consist of the following : replace_table_token_29_th f-23 siebert , brandford , shank & co. , l.l.c . notes to financial statements december 31 , 2011 , 2010 and 2009 note d - net capital the company is subject to the sec 's uniform net capital rule 15c3-1 , which requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital , both as defined , shall not exceed 15 to 1. at december 31 , 2011 and 2010 , the company had net capital of $ 21,353,097 and $ 16,842,830 , respectively , which was $ 20,860,291 and $ 15,721,207 , respectively , in excess of its required net capital and its ratio of aggregate indebtedness to net capital was 0.35 and 1.00 to 1 , respectively . the company claims exemption from the reserve requirements under section 15c-3-3 ( k story_separator_special_tag this discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto contained elsewhere in this annual report . our working capital is invested primarily in money market funds , so that liquidity has not been materially affected . the crisis did have the effect of reducing participation in the securities market by our retail and institutional customers , which has had an adverse effect on our revenues . income of our affiliate , siebert , brandford , shank & co. , l.l.c . ( sbs ) , decreased in 2011 to $ 17,000 as a result of a sharp decline in the number of offerings by municipalities due to investor concerns over defaults by municipalities at the state and local level and the expiration of the build america bonds program . as a result , the company 's income from sbs decreased in 2011 to $ 8,000. the company 's expenses during 2011 , 2010 and 2009 include the costs of an arbitration proceeding commenced by a former employee following the termination of his employment , which remains unresolved . the company believes that the action is without merit , but the costs of defense , which are included as professional expenses , have adversely affected the company 's results of operations and may continue to affect the results of operations until the action is completed . competition in the brokerage industry remains intense . the following table sets forth certain metrics as of december 31 , 2011 and 2010 and for the twelve months ended december 31 , 2011 and 2010 , respectively , which we use in evaluating our business . replace_table_token_4_th replace_table_token_5_th - 14 - description : total retail trades represents retail trades that generate commissions . average commission per retail trade represents the average commission generated for all types of retail customer trades . retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits . retail customer money market fund value represents all retail customers accounts invested in money market funds . retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions . retail customer accounts with positions represents retail customers with cash and or securities in their accounts . we , like other securities firms , are directly affected by general economic and market conditions including fluctuations in volume and prices of securities , changes and the prospect of changes in interest rates , and demand for brokerage and investment banking services , all of which can affect our profitability . in addition , in periods of reduced financial market activity , profitability is likely to be adversely affected because certain expenses remain relatively fixed , including salaries and related costs , portions of communications costs and occupancy expenses . story_separator_special_tag accordingly , earnings for any period should not be considered representative of earnings to be expected for any other period . competition continues to intensify among all types of brokerage firms , including established discount brokers and new firms entering the on-line brokerage business . electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we do not currently impose , and also direct their orders to market makers where they have a financial interest . continued competition could limit our growth or even lead to a decline in our customer base , which would adversely affect our results of operations . industry-wide changes in trading practices , such as the continued use of electronic communications networks , are expected to put continuing pressure on commissions/fees earned by brokers while increasing volatility . we are a party to an operating agreement ( the operating agreement ) , with suzanne shank and napoleon brandford iii , the two individual principals ( the principals ) of sbs financial products company , llc , a delaware limited liability company ( sbsfpc ) . pursuant to the terms of the operating agreement , the company and each of the principals made an initial capital contribution of $ 400,000 in exchange for a 33.33 % initial interest in sbsfpc . sbsfpc engages in derivatives transactions related to the municipal underwriting business . the operating agreement provides that profit and loss will be shared 66.66 % by the principals and 33.33 % by us . operations from sbsfpc is considered to be integral to our operations . on january 23 , 2008 , our board of directors authorized a buy back of up to 300,000 shares of our common stock . under this program , shares are purchased from time to time , at our discretion , in the open market and in private transactions . during 2011 we repurchased 17,179 shares of common stock for an average price of $ 1.68. critical accounting policies we generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations . our management makes significant estimates that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements . the estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations , invoices , or other documentation , at the time the books are closed for a period . we use our best judgment , based on our knowledge of revenue transactions and expenses incurred , to estimate the amount of such revenue and expenses . we are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations , invoices or other documentation . estimates are also used in determining the useful lives of intangibles assets , and the fair market value of intangible assets . our management believes that its estimates are reasonable . - 15 - story_separator_special_tag trade executions for retail customers and a decrease in execution charges for institutional debt and equity customers . professional fees decreased $ 209,000 , or 3.1 % , from the prior year to $ 6.5 million primarily due to a decrease in consulting fees relating to the commission recapture business and sarbanes-oxley compliance . advertising and promotion expense decreased $ 413,000 , or 50.8 % , from the prior year to $ 400,000 primarily due to a decrease in print advertising , production and airing of television commercials in the florida region . communications expense decreased $ 247,000 , or 9.5 % , from the prior year to $ 2.4 million primarily due to a decrease in hosting and communication costs associated with our website . occupancy costs decreased $ 5,000 from the prior year to $ 1.3 million due to a decrease in rents in the new jersey office and electric costs offset by an increase in rents in our florida branches . impairment of intangibles were the result of the company writing down the carrying value of its unamortized intangible assets to fair value and recorded a related impairment loss in 2010. other general and administrative expenses decreased $ 75,000 , or 2.6 % , from the prior year to $ 2.9 million primarily due to an increase in office expense , computer costs , placement fees , depreciation , registration fees and dues relating to the securities investor protection corporation offset by decreases in travel and entertainment , supplies and transportation . income from our equity investment in siebert , brandford , shank & co. , l.l.c. , an entity in which siebert holds a 49 % equity interest ( sbs ) , for 2010 was $ 4.1 million compared to income of $ 4.3 million for 2009 , a decrease of $ 185,000 , or 4.3 % , primarily due to increased employee compensation offset by increased revenues as sbs participated in more and larger municipal bond offerings as senior- and co-manager . loss from our equity investment in sbs financial products company , llc , an entity in - 17 - which we hold a 33 % equity interest ( sbsfpc ) , for 2010 was $ 24,000 as compared to a loss of $ 63,000 from the same period in 2009. this decrease was due to a change in mark to market loss in positions in 2010. results of operations of equity investees is considered to be integral to our operations and material to the results of
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues . total revenues for 2011 were $ 20.2 million , a decrease of $ 571,000 , or 2.8 % , from 2010. commission and fee income decreased $ 2.8 million , or 16.5 % , from the prior year to $ 14.3 million primarily due to recording $ 3 million as commission and fee income as part of our negotiations with our primary clearing firm for a three year fully disclosed clearing agreement in the second quarter of 2010. investment banking revenues increased $ 1.6 million , or 69.8 % , from the prior year to $ 3.8 million in 2011 due to our participation in more new issues in the equity and debt capital markets . trading profits increased $ 768,000 , or 62.1 % , from the prior year to $ 2.0 million primarily due to an increase in trading volume primarily in the debt markets and the addition of debt sales-traders in the first quarter of 2011. income from interest and dividends decreased $ 72,000 , or 47.7 % , from the prior year to $ 79,000 primarily due to lower yields on investments in money market funds and lower cash balances and interest earned in 2010 for a subordinated loan that was provided to an affiliate . expenses . total expenses for 2011 were $ 25.6 million , a decrease of $ 295,000 , or 1.1 % , from the prior year . employee compensation and benefit costs increased $ 804,000 , or 8.8 % , from the prior year to $ 10.0 million . this increase was due to increases in commissions paid based on production and the cost of health insurance offset by an across the board reduction in headcount .
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without limitation , any statements preceded or followed by or that include the words `` targets , '' `` plans , '' `` believes , '' `` expects , '' `` intends , '' `` will , '' `` likely , '' `` may , '' `` anticipates , '' `` estimates , '' `` projects , '' `` should , '' `` would , '' `` positioned , '' `` strategy , '' `` future '' or words , phrases or terms of similar substance or the negative thereof , are forward-looking statements . these forward-looking statements are not guarantees of future performance and are subject to risks , uncertainties , assumptions and other factors , some of which are beyond our control , which could cause actual results to differ materially from those expressed or implied by such forward-looking statements . these factors include overall global economic and business conditions , including worldwide demand for oil and gas ; the ability to achieve the benefits of our restructuring plans ; the ability to successfully identify , finance , complete and integrate acquisitions , including the ability to successfully integrate and achieve the expected benefits of the acquisition of erico global company ; competition and pricing pressures in the markets we serve ; the strength of housing and related markets ; volatility in currency exchange rates and commodity prices ; inability to generate savings from excellence in operations initiatives consisting of lean enterprise , supply management and cash flow practices ; increased risks associated with operating foreign businesses ; the ability to deliver backlog and win future project work ; failure of markets to accept new product introductions and enhancements ; the impact of changes in laws and regulations , including those that limit u.s. tax benefits ; the outcome of litigation and governmental proceedings ; and the ability to achieve our long-term strategic operating goals . additional information concerning these and other factors is contained in our filings with the u.s. securities and exchange commission , including in item 1a of this annual report on form 10-k. all forward-looking statements speak only as of the date of this report . pentair plc assumes no obligation , and disclaims any obligation , to update the information contained in this report . overview pentair plc is a focused diversified industrial manufacturing company comprising four reporting segments : valves & controls , flow & filtration solutions , water quality systems and technical solutions . we classify our operations into business segments based primarily on types of products offered and markets served . for the year ended december 31 , 2015 , valves & controls , flow & filtration solutions , water quality systems and technical solutions accounted for 29 percent , 22 percent , 21 percent and 28 percent of total revenues , respectively . in december 2013 , the company 's board of directors approved changing the company 's jurisdiction of organization from switzerland to ireland . at an extraordinary meeting of shareholders on may 20 , 2014 , pentair ltd. shareholders voted in favor of a reorganization proposal pursuant to which pentair ltd. would merge into pentair plc and all pentair ltd. common shares would be cancelled and all holders of such shares would receive ordinary shares of pentair plc on a one-to-one basis . the reorganization transaction was completed on june 3 , 2014 , at which time pentair plc replaced pentair ltd. as the ultimate parent company ( the `` redomicile '' ) . shares of pentair plc began trading on the new york stock exchange ( `` nyse '' ) on june 3 , 2014 under the symbol `` pnr '' , the same symbol under which pentair ltd. shares were previously traded . although our jurisdiction of organization is ireland , we manage our affairs so that we are centrally managed and controlled in the united kingdom ( the `` u.k. '' ) and therefore have our tax residency in the u.k. our former parent company , pentair ltd. , took its form on september 28 , 2012 as a result of a reverse acquisition ( the `` merger '' ) involving pentair , inc. and an indirect , wholly-owned subsidiary of flow control ( defined below ) , with pentair , inc. surviving as an indirect , wholly-owned subsidiary of pentair ltd. `` flow control '' refers to pentair ltd. prior the merger . prior to the merger , tyco international ltd. ( `` tyco '' ) engaged in an internal restructuring whereby it transferred to flow control certain assets related to the flow control business of tyco , and flow control assumed from tyco certain liabilities related to the flow control business of tyco . on september 28 , 2012 prior to the merger , tyco effected a spin-off of flow control through the pro-rata distribution of 100 % of the outstanding ordinary shares of flow control to tyco 's shareholders ( the `` distribution '' ) , resulting in the distribution of approximately 110.9 million of our ordinary shares to tyco 's shareholders . the merger was accounted for as a reverse acquisition under the purchase method of accounting with pentair , inc. treated as the acquirer . on january 30 , 2014 , we acquired , as part of water quality systems , the remaining 19.9 percent ownership interest in two entities , a u.s. entity and an international entity ( collectively , pentair residential filtration or `` prf '' ) , from ge water & process technologies ( a unit of general electric company ) ( `` ge '' ) for $ 134.3 million in cash . prior to the acquisition , we held a 80.1 percent ownership equity interest in prf , representing our and ge 's respective global water softener and residential water filtration businesses . 25 on july 28 , 2014 , our board of directors approved a decision to exit our water transport business in australia . story_separator_special_tag tax benefits ; an increase in valuation allowances during 2015 ; and 29 the unfavorable tax impact of transaction costs related to the erico acquisition . these increase s were partially offset by : the mix of global earnings toward lower tax jurisdictions ; and non-recurring withholding taxes during 2014 which did not recur in 2015. the 2.9 percentage point decrease in the effective tax rate in 2014 from 2013 was primarily due to : the mix of global earnings toward lower tax jurisdictions . the decrease was partially offset by : increase in withholding taxes that are non-recurring . segment results of operations this summary that follows provides a discussion of the results of operations of each of our four reportable segments ( valves & controls , flow & filtration solutions , water quality systems and technical solutions ) . each of these segments comprises various product offerings that serve multiple end markets . we evaluate performance based on sales and segment income and use a variety of ratios to measure performance of our reporting segments . during the third quarter of 2015 , we revised our definition of segment income to exclude intangible amortization to better reflect how management assesses performance of the business . segment income represents operating income ( loss ) from continuing operations exclusive of intangible amortization , certain acquisition related expenses , costs of restructuring activities , impairments and other unusual non-operating items . valves & controls the net sales and segment income for valves & controls were as follows : replace_table_token_8_th net sales the components of the change in valves & controls net sales were as follows : replace_table_token_9_th the 22.6 percent decrease in valves & controls net sales in 2015 from 2014 was primarily the result of : lower shipments and orders within the oil & gas and industrial businesses and broad-based slowing of global capital spending ; continued sales decline in the mining industry ; and a strong u.s. dollar causing unfavorable foreign currency effects . these decrease s were partially offset by : sales growth in developing regions , including southeast asia , india and eastern europe . 30 the 3.0 percent decrease in valves & controls net sales in 2014 from 2013 was primarily the result of : decreased sales volume related to lower shipments for our energy products , particularly in the mining industry ; and unfavorable foreign currency effects . these decrease s were partially offset by : increased sales volume for our industrial products ; and selective increases in selling prices to mitigate inflationary cost increases . segment income the components of the change in valves & controls segment income from the prior period were as follows : replace_table_token_10_th the 4.7 percentage point decrease in segment income for valves & controls as a percentage of net sales in 2015 from 2014 was primarily the result of : lower core sales volumes , which resulted in decreased leverage on operating expenses ; and inflationary cost increases . these decrease s were partially offset by : cost savings generated from back-office consolidation , reduction in personnel and other lean initiatives . the 2.6 percentage point increase in segment income for valves & controls as a percentage of net sales in 2014 from 2013 was primarily the result of : selective increases in selling price to mitigate inflationary cost increases related to raw materials and labor costs ; favorable project mix due to higher margin projects in 2014 ; and savings generated from our pims initiatives , including lean and supply management practices . these increase s were partially offset by : costs related to the operating model transformation investment in 2014. flow & filtration solutions the net sales and segment income for flow & filtration solutions were as follows : replace_table_token_11_th 31 net sales the components of the change in flow & filtration solutions net sales were as follows : replace_table_token_12_th the 10.1 percent decrease in flow & filtration solutions sales in 2015 from 2014 was primarily the result of : decrease in core sales due to significant declines in the global agricultural industry , broad-based slowing of global capital spending and customer inventory de-stocking ; decreased sales volume related to the loss of a customer in the residential retail business during the second half of 2014 ; and a strong u.s. dollar causing unfavorable foreign currency effects . these decrease s were partially offset by : selective increases in selling prices to mitigate inflationary cost increases ; core sales growth in our food & beverage business ; and core growth in developing regions , including eastern europe and southeast asia . the 2.9 percent decrease in flow & filtration solutions sales in 2014 from 2013 was primarily the result of : decreased sales volume related to the loss of a customer in the residential retail business and sales declines in the infrastructure business ; loss of revenue related to the divestiture of a business at the end of the fourth quarter of 2013 ; and unfavorable foreign currency effects . these decrease s were partially offset by : selective increases in selling prices to mitigate inflationary cost increases . segment income the components of the change in flow & filtration solutions segment income from the prior period were as follows : replace_table_token_13_th the 0.5 percentage point increase in segment income for flow & filtration solutions as a percentage of net sales in 2015 from 2014 was primarily the result of : price increases more than offsetting inflationary cost increases ; savings driven by restructuring actions ; and savings generated from our pims initiatives including lean and supply management practices .
| consolidated results of operations the consolidated results of operations were as follows : replace_table_token_6_th n.m. not meaningful net sales the components of the consolidated net sales change were as follows : replace_table_token_7_th the 8.4 percent decrease in consolidated net sales in 2015 from 2014 was primarily the result of : a slowdown in industrial capital spending , particularly in the oil & gas and energy-related businesses , driving core sales declines in valves & controls ; slowing economic activity in china , brazil and other developing markets ; and a strong u.s. dollar causing unfavorable foreign currency effects . these decrease s were partially offset by : core sales growth in water quality systems and technical solutions , primarily as the result of increased volume in the united states and canada ; 27 sales of $ 147.0 million in 2015 as a result of the erico acquisition ; core sales growth in our food & beverage and residential & commercial businesses ; and selective increases in selling prices to mitigate inflationary cost increases . the 0.6 percent increase in consolidated net sales in 2014 from 2013 was primarily the result of : core sales growth in technical solutions , primarily as the result of increased volume in the united states , china and canada ; core sales growth in water quality systems due to higher sales of certain pool products serving north american residential housing and increased demand for global food & beverage solutions ; and selective increases in selling prices to mitigate inflationary cost increases . these increase s were partially offset by : unfavorable foreign currency effects ; decreases in sales of energy products in valves & controls and sales declines in residential retail product sales and infrastructure businesses in flow & filtration solutions ; and loss of revenue related to the 2013 divestitures of businesses in technical solutions and flow & filtration solutions .
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overview general we were incorporated under the general corporation laws of the state of delaware on february 18 , 2005. we were primarily established for the purpose of investing in subordinated loans , mezzanine debt , preferred stock and warrants to purchase common stock of small and medium-sized companies in connection with buyouts and other recapitalizations . we also invest in senior secured loans , common stock and , to a much lesser extent , senior and subordinated syndicated loans . our investment objective is to generate both current income and capital gains through these debt and equity instruments . we operate as a closed-end , non-diversified management investment company and have elected to be treated as a business development company ( bdc ) under the investment company act of 1940 , as amended ( the 1940 act ) . in addition , for tax purposes , we have elected to be treated as a regulated investment company ( ric ) under the internal revenue code of 1986 , as amended ( the code ) . we focus on investing in small and medium-sized private u.s. businesses that meet certain criteria , including some but not all of the following : the potential for growth in cash flow , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , profitable operations based on the borrower 's cash flow , reasonable capitalization of the borrower ( usually by leveraged buyout funds or venture capital funds ) and the potential to realize appreciation and gain liquidity in our equity position , if any . we anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the borrower , a public offering of the borrower 's stock or by exercising our right to require the borrower to repurchase our warrants , though there can be no assurance that we will always have these rights . we lend to borrowers that need funds to finance growth , restructure their balance sheets or effect a change of control . business environment while economic conditions generally appear to be improving , we remain cautious about a long-term economic recovery . the recent recession in general , and the disruptions in the capital markets in particular , have impacted our liquidity options and increased the cost of debt and equity capital . many of our portfolio companies , as well as those that we evaluate for possible investments , are impacted by these economic conditions . if these conditions persist , it may affect their ability to repay our loans or engage in a liquidity event , such as a sale , recapitalization or initial public offering . despite the challenges in these uncertain economic times , during the fiscal year ended march 31 , 2012 , we have been able to complete both a preferred stock public offering and a renewal and increase in borrowing capacity under our line of credit ( our credit facility ) . in march 2012 , we issued 1,600,000 shares of 7.125 % series a cumulative term preferred stock ( our term preferred stock ) for gross proceeds of $ 40.0 million . in addition , in october 2012 we entered into a fourth amended and restated credit agreement that increased the commitment amount to $ 60.0 million , reduced the interest rate and extended the maturity of our credit facility until 2014. we discuss each of the foregoing in detail below under recent developments . while conditions remain challenging , we are seeing an increase in the number of new investment opportunities consistent with our investing strategy of providing subordinated debt with equity enhancement features and direct equity in support of management and sponsor-led buyouts of small and medium-sized companies . these new investment opportunities translated into four new proprietary debt and equity deals during the year ended march 31 , 2012. in april 2011 , we invested $ 16.4 million in mitchell rubber products , inc. ( mitchell ) , which develops , mixes and molds rubber compounds for specialized applications in the non-tire rubber market . in august 2011 , we invested $ 28.1 million in sog specialty knives and tools , llc ( sog ) , which designs and produces specialty knives and tools for the hunting/outdoors , military/law enforcement and industrial markets . in september 2011 , we invested $ 14.1 million in sbs industries , inc. ( sbs ) , a manufacturer and value-added distributor of special fasteners and threaded screw products . in december 2011 , we invested $ 19.6 million in channel technologies group , llc ( channel technologies ) , which designs and manufactures products used in military , commercial and medical applications . subsequent to our fiscal year end , in may 2012 , we invested $ 9.5 million in packerland whey products , inc. ( packerland ) , a processor of raw fluid whey , specializing in the production of protein supplements for dairy and beef cattle . over the past two years , we have invested approximately $ 123.5 million into seven new proprietary transactions . the increased investing opportunities in the marketplace also presented opportunities for us to achieve realized gains and other income . in april 2011 , we sold our equity investment in and received partial redemption of our preferred stock , while investing new subordinated debt , in cavert ii holding corporation ( cavert ) as part of a recapitalization . the gross cash proceeds to us from the sale of our equity in cavert were $ 5.6 million , resulting in a realized gain of $ 5.5 million . at the same time , we received $ 2.3 million 35 in a partial redemption of our preferred stock , received $ 0.7 million in preferred dividends and invested $ 5.7 million in new subordinated debt of cavert . in fiscal year 2011 , we achieved a significant amount of liquidity and realized gains with the sales of a. stucki holding corp. ( a . story_separator_special_tag challenges in the current market are intensified for us by certain regulatory limitations under the code and the 1940 act , as well as contractual restrictions under the agreement governing our credit facility that further constrain our ability to access the capital markets . to maintain our qualification as a ric , we must satisfy , among other requirements , an annual distribution requirement to pay out at least 90 % of our ordinary income and short-term capital gains to our stockholders . because we are required to distribute our income in this manner , and because the illiquidity of many of our investments makes it difficult for us to finance new investments through the sale of current investments , our ability to make new investments is highly dependent upon external financing . our external financing sources include the issuance of equity securities , debt securities or other leverage , such as borrowings under our credit facility . our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ratio ( as defined in section 18 ( h ) of the 1940 act ) , of at least 200 % on our senior securities . 36 market conditions have also affected the trading price of our common stock and thus our ability to finance new investments through the issuance of equity . on may 18 , 2012 , the closing market price of our common stock was $ 6.91 , which represented a 26.3 % discount to our march 31 , 2012 , net asset value ( nav ) per share of $ 9.38. when our stock trades below nav , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock at an issuance price below nav per share without stockholder approval other than through sales to our then-existing stockholders pursuant to a rights offering . at our annual meeting of stockholders held on august 4 , 2011 , our stockholders approved a proposal which authorizes us to sell shares of our common stock at a price below our then current nav per share , subject to certain limitations , including that the cumulative number of shares issued and sold pursuant to such authority does not exceed 25 % of our then outstanding common stock immediately prior to each such sale , for a period of one year from the date of approval , provided that our board of directors makes certain determinations prior to any such sale . this proposal is in effect for one year from the date of stockholder approval . at our next annual stockholders meeting scheduled to take place on august 9 , 2012 , we will ask our stockholders to vote in favor of this proposal for another year . the unsteady economic recovery may also continue to decrease the value of collateral securing some of our loans , as well as the value of our equity investments , which has impacted and may continue to impact our ability to borrow under our credit facility . additionally , our credit facility contains covenants regarding the maintenance of certain minimum loan concentrations and net worth covenants , which are affected by the decrease in value of our portfolio . failure to meet these requirements would result in a default which , if we are unable to obtain a waiver from our lenders , would result in the acceleration of our repayment obligations under our credit facility . as of march 31 , 2012 , we were in compliance with all of the credit facility 's covenants . we expect that , given these regulatory and contractual constraints in combination with current market conditions , debt and equity capital may be costly or difficult for us to access in the near term . however , in light of the general stabilization of our portfolio valuations over the past two years and increased investing opportunities that we see in our target markets , as demonstrated by our seven originated investments totaling $ 123.5 million , we are cautiously optimistic about the long-term prospects for the u.s. economy and will continue our strategy of making conservative investments in businesses that we believe will weather the current economic conditions and that are likely to produce attractive long-term returns for our stockholders . despite the liquidity that we were able to generate with the a. stucki , chase and cavert transactions , our recent public offering of term preferred stock and the increased commitment on our credit facility , a significant amount of this liquidity has been used in our origination activity . future investment activity may be dependent on our access to capital , which may be limited or challenged and other events beyond our control may still encumber our ability to make new investments in the future . story_separator_special_tag july 12 , 2011 , our board of directors approved the renewal of this administration agreement with our administrator through august 31 , 2012. we expect that our board of directors will approve a further one-year renewal in july 2012 . 39 results of operations comparison of the fiscal year ended march 31 , 2012 , to the fiscal year ended march 31 , 2011 replace_table_token_6_th nm = not meaningful investment income total investment income decreased by 18.5 % for the year ended march 31 , 2012 , as compared to the prior year .
| investment highlights during the fiscal year ended march 31 , 2012 , we disbursed $ 76.9 million in new debt and equity investments and extended $ 14.4 million of investments to existing portfolio companies through revolver draws or additions to term notes . since our initial public offering in june 2005 through march 31 , 2012 , we have made 168 investments in 94 companies for a total of approximately $ 716.5 million , before giving effect to principal repayments on investments and divestitures . investment activity during our fiscal year ended march 31 , 2012 , the following significant transactions occurred : in april 2011 , we recapitalized our investment in cavert , from which we received gross cash proceeds of $ 5.6 million from the sale of our common equity , resulting in a realized gain of $ 5.5 million , $ 2.3 million in a partial redemption of our preferred stock and $ 0.7 million in preferred dividends . at the same time , we invested $ 5.7 million in new subordinated debt in cavert . cavert was reclassified from a control investment to an affiliate investment during the three months ended june 30 , 2011. in april 2011 , we invested $ 16.4 million in a new control investment , mitchell , consisting of subordinated debt and preferred and common equity . mitchell , headquartered in mira loma , california , develops , mixes and molds rubber compounds for specialized applications in the non-tire rubber market . in may 2011 , we received full repayment of our syndicated loan to fifth third processing solutions , llc , resulting in net cash proceeds of $ 0.5 million . in july 2011 , we received full repayment of our last remaining syndicated loan , to survey sampling , llc ( survey sampling ) , resulting in net cash proceeds of $ 2.3 million . in august 2011 , we invested $ 28.1 million in a new control investment , sog , consisting of senior debt and preferred equity .
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the lease does not provide a readily determinable implicit rate . therefore , the company discount lease payments based on an estimate of its incremental borrowing rate . ( in thousands ) year ended march 31 , 2020 ( $ ) operating lease costs 10 short term lease costs 206 variable lease costs - total lease costs 216 right of use assets and lease liabilities for our operating leases were recorded in the consolidated balance sheet as follows : ( in thousands ) year ended march 31 , 2020 ( $ ) assets operating lease asset 574 total lease assets 574 liabilities current liabilities : accrued liabilities and others ( current portion – operating lease liability ) 89 noncurrent liabilities : operating lease liability ( non-current portion – operating lease liability ) 485 total lease liability 574 supplemental cash flow and non-cash information related to leases is as follows : ( in thousands ) year ended march 31 , 2020 ( $ ) cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases 10 right-of-use assets obtained in exchange for operating lease obligations 581 replace_table_token_17_th 56 note 10 – accrued liabilities and others replace_table_token_18_th salaries and other contribution related liabilities consist of accrued salaries to employees . provision for expenses include provision for legal , professional , and marketing expenses , including a provision of $ 200 thousand for the lawsuit as discussed in note 12 , commitments and contingencies . other current liability also includes $ 89 thousand of current operating lease liability in fiscal 2020 and statutory payables of approximately $ 27 thousand and $ 4 thousand as of march 31 , 2020 and 2019 , respectively . note 1 1 – loans and other liabilities short-term loan : as of march 31 , 2020 , the company had one secured loan of $ 50 thousand , at an annual interest rate of 15 % . other liability : replace_table_token_19_th the statutory reserve is a gratuity reserve for employees in our subsidiaries in india . note 1 2 – commitments and contingencies the company may be involved in legal proceedings , claims and assessments arising in the ordinary course of business . such matters are subject to many uncertainties , and outcomes are not predictable with assurance . there are no such matters that are deemed material to the consolidated financial statements as of march 31 , 2020 , except as disclosed below . as of march 31 , 2020 , several law firms have filed shareholder lawsuits , including three derivative suits ( two of which have been consolidated ) , citing , among other story_separator_special_tag the following discussion and analysis apply to fiscal 2020 that ends on march 31 , 2020 , and fiscal 2019 that ends on march 31 , 2019. these statements should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties discussed in the sections entitled item 1a . “ risk factors ” and “ forward-looking statements ” included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends . we caution readers not to place undue reliance on any forward-looking 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 forward-looking statements . overview our primary source of revenue in fiscal 2020 and 2019 , is from our infrastructure segment . in fiscal 2020 , we significantly reduced the buying and selling of construction materials in hong kong because of what we believe to be a slow-down in the hong kong economy due , in part , to widespread protests , along with the spread of covid-19 . the company 's infrastructure segment , involves : ( i ) execution of construction contracts – the company is executing a road building contract in kerala , india valued initially at approximately $ 0.6 million . throughout fiscal 2020 , the company worked on execution of the contract as well as sought approval for an expansion of the contract . the total value of the contract was increased to approximately $ 1.1 million . the company estimates that it will take between 12 and 15 months to complete the work . work on this project has been temporarily suspended due to covid-19 . we expect to re-start the project in second quarter of fiscal 2021 . ( ii ) purchase and resale of physical commodities used in infrastructure – this business line includes the purchase and resale of commodities , including steel , wooden doors , marble , and tiles , among others . this work has been adversely affected due to covid-19 . ( iii ) rental of heavy construction equipment – we own heavy construction equipment such as motor grader , transit mixers and rollers , that we rent to construction contractors . story_separator_special_tag we base our estimates on historical experience , as appropriate , and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates , and such differences may be material . management believes that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations . revenue recognition the company recognizes revenue under asc 606 , revenue from contracts with customers ( asc 606 ) . the core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . asc 606 prescribes a 5-step process to achieve its core principle . the company recognizes revenue from trading , rental , or product sales as follows : i. identify the contract with the customer ii . identify the contractual performance obligations iii . determine the amount of consideration/price for the transaction iv . allocate the determined amount of consideration/price to the performance obligations v. recognize revenue when or as the performing party satisfies performance obligations . the consideration/price for the transaction ( performance obligation ( s ) ) is determined as per the agreement or invoice ( contract ) for the services and products in the infrastructure and life sciences segment . revenue in the infrastructure business is recognized for the renting business when the equipment is rented , and terms of the agreement has been fulfilled during the period . the revenue from the purchase and resale of physical infrastructure commodities is recognized once the bill of lading along with the invoice have been transferred to the customer . revenue from the execution of infrastructure contracts is recognized on the basis of output method as and when part of the performance obligation has been completed and approval from the contracting agency has been obtained after survey of the performance completion as of that date . in the life sciences segment , the revenue from the wellness and lifestyle business is recognized once goods have been sold to the customer and the performance obligation has been completed . we license our products to processors . the royalty income is recognized once goods have been sold to its customer by the processor . net sales disaggregated by significant products and services for fiscal 2020 and fiscal 2019 were as follows ( in thousands ) : replace_table_token_4_th ( 1 ) rental income consists of income from rental of heavy construction equipment . ( 2 ) construction income stems from the execution of contracts either directly or as a subcontractor . there was revenue of $ 101 thousand from the $ 1.1 million nhai construction contract during fiscal 2020. the company expects to complete the project 12 and 15 months . ( 3 ) relates to the income from purchase and resale of physical commodities used in infrastructure , like steel , wooden doors , marble , and tiles . ( 4 ) relates to revenue from life sciences segment such as sale of hemp crude extract , hemp isolate , and hemp distillate and royalty income from sale of hyalolex , now named hyalolex drops of clarity . ( 5 ) relates to income from tolling services . 37 accounts receivable we make estimates of the collectability of our accounts receivable by analyzing historical payment patterns , customer concentrations , customer creditworthiness , and current economic trends . if the financial condition of a customer deteriorates , additional allowances may be required . we had $ 133 thousand of accounts receivable , net of provision , for doubtful debt of $ 9 thousand as of march 31 , 2020 as compared to $ 84 thousand , net of provision , for doubtful debt of $ 6 thousand as of march 31 , 2019. short-term and long-term investments our policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal , meets liquidity needs , avoids inappropriate concentrations , and delivers an appropriate yield in relationship to our investment guidelines and market conditions . short-term and long-term investments consist of corporate , various government agency and municipal debt securities , as well as certificates of deposit that have maturity dates that are greater than 90 days . certificates of deposit and commercial paper are carried at cost which approximates fair value . available-for-sale securities : investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position . unrealized holding gains and losses for available-for-sale securities ( including those classified as current assets ) shall be excluded from earnings and reported in other comprehensive income until realized except as indicated in the following sentence . all or a portion of the unrealized holding gain and loss of an available-for sale security that is designated as being hedged in a fair value hedge shall be recognized in earnings during the period of the hedge , pursuant to paragraphs 815-25-35-1 through 35-4. investments are initially measured at cost , which is the fair value of the consideration given for them , including transaction costs . where the company 's ownership interest is in excess of 20 % and the company enjoys significant interest , the company has accounted for the investment based on the equity method in accordance with asc 323 , “ investments – equity method and joint ventures ” . under the equity method , the company 's share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements of operations and its share of post-acquisition movements in accumulated other comprehensive income ( loss ) is recognized in other comprehensive income ( loss ) .
| results of operations fiscal 2020 compared to fiscal 2019 the following table presents an overview of our results of operations for fiscal 2020 and fiscal 2019 : statement of operations ( in thousands , audited ) replace_table_token_1_th revenue – revenue was primarily derived from our infrastructure segment in both fiscal 2020 and 2019. revenue was approximately $ 4,072 thousand and $ 5,116 thousand , for fiscal 2020 and 2019 , respectively , representing a decline of $ 1,044 thousand or 20 % . this decrease in revenue is attributed to a decrease in the infrastructure business , especially in the last quarter of fiscal 2020 due to the outbreak of covid-19 and the slowing down of the hong kong economy as a result of widespread protests . we have limited visibility on when the infrastructure business will normalize and expect a significant decrease in revenue from the infrastructure business until operations resume following the covid-19 pandemic . 34 cost of revenue – cost of revenue amounted to approximately $ 3,957 thousand for fiscal 2020 , compared to $ 4,984 thousand in fiscal 2019 , a decrease of approximately $ 1,027 thousand or 21 % . this decrease in cost of revenue is attributable to a decrease in our infrastructure businesses in the last quarter of fiscal 2020 due to the outbreak of covid-19 and the slowing down on the hong kong economy as a result of the widespread protests . general and administrative expenses – general and administrative expenses consist primarily of employee-related expenses , professional fees , legal fees , marketing , other corporate expenses , allocated general overhead and provisions , depreciation and write-offs relating to doubtful accounts and advances , if any . general and administrative expenses increased by approximately $ 2,449 thousand or 70 % to $ 5,968 thousand for fiscal 2020 , from $ 3,519 thousand for fiscal 2019. the increase of $ 2,449 thousand is attributed largely to legal and professional fees that amounted to approximately $ 0.8
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cautionary information the discussions set forth in this annual report on form 10-k may contain forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . in addition , management may make forward-looking statements orally or in other writings , including , but not limited to , in press releases , quarterly earnings calls , executive presentations , in the annual report to stockholders and in other filings with the securities and exchange commission . readers can identify these forward-looking statements by the use of such verbs as “ expects , ” “ anticipates , ” “ believes ” or similar verbs or conjugations of such verbs . these statements involve a number of risks and uncertainties . actual results could materially differ from those anticipated by such forward-looking statements . such differences could be caused by a number of factors or combination of factors including , but not limited to , the factors identified below and those discussed under item 1a of this form 10-k , “ risk factors. ” readers are strongly encouraged to consider these factors and the following factors when evaluating any forward-looking statements concerning the company : fluctuations in the market price for the company 's common stock ; kcs 's dividend policy and limitations on its ability to pay dividends on its common stock ; kcs 's potential need for and ability to obtain additional financing ; kcs 's ability to successfully implement its business strategy , including the strategy to convert customers from using trucking services to rail transportation services ; the impact of competition , including competition from other rail carriers , trucking companies and maritime shippers in the united states and mexico ; united states , mexican and global economic , political and social conditions ; the effects of the north american free trade agreement , or nafta , on the level of trade among the united states , mexico and canada ; uncertainties regarding the litigation kcs faces and any future claims and litigation ; the effects of employee training , stability of the existing information technology systems , technological improvements and capital expenditures on labor productivity , operating efficiencies and service reliability ; the adverse impact of any termination or revocation of kcsm 's concession by the mexican government ; legal or regulatory developments in the united states , mexico or canada ; kcs 's ability to generate sufficient cash , including its ability to collect on its customer receivables , to pay principal and interest on its debt , meet its obligations and fund its other liquidity needs ; the effects of adverse general economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities kcs carries ; material adverse changes in economic and industry conditions , including the availability of short and long-term financing , both within the united states and mexico and globally ; natural events such as severe weather , fire , floods , hurricanes , earthquakes or other disruptions to the company 's operating systems , structures and equipment or the ability of customers to produce or deliver their products ; market and regulatory responses to climate change ; disruption in fuel supplies , changes in fuel prices and the company 's ability to assess fuel surcharges ; kcs 's ability to attract and retain qualified management personnel ; changes in labor costs and labor difficulties , including work stoppages affecting either operations or customers ' abilities to deliver goods for shipment ; credit risk of customers and counterparties and their failure to meet their financial obligations ; 26 the outcome of claims and litigation , including those related to environmental contamination , personal injuries , and occupational illnesses arising from hearing loss , repetitive motion and exposure to asbestos and diesel fumes ; acts of terrorism , violence or crime or risk of such activities ; war or risk of war ; political and economic conditions in mexico and the level of trade between the united states and mexico ; and legislative , regulatory , or legal developments involving taxation , including enactment of new foreign , federal or state income or other tax rates , revisions of controlling authority , and the outcome of tax claims and litigation . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . story_separator_special_tag revenues increased $ 76.9 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to increases in pricing , volume and fuel surcharge . metals and scrap business growth was primarily due to increased demand for slab and steel coil driven by continuing growth in the automotive industry and appliance manufacturing , as well as increases in demand for pipe . paper product revenue increased primarily due to increased rail market share as truck capacity tightened . additionally , the general economic recovery has increased demand for paper-based packaging . agriculture and minerals . revenues increased $ 18.3 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to increases in pricing and fuel surcharge . these increases were partially offset by a decrease in grain volume and average length of haul in the first quarter of 2011 as traffic patterns shifted due to a decline in cross border traffic into mexico as availability of crops from a strong mexico harvest was sufficient to meet the local demand . coal . revenues increased $ 43.4 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to increases in pricing and fuel surcharge . revenues to existing electric generation customers increased due to re-pricing of coal contracts in the second half of 2010. intermodal . revenues increased $ 57.6 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to increases in volume . growth was driven by increased domestic and cross border business , conversion of truck traffic to rail and south american/trans-pacific container volume . automotive . revenues increased $ 41.5 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to increases in volume and pricing . the volume increase was driven by strong year over year growth in north american automobile sales for original equipment manufacturers , new cross border vehicle routings , increased import/export volume through the port of lazaro cardenas and the shipment of new automobile models . 30 operating expenses operating expenses , as shown below ( in millions ) , increased $ 158.4 million for the year ended december 31 , 2011 , when compared to the same period in 2010 , primarily due to higher volumes , increases in fuel prices and compensation and benefit rates . these increases were partially offset by the gain on insurance recoveries related to hurricane alex recognized in 2011. the effect of fluctuations in the value of the mexican peso against the value of the u.s. dollar was not significant . replace_table_token_7_th compensation and benefits . compensation and benefits increased $ 54.5 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to annual salary and benefit rate increases and increased carload/unit volumes . in addition , in the third quarter of 2010 , the company recorded a decrease of $ 6.2 million in kcsm 's post-employment benefit obligations as a result of the completion of negotiations with the mexican labor union . purchased services . purchased services increased $ 15.7 million for the year ended december 31 , 2011 , compared to 2010 , due to increases in volume-sensitive costs , primarily locomotive maintenance expense , freight car repairs , truck and terminal services , security and an increase in track structure maintenance expense . these increases were partially offset by higher net joint facility income in the second half of 2011 as a result of non-recurring usage of certain trackage rights . fuel . fuel expense increased $ 82.9 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to higher diesel fuel prices as the average fuel price per gallon increased by approximately 22 % and higher consumption due to an increase in carload/unit volumes . equipment costs . equipment costs increased $ 9.7 million for the year ended december 31 , 2011 , compared to 2010 primarily due to the increase in the use of other railroads ' freight cars due to increased traffic volumes . these increases were partially offset by lower locomotive lease expense primarily due to the acquisition of 75 locomotives during the third quarter of 2011 , which were previously leased by the company under an operating lease agreement . depreciation and amortization . depreciation and amortization increased $ 1.3 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to a larger asset base offset by changes in depreciation rates on certain locomotives and road assets based on reassessment of the adequacy of the accumulated depreciation provisions , asset usage and replacement patterns , which were effective october 1 , 2010. materials and other . materials and other increased $ 19.9 million for the year ended december 31 , 2011 , compared to 2010 , primarily due to higher materials and supplies expense and casualty expense . the company expects materials and other expense to increase by approximately $ 4.0 million for the year ending december 31 , 2012 due to an increase in the concession duty rate . kcsm currently pays concession duty expense of 0.5 % of gross revenues and beginning on june 24 , 2012 , kcsm will pay 1.25 % of gross revenues for the remaining years of the concession . gain on insurance recoveries related to hurricane damage . in the third quarter of 2011 , the company settled its insurance claims related to hurricane alex and recognized a $ 25.6 million gain on insurance recoveries which primarily represents the recovery of lost profits and the replacement value of property in excess of its carrying value , net of the self-insured retentions . 31 non-operating expenses equity in net earnings of unconsolidated affiliates . equity in earnings from unconsolidated affiliates decreased $ 1.5 million for the year ended december 31 , 2011 , compared to 2010 .
| summary cash flow data follows ( in millions ) : replace_table_token_11_th during 2011 , cash and cash equivalents decreased $ 13.0 million as increased cash flows from operating activities were used to fund investing activities and to refinance and reduce outstanding debt . during 2010 , cash and cash equivalents decreased $ 32.1 million , as increased cash flows from operating activities were used to fund investing activities , and together with the proceeds of a common stock offering , to refinance and reduce outstanding debt . operating cash flows . net operating cash flows for 2011 increased $ 141.7 million to $ 638.0 million . the increase in operating cash flows was primarily a result of increased net income from positive pricing impacts , higher carload/unit volumes and the receipt of insurance proceeds related to hurricane damage . these increases were partially offset by changes in working capital items , resulting mainly from the timing of certain payments and receipts . net operating cash flows for 2010 increased $ 205.8 million to $ 496.3 million . the increase in operating cash flows was primarily attributable to increased net income from higher carload/unit volumes due to the improvement in the economy and the company 's cost control program . investing cash flows . net investing cash outflows were $ 510.4 million and $ 311.5 million during 2011 and 2010 , respectively . this $ 198.9 million increase was primarily due to an increase in capital expenditures , partially offset by the insurance proceeds relating to hurricane damage and the acquisition of an intermodal facility in 2010. insurance proceeds recognized in investing cash flows are related to proceeds from property damage . all other insurance proceeds related to hurricane damage are recognized in operating cash flows .
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overview the company generates revenues , earnings and cash flows from developing , manufacturing and marketing engineered materials and optoelectronic components and devices for precision use in industrial , optical communications , military , semiconductor , medical and life science , and consumer applications . we also generate revenue , earnings and cash flows from government funded research and development contracts relating to the development and manufacture of new technologies , materials and products . 30 our customer base includes oems , laser end-users , system integrators of high-power lasers , manufacturers of equipment and devices for the industrial , optical communications , military , semiconductor , medical and life science markets , consumer , u.s. government prime contractors , various u.s. government agencies and thermoelectric integrators . critical accounting estimates the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and the company 's discussion and analysis of its financial condition and results of operations requires the company 's management to make judgments , assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . note 1 of the notes to our consolidated financial statements contained in item 8 of this annual report on form 10-k describes the significant accounting policies and accounting methods used in the preparation of the company 's consolidated financial statements . management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates . management believes the company 's critical accounting estimates are those related to revenue recognition , allowance for doubtful accounts , warranty reserves , inventory valuation , business combinations , valuation of long-lived assets including acquired intangibles and goodwill , accrual of bonus and profit sharing estimates , accrual of income tax liability estimates and accounting for share-based compensation . management believes these estimates to be critical because they are both important to the portrayal of the company 's financial condition and results of operations , and they require management to make judgments and estimates about matters that are inherently uncertain . management has discussed the development and selection of these critical accounting estimates with the audit committee of the board of directors and the audit committee has reviewed the related disclosure . in addition , there are other items within our financial statements that require estimation , but are not deemed critical as described above . changes in estimates used in these and other items could have a material impact on the financial statements . revenues for product shipments are realizable when we have persuasive evidence of a sales arrangement , the product has been shipped or delivered , the sales price is fixed or determinable and collectability is reasonably assured . title and risk of loss passes from the company to its customer at the time of shipment in most cases , with the exception of certain customers for whom customer 's title does not pass and revenue is not recognized until the customer has received the product at its physical location . the company 's revenue recognition policy is consistently applied across the company 's segments , product lines and geographical locations . further for the periods covered herein , we did not have post shipment obligations such as training or installation , customer acceptance provisions , credits and discounts , rebates and price protection or other similar privileges . our distributors and agents are not granted price protection . our distributors and agents , who comprise less than 10 % of consolidated revenue , have no additional product return rights beyond the right to return defective products covered by our warranty policy . we believe our revenue recognition practices are consistent with staff accounting bulletin ( “ sab ” ) 104 and that we have adequately considered the requirements of accounting standards codification ( “ asc ” ) 605 revenue recognition . revenues generated from transactions other than product shipments are contract-related and have historically accounted for less than 2 % of the company 's consolidated revenues . the company establishes an allowance for doubtful accounts based on historical experience and believes the collection of revenues , net of this reserve , is reasonably assured . the allowance for doubtful accounts is an estimate for potential non-collection of accounts receivable based on historical experience . the company did not experience a non-collection of accounts receivable materially affecting its financial condition or results of operations as of and for each of the fiscal years ended june 30 , 2016 , 2015 and 2014. if the financial condition of the company 's customers were to deteriorate , causing an impairment of their ability to make payments , additional provisions for bad debts could be required in future periods . the company 's allowance for doubtful accounts reserve estimates have historically been proven to be materially correct based upon actual charges incurred . the company records a warranty reserve as a charge against earnings based on a historical percentage of revenues utilizing actual returns over a period that approximates historical warranty experience . if actual returns in the future are not consistent with the historical data used to calculate these estimates , additional warranty reserves could be required . the company 's warranty reserve estimates have historically been proven to be materially correct based upon actual charges incurred . the company records an inventory reserve as a charge against earnings for all products on hand for more than twelve to twenty-four months , depending on the products that have not been sold to customers or can not be further manufactured for sale to alternative customers . an additional reserve is recorded for products on hand that are in excess of product sold to customers over the same periods noted above . story_separator_special_tag in evaluating whether the company would more likely than not recover these deferred tax assets , it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carry-forwards where history does not support such an assumption . implementation of tax planning strategies to recover these deferred tax assets or future income 32 generation in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of in come tax expense . during fiscal year 2016 , $ 8.5 million of a valuation allowance impacted income tax expense . the company recognizes share-based compensation expense over the requisite service period of the individual grantees , which generally equals the vesting period . the company utilized the black-scholes valuation model for estimating the fair value of share-based equity expense using assumptions such as the risk-free interest rate , expected stock price volatility , expected stock option life and expected dividend yield . the risk-free interest rate is derived from the average u.s. treasury note rate during the period , which approximates the rate in effect at the time of grant related to the expected life of the options . expected volatility is based on the historical volatility of the company 's common stock over the period commensurate with the expected life of the options . the expected life calculation is based on the observed time to post-vesting exercise and or forfeitures of options by our employees . the dividend yield is zero , based on the fact the company has never paid cash dividends and has no current intention to pay cash dividends in the future . fiscal year 2016 compared to fiscal year 2015 the company aligns its organizational structure into the following three reporting segments for the purpose of making operational decisions and assessing financial performance : ( i ) ii-vi laser solutions , ( ii ) ii-vi photonics , and ( iii ) ii-vi performance products . the company is reporting financial information ( revenue through operating income ) for these reporting segments in this annual report on form 10-k. the following table sets forth bookings and select items from our consolidated statements of earnings for the years ended june 30 , 2016 and june 30 , 2015 ( $ in millions except per share information ) : replace_table_token_3_th story_separator_special_tag performance over which management has direct control and is used by management in its evaluation of segment performance . see “ note 11. segment and geographic reporting , ” to the consolidated financial statements included in this annual report on form 10-k for further information on the company 's reportable segments and for the reconciliation of operating income to net earnings , which is incorporated herein by reference . 34 ii-vi laser solutions ( $ in millions ) replace_table_token_4_th the company 's ii-vi laser solutions segment includes the combined operations of ii-vi infrared optics , ii-vi highyag , ii-vi laser enterprise , ii-vi suwtech and , ii-vi lasertech , ii-vi optoelectronic devices division , and ii-vi epiworks . the company acquired ii-vi epiworks on february 1 , 2016 and ii-vi optoelectronic devices division , formerly known as anadigics , on march 15 , 2016. bookings for the fiscal year ended june 30 , 2016 for ii-vi laser solutions increased 7 % to $ 306.0 million , compared to $ 284.8 million last fiscal year . included in the current year 's bookings amounts was $ 14.3 million of bookings attributed to the current year acquisitions . exclusive of this amount , bookings increased approximately $ 6.9 million driven by demand for one-micron components for the industrial materials processing market as well higher aftermarket demand for the segment 's co 2 laser optics . revenues for the fiscal year ended june 30 , 2016 for ii-vi laser solutions increased 5 % to $ 303.0 million , compared to revenues of $ 287.9 million last fiscal year . included in the current year 's revenue amount was $ 13.9 million of revenue attributed to the current year acquisitions . exclusive of this amount , revenues were consistent with that of the prior fiscal year levels . operating income for the fiscal year ended june 30 , 2016 for ii-vi laser solutions decreased 34 % to $ 36.2 million , compared to $ 55.0 million last fiscal year . the decrease in operating income compared to last fiscal year was primarily due to the inclusion of the operating results of the current year acquisitions . operating income was also negatively impacted by acquisition related transaction and severance expenses of $ 11.3 million . ii-vi photonics ( $ in millions ) replace_table_token_5_th the company 's ii-vi photonics segment includes the combined operations of ii-vi photop and ii-vi optical communications . bookings for the year ended june 30 , 2016 for ii-vi photonics increased 32 % to $ 372.2 million , compared to $ 282.9 million for the prior fiscal year . the increase in bookings was the result of market demand from the china broadband build-out , 100g metro deployments in the united states and undersea 980 nanometer pumps and high performance optical amplifiers . revenues for the year ended june 30 , 2016 for ii-vi photonics increased 25 % to $ 325.9 million , compared to $ 260.8 million for last fiscal year . the increase in revenues compared to last fiscal year was mainly attributable to increased customer demand for optical components and modules for the new deployment of catv optical networks , the continued strength of the china broadband program by the government to extend the fiber to the home deployment , 4g wireless deployment , and accelerated 5g wireless development . operating income for the year ended june 30 , 2016 for ii-vi photonics increased 425 % to $ 37.8 million , compared to an operating income of $ 7.2 million last fiscal year . the increase in operating income was primarily due to incremental margins realized on the higher revenue levels as well as product mix to higher margin products including 980 nm pumps and optical amplifiers .
| executive summary net earnings for fiscal year 2016 were $ 65.5 million ( $ 1.04 per-share diluted ) , compared to $ 66.0 million ( $ 1.05 per-share diluted ) for the same period last fiscal year . the acquisitions of epiworks and anadigics contributed approximately $ 13.9 million in revenues but were dilutive to earnings . including the operating losses of these two acquisitions , as well as acquisition related expenses and one-time severance expenses , the negative impact of these acquisitions to the company 's results of operations during the fiscal year ended june 30 , 2016 was $ 20.2 million , or $ 0.32 per share diluted . offsetting the losses from the recent acquisitions were strong financial results experienced by the company 's ii-vi photonics segment . this segment realized revenue increases of over 25 % during the current fiscal year compared to last fiscal year which drove stronger earnings from the incremental margins realized . the revenue increase for this segment was driven by broad-based demand across the whole spectrum of optical communication markets , including data center infrastructure build-outs , china broadband initiatives and continued expansion of undersea network deployment . the current year operating results included increased income tax expense as the company recorded a valuation allowance of approximately $ 8.5 million or $ 0.14 per share diluted on certain u.s. based deferred income tax assets . consolidated bookings . bookings are defined as customer orders received that are expected to be converted to revenues over the next twelve months . for long-term customer orders , the company does not include in bookings the portion of the customer order that is beyond 33 twelve months , due to the inherent uncertainty of such an order that far out in the future . bookings for the year ended june 30 , 2016 increased 15 % to $ 875.3 million , compared to $ 761.7 million for the same period last fiscal year .
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during 2013 , the company changed its indefinite reinvestment assertion and recognized a deferred tax liability story_separator_special_tag results of operations company overview intricon corporation ( together with its subsidiaries , the “ company ” or “ intricon ” , “ we ” , “ us ” or “ our ” ) is an international company engaged in designing , developing , engineering , manufacturing and distributing body-worn devices . the company serves the body-worn device market by designing , developing , engineering , manufacturing and distributing micro-miniature products , microelectronics , micro-mechanical assemblies and complete assemblies , primarily for bio-telemetry devices , hearing instruments and professional audio communication devices . as discussed below , the company has one operating segment - its body-worn device segment . our expertise in this segment is focused on three main markets : emerging value hearing health , medical bio-telemetry and professional audio communications . within these chosen markets , we combine ultra-miniature mechanical and electronics capabilities with proprietary technology – including ultra low power ( ulp ) wireless and digital signal processing ( dsp ) capabilities – that enhances the performance of body-worn devices . story_separator_special_tag field : /sequence -- > sales and marketing expenses increased due to the addition of experienced professionals and to support vhh initiatives including the acquisition of pc werth . general and administrative expenses and research and development are greater than the prior year primarily due to the aforementioned vhh initiatives and support costs related to our erp system upgrade . restructuring charges on june 13 , 2013 , the company announced a global strategic restructuring plan designed to accelerate the company 's future growth by focusing resources on the highest potential growth areas and reduce costs . during 2014 , the company incurred restructuring charges of $ 83 , primarily related to employee termination benefits , from the restructuring of its continuing operations . the company incurred no restructuring charges in 2015 and in the future , does not expect to incur any additional cash charges related to this restructuring . interest expense interest expense for 2015 was $ 369 , a decrease of $ 92 from $ 461 in 2014. the decrease in interest expense was primarily due to lower interest rates compared to the prior year . other income ( expense ) , net in 2015 , other income ( expense ) , net was $ ( 261 ) compared to $ ( 1 ) in 2014 primarily due to the costs incurred in the acquisition of the assets of pc werth in 2015 and a royalty payment that was received in 2014. income tax expense income taxes were as follows : replace_table_token_7_th the expense in 2015 and 2014 was primarily due to foreign taxes on german and indonesia operations partially offset by a singapore tax benefit . the company is in a net operating loss position ( “ nol ” ) for us federal and state income tax purposes , but our deferred tax asset related to the nol carry forwards have been largely offset by a full valuation allowance . we incur minimal income tax expense ( benefit ) from the current period domestic operations . we have approximately $ 21,784 of nol carry forwards available to offset future u.s. federal income taxes that begin to expire in 2022. loss from discontinued operations loss from discontinued operations , net of income taxes , of $ 270 for the year ended december 31 , 2014 was due to a discontinued operations loss of $ 150 and a loss on the sale of discontinued operations of $ 120 in the first quarter of 2014. loss allocated to non-controlling interest loss allocated to non-controlling interest of ( $ 111 ) for the year ended december 31 , 2015 was due to earventure losses allocated to our joint venture partner . results of operations : 2014 compared with 2013 consolidated net sales below is a recap of our sales by main markets for the years ended december 31 , 2014 and 2013 : replace_table_token_8_th 25 in 2014 , we experienced a 35.1 percent increase in medical sales primarily driven by higher sales to medtronic and other key medical customers . in september 2013 , medtronic received food and drug administration ( fda ) approval for their minimed 530g insulin pump system . to support their minimed 530g system launch , we built and sold significant inventory from the fourth quarter of 2013 through the first half of 2014 , which is the primary reason sales increased significantly from the prior period . net sales in our hearing health business for the year ended december 31 , 2014 increased 16.3 percent over the same period in 2013. the increase was primarily due to strong device sales to hi healthinnovations and to the conventional hearing health channel net sales to the professional audio device sector increased 41.3 percent in 2014 compared to the same period in 2013. during 2014 , the company delivered on a contract with the singapore government to provide technically advanced headsets worn in military applications , which makes up a large portion of the period over period increase . gross profit gross profit , both in dollars and as a percent of sales , for 2014 and 2013 , were as follows : replace_table_token_9_th the 2014 gross profit increase over the comparable prior year period was primarily due to higher overall sales volumes and cost reductions from global restructuring initiatives , partially offset by a less favorable sales mix . sales and marketing , general and administrative and research and development expenses sales and marketing , general and administrative and research and development expenses for the years ended december 31 , 2014 and 2013 were : replace_table_token_10_th sales and marketing expenses increased due to the addition of experienced professionals and greater commission expenses based on the revenue growth . general and administrative expenses are greater than the prior year period primarily due to increased support costs . also , sales and marketing and general and administrative expenses increased due to support for vhh opportunities . story_separator_special_tag loans under the credit facility bear interest at varying rates based on the company 's leverage ratio of funded debt / ebitda , at the option of the company , at : ▪ the london interbank offered rate ( “ libor ” ) plus 2.50 % - 4.00 % , or 28 ▪ the base rate , which is the higher of ( a ) the rate publicly announced from time to time by the lender as its “ prime rate ” and ( b ) the federal funds rate plus 0.5 % , plus 0.00 % - 1.25 % ; in each case , depending on the company 's leverage ratio . interest is payable monthly in arrears , except that interest on libor based loans is payable at the end of the one , two or three month interest periods applicable to libor based loans . intricon is also required to pay a non-use fee equal to 0.25 % per year of the unused portion of the revolving line of credit facility , payable quarterly in arrears . weighted average interest on our domestic credit facilities was 3.68 % , 4.51 % , and 4.30 % for 2015 , 2014 , and 2013 , respectively . the outstanding balance of the revolving credit facility was $ 4,674 and $ 3,843 at december 31 , 2015 and 2014 , respectively . the total remaining availability on the revolving credit facility was approximately $ 3,326 and $ 3,456 at december 31 , 2015 and 2014 , respectively . the outstanding principal balance of the term loan , as amended , is payable in quarterly installments of $ 250. any remaining principal and accrued interest is payable on february 28 , 2019. intricon is also required to use 100 % of the net cash proceeds of certain asset sales ( excluding inventory and certain other dispositions ) , sale of capital securities or issuance of debt to pay down the term loan . the borrowers are subject to various covenants under the credit facility , including a maximum funded debt to ebitda , a minimum fixed charge coverage ratio and maximum capital expenditure financial covenants . under the credit facility , except as otherwise permitted , the borrowers may not , among other things : incur or permit to exist any indebtedness ; grant or permit to exist any liens or security interests on their assets or pledge the stock of any subsidiary ; make investments ; be a party to any merger or consolidation , or purchase of all or substantially all of the assets or equity of any other entity ; sell , transfer , convey or lease all or any substantial part of its assets or capital securities ; sell or assign , with or without recourse , any receivables ; issue any capital securities ; make any distribution or dividend ( other than stock dividends ) , whether in cash or otherwise , to any of its equity holders ; purchase or redeem any of its equity interests or any warrants , options or other rights to equity ; enter into any transaction with any of its affiliates or with any director , officer or employee of any borrower ; be a party to any unconditional purchase obligations ; cancel any claim or debt owing to it ; make payment on or changes to any subordinated debt ; enter into any agreement inconsistent with the provisions of the credit facility or other agreements and documents entered into in connection with the credit facility ; engage in any line of business other than the businesses engaged in on the date of the credit facility and businesses reasonably related thereto ; or permit its charter , bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the lender . the company was in compliance with the financial covenants under the facility as of december 31 , 2015. upon the occurrence and during the continuance of an event of default ( as defined in the credit facility ) , the lender may , among other things : terminate its commitments to the borrowers ( including terminating or suspending its obligation to make loans and advances ) ; declare all outstanding loans , interest and fees to be immediately due and payable ; take possession of and sell any pledged assets and other collateral ; and exercise any and all rights and remedies available to it under the uniform commercial code or other applicable law . in the event of the insolvency or bankruptcy of any borrower , all commitments of the lender will automatically terminate and all outstanding loans , interest and fees will be immediately due and payable . events of default include , among other things , failure to pay any amounts when due ; material misrepresentation ; default in the performance of any covenant , condition or agreement to be performed that is not cured within 20 days after notice from the lender ; default in the performance of obligations under certain subordinated debt , default in the payment of other indebtedness or other obligation with an outstanding principal balance of more than $ 50 , or of any other term , condition or covenant contained in the agreement under which such obligation is created , the effect of which is to allow the other party to accelerate such payment or to terminate the agreements ; a breach by a borrower under certain material agreements , the result of which breach is the suspension of the counterparty 's performance thereunder , delivery of a notice of acceleration or termination of such agreement ; the insolvency or bankruptcy of any borrower ; the entrance of any judgment against any borrower in excess of $ 50 , which is not fully covered by insurance ; any divestiture of assets or stock of a subsidiary constituting a substantial portion of borrowers ' assets ; the occurrence of a change in control ( as defined in the credit facility
| business highlights the company reported its strongest financial results in over a decade , surpassing 2014 results , including its strongest revenue , margin and earnings since the rebranding of the company in 2005. on november 3 , 2015 , the company acquired the assets of pc werth , a leading supplier of hearing healthcare products and equipment to the united kingdom 's national health service ( nhs ) . the nhs is the largest purchaser of hearing aids in the world , supplying an estimated 1.2 million hearing aids annually . on november 2 nd , 2015 , the company launched jd edwards enterpriseone platform , a $ 2,400 investment in an integrated applications suite of comprehensive enterprise resource planning ( erp ) software , to further support its global manufacturing and distribution footprint . on september 14 , 2015 , the company and the academy of doctors of audiology ( ada ) , announced a joint venture to provide hearing instruments and educational resources that offer unprecedented value for audiologists and their patients . on march 31 , 2015 , the company and its domestic subsidiaries entered into a seventh amendment to the loan and security agreement and waiver with the privatebank and trust company , which among other things extended the maturity date of the term loan and revolving credit facility to february 28 , 2019 ( see note 8 to the company 's consolidated financial statements included herein ) . forward–looking statements the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes appearing in item 8 of this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions .
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our actual results may differ materially from those discussed below . please see “ forward-looking statements ” and “ risk factors ” included in part i , item 1a of this annual report on form 10-k for factors that could cause or contribute to such differences . overview we are a dedicated contract development and manufacturing organization , or cdmo , solving complex formulation and manufacturing challenges for companies developing oral solid dose drug products . we leverage our formulation and development expertise to develop and manufacture pharmaceutical products using proprietary delivery technologies and know-how for partners who develop and commercialize or plan to commercialize these products . in 2020 , we launched our clinical trials support services capabilities , which includes preparation of clinical trial supplies , as well as specialized services dedicated to the development and good manufacturing practices , or gmp , of high-potency products . we operate a 97,000 square foot , dea-licensed manufacturing facility in gainesville , georgia , as well as a 24,000 square foot development , high-potency product and clinical packaging facility in gainesville , georgia that we opened in october 2018. we currently develop and or manufacture the following key products with our key commercial partners : ritalin la® , focalin xr® , verelan pm® , verelan sr® , verapamil pm and verapamil sr , as well as supporting development stage products . our manufacturing and development capabilities include formulation , product development from formulation through clinical trial and commercial manufacturing , and specialized capabilities for solid oral dosage forms , extended release and controlled substance manufacturing , as well as high potency development and manufacturing . in a typical collaboration , we work with our partners to develop product candidates , or new formulations of existing product candidates , and may license certain intellectual property to such partners . we also typically exclusively manufacture and supply clinical and commercial supplies of these proprietary products and product candidates . we have used cash flow generated by our business primarily to fund the growth of our cdmo business , fund our historical acute care business , which was spun off in november 2019 , and to make payments under our credit facility . we believe our business will continue to contribute cash to fund our growth , make payments under our credit facility and other general corporate purposes . our consolidated results of operations and financial position included in this annual report on form 10-k reflect the financial results of baudax bio as a discontinued operation for all periods presented . for additional information on the spin-off of baudax bio please read note 3 to our consolidated financial statements beginning on page f-1 of this annual report on form 10-k. covid-19 we continue to closely monitor developments related to the covid-19 pandemic , which continues to have adverse effects on the u.s. and world economies , including the commercial activities of our customers and their peers . while we are committed to continue providing essential pharmaceutical products to our customers , we are also taking all necessary measures to protect the health and safety of our employees . these developments include : operations . we have instituted protocols to have appropriate personnel work remotely and have implemented strict social distancing and other protective measures for those employees continuing to support essential operations at our work locations in order to ensure the health of our employees while continuing to provide critical products . our sales , manufacturing and development efforts have continued since the outbreak of the pandemic . our cost of sales has increased as a percentage of revenues in part due to lower commercial manufacturing volumes , and the related impact on fixed costs expensed through cost of sales , despite making reductions in the work force and implementing cost saving measures . there are also some incremental expenses associated with safe practices for our organization due to covid-19 . business development . we have experienced lower than expected new development business growth , which we believe is primarily attributable to covid-19 . concerns surrounding covid-19 have resulted in our adoption of new methods for meeting and contacting customers , have slowed customer access , and have caused delays in plans for development services by some customers and prospects for a variety of reasons , such as concerns about the timing of clinical trials . 36 manufacturing demand . we believe that there has been lower end-user demand for some of the commercial products we manufacture for our customers due to the effects of covid-19 . third party national data demonstrates that there has been a meaningful impact of covid-19 on the reduction of total prescriptions filled by patients across most therapeutic areas , including chronic cardiovascular and pediatric medications . our sales and manufacturing operations have been disrupted as a result of the pandemic because of production slowdowns , stoppages , or decreased demand for the products we manufacture , and we expect such disruptions to continue through at least the first half of 2021. given the uncertain scope and duration of the pandemic , the extent to which the pandemic will continue to impact our financial results remains uncertain in terms of manufacturing volumes and certain profit sharing results , even when our partners have not experienced loss of market share , in part due to reduced total prescription ( trx ) rates for many chronic therapeutics . however , we will continue to monitor the situation closely , we have taken steps to reduce costs and drive more new business , and we are actively evaluating various ways to further conserve operational resources . financial overview recent developments some recent developments have occurred that have impacted and are expected to continue to impact full year expected results , including : third party data has shown a decrease in prescriptions filled during covid-19 during 2020 for a number of the commercial products we manufacture for our customers . story_separator_special_tag advanced payments for good and services that will be used in future research and development activities are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received . in 2018 , these costs included salaries and related costs for personnel in research and development and regulatory functions . in the fourth quarter of 2018 , we shifted the focus of these personnel to revenue-generating activities and , as such , these costs are included as a cost of sales beginning in the fourth quarter of 2018. selling , general and administrative expenses selling , general and administrative expenses consists of salaries and related costs for corporate administrative , public company costs , business development personnel as well as legal , patent-related expenses and consulting fees . public company costs include compliance , auditing services , tax services , insurance and investor relations . a significant portion of these public company costs related to a more complex organization with multiple segments in 2018 and 2019. these costs were lower in 2020 and are expected to remain lower in future periods , excluding non-cash expenses and new initiatives . we expect our business development expenses to increase in 2021 as we continue to expand our sales team in various geographies , in anticipation of business growth from new formulation and development capabilities . 38 amortization of i ntangible a ssets we recognize amortization expense related to the intangible asset for our contract manufacturing relationships on a straight-line basis over an estimated useful life of six years . change in fair value of warrants we have classified as liabilities certain warrants that contained a contingent net cash settlement feature upon a change in control . the fair value of these warrants was remeasured through settlement or expiration with changes in fair value recognized within the consolidated statements of operations . all remaining liability classified warrants were exercised in november 2019. a fair value determination at the time of the exercise occurred and is included in the change in warrant valuation for the year ended december 31 , 2019. interest expense interest expense for the periods presented primarily relates to our athyrium senior secured term loans , the amortization of related financing costs and interest expense on a promissory note with pnc bank under the paycheck protection program , or ppp , of the coronavirus aid , relief and economic security act of 2020 , collectively the ppp loan . net operating losses and tax carryforwards as of december 31 , 2020 , we had federal and state net operating loss carry forwards of approximately $ 130.6 million and $ 127.4 million , respectively . we also had federal and state research and development tax credit carryforwards of $ 4.4 million available to offset future taxable income . u.s. tax laws limit the time during which these carryforwards may be utilized against future taxes . with the exception of the 2020 , 2019 , and 2018 federal net operating losses , which have an indefinite carry forward period , these federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028 , if not utilized . we believe that it is more likely than not that the deferred income tax assets associated with our u.s. operations will not be realized , and as such , there is a full valuation allowance against our u.s. deferred tax assets . story_separator_special_tag amortization of the cdmo royalties and contract manufacturing relationships intangible asset over its estimated useful life . interest expense . the increase in interest expense was due to a higher principal balance on our athyrium senior secured term loan and amortization of the related financing costs . income tax expense . as a result of recording a full valuation allowance , there was no income tax provision or benefit for 2019. for 2018 , the income tax expense reflects the recording of a full valuation allowance in the fourth quarter of 2018. as discussed in note 15 to the consolidated financial statements beginning on page f-1 of this annual report on form 10-k , we believe that it is more likely than not that the deferred income tax assets associated with our u.s. operations will not be realized , and as such , there is a full valuation allowance against our u.s. deferred tax assets . liquidity and capital resources at december 31 , 2020 , we had $ 23.8 million in cash and cash equivalents . since our inception , we have financed our operations and capital expenditures primarily from the issuance of equity and debt . during 2020 , our capital expenditures were $ 7.6 million to scale and support our expansion of capabilities . we are party to a credit agreement with athyrium , or the credit agreement , which has been fully drawn . the credit agreement was recently amended on february 19 , 2021 and currently requires us to repay the outstanding principal amount of $ 100.0 million on march 31 , 2023. the amendment also changes certain other terms and covenants that allow the company to pursue additional acquisitions and ease certain requirements surrounding the financial covenants . additional details about the credit agreement and the recent amendment are provided in notes 10 and 18 to the consolidated financial statements beginning on page f-1 of this annual report on form 10-k. we are party to a $ 3.3 million ppp note which has a two-year term and matures on may 12 , 2022. on october 6 , 2020 , we applied for forgiveness of the ppp note and expect the full balance of the note to be forgiven during the first half of 2021 , which would result in a $ 3.3 million gain on extinguishment of debt being recognized in earnings . however , no assurance can be given that the balance of the ppp note will be forgiven , in part or in whole .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th revenue . the decrease of $ 32.7 million was primarily the result of customer ordering patterns in the prior year and the loss of verapamil sr market share by a commercial partner in the first quarter of 2020 due to the re-entry of a competitor . our commercial partner has sustained its market position for verapamil sr capsules since the end of the first quarter of 2020. the covid-19 pandemic has resulted in decreased end-user demand , inventory rebalancing by our commercial partners and slower than expected new business starts . in addition , revenue declined due to the discontinuation of two commercial product lines by our commercial partners . higher revenues from our clinical trial materials new business growth activities has partially offset the decrease , including a significant new commercial product tech transfer project . 39 cost of sales . the increase of $ 3.1 million was not proportionate to the decrease in revenue primarily due to lower commercial manufacturing volumes and the related impact on fixed costs expensed through cost of sales , despite making reductions in the work force and implementing cost saving measures . cost savings generated from these activities are expected to continue into 2021. further contributing to cost of sales was increased cost of development sales on higher clinical trial material new business revenues . selling , general and administrative . the decrease of $ 1.8 million was primarily related to lower public company costs , which were partially offset by our new business efforts and the addition of the clinical trial support services to our early gmp offering in the second quarter of 2020. amortization of intangible assets .
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at december 31 , 2012 and 2011 , and results of operations and cash flows for each of the years ended december 31 , 2012 , 2011 and 2010. this discussion should be read in conjunction with cbiz 's consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in forward-looking statements and item 1a . risk factors in this annual report on form 10-k. story_separator_special_tag as a percentage of revenue increased 0.8 % to 65.8 % for the year ended december 31 , 2012 compared to 2011. the increase in personnel costs as a percentage of revenue was primarily the result of a 0.3 % increase in incentive compensation and a 0.4 % increase in salaries and wages and related benefits costs resulting from an increase in headcount and personnel investments made in the financial services practice group . personnel costs as a percentage of revenue experienced by the individual practice groups is discussed in further detail under operating practice groups . the increase in professional fees as a percentage of revenue was primarily due to an increase in the utilization of off-shore processing in the mmp practice group . the increase in deferred compensation costs of 0.6 % resulted from adjustments to the fair value of investments held in the deferred compensation plan . the adjustments to the fair value of investments held in relation to the deferred compensation plan totaled a gain of $ 3.8 million and a loss of $ 0.7 million for the years ended december 31 , 2012 and 2011 , respectively . these adjustments are recorded as compensation expense and are offset by the same adjustments to other income , net , and thus do not have an impact on net income . although these adjustments are recorded as operating expenses , they are not allocated to the individual practice groups . corporate general and administrative expenses corporate general and administrative ( g & a ) expenses decreased by $ 1.2 million to $ 30.4 million for the year ended december 31 , 2012 , from $ 31.6 million for 2011 , and decreased as a percent of revenue by 0.3 % to 4.0 % for the year ended december 31 , 2012 . 26 the primary components of corporate general and administrative expenses for the years ended december 31 , 2012 and 2011 are illustrated in the following table : replace_table_token_8_th ( 1 ) other corporate general and administrative expenses include office expenses , insurance expense and other expenses , none of which are individually significant as a percentage of total corporate g & a expenses . the decrease in g & a expenses as a percentage of revenue is primarily attributable to the decrease of 0.2 % in professional fees . this decrease is a result of cbiz recording a portion of its recovery of legal fees in the fourth quarter of 2012 that was attributable to reimbursement of incurred legal expenses . interest expense interest expense decreased by $ 1.1 million to $ 16.3 million for the year ended december 31 , 2012 from $ 17.4 million for 2011. the decrease in interest expense is primarily due to the retirement of cbiz 's 2006 notes in 2011 , which resulted in a $ 1.4 million decrease in interest expense . this was partially offset by an increase in amortization of the discount related to the 2010 notes . interest expense related to the credit facility was flat year over year . the average debt outstanding under the credit facility was $ 162.3 million and $ 142.8 million and weighted average interest rates were 3.15 % and 3.27 % for the years ended december 31 , 2012 and 2011 , respectively . debt is further discussed under liquidity and capital resources and in note 8 of the accompanying consolidated financial statements . gain on sale of operations , net the gain on sale of operations , net was $ 2.8 million and $ 2.9 million for the years ended december 31 , 2012 and 2011 , respectively . the net gain in each period was primarily comprised of gains recognized from the 2011 sale of the company 's individual wealth management business of $ 2.5 million and $ 2.3 million during the years ended december 31 , 2012 and 2011 , respectively . the operating results of the individual wealth management business were included in the employee services practice group . other income , net other income , net is primarily comprised of adjustments to the fair value of investments held in a rabbi trust related to the deferred compensation plan , adjustments to contingent purchase price liabilities related to previous acquisitions , gains and losses on sales of assets , and other miscellaneous income and expenses such as contingent royalties from previous divestitures , proceeds from legal settlements and interest income . adjustments to the fair value of investments related to the deferred compensation plan do not impact cbiz 's net income as they are offset by the same adjustments to compensation expense ( recorded as operating or corporate general and administrative expenses in the consolidated statements of comprehensive income ) . other income , net for the year ended december 31 , 2012 primarily consisted of a $ 4.3 million gain in the fair value of investments related to the deferred compensation plan , proceeds from various legal settlements of $ 2.5 million , adjustments to the fair value of the company 's contingent purchase price liability related to prior acquisitions which resulted in 27 other income of $ 1.0 million , and interest income of $ 0.3 million . other income , net for the year ended december 31 , 2011 primarily consisted of adjustments to the fair value of the company 's contingent purchase price liability related to prior acquisitions which resulted in other income of $ 3.5 million and interest income of $ 0.2 million . story_separator_special_tag lastly , overall incentive compensation increased for the year ended december 31 , 2012 compared to 2011. occupancy costs are relatively fixed in nature and were $ 24.4 million for the year ended december 31 , 2012 compared to $ 23.7 million for the same period in the prior year and were 5.9 % and 6.1 % of total revenue , respectively . travel and related costs were $ 11.5 million for the year ended december 31 , 2012 compared to $ 10.2 million in 2011 , and represented 2.8 % and 2.6 % of total revenue , respectively . the increase in travel and related costs was due mostly to increased client development . bad debt expense decreased $ 0.9 million for the year ended december 31 , 2012 compared to the same period a year ago , and was 1.2 % and 1.5 % of revenue for the year ended december 31 , 2012 and 2011 , respectively . 29 gross margin percentage decreased 1.0 % and was 12.8 % for the year ended december 31 , 2012 compared to 13.8 % for 2011. the decrease in gross margin percentage was due primarily to the increase in personnel costs as discussed above . employee services replace_table_token_11_th the decrease in same-unit revenue was primarily attributable to declines in the company 's employee benefits and life insurance businesses , offset by increases in the property and casualty , payroll services , and retirement plan consulting businesses . the decrease in employee benefits revenue of $ 2.3 million is primarily due to continued competitive pressures and client plan design changes . the decrease in life insurance revenue of $ 1.7 million is due to lower client demand for life insurance plans . partially offsetting these decreases was an increase in the company 's property and casualty brokerage revenue of $ 1.7 million due to pricing increases and an increase in volume-based carrier bonus payments , an increase in the company 's payroll business of $ 1.4 million due to higher pricing trends for payroll and related services , and an increase in retirement plan consulting services of $ 1.0 million due to favorable trends in equity markets and an increase in demand for actuarial consulting services . the growth in revenue from acquisitions was provided by : multiple benefits services , an employee benefits business located in atlanta , georgia that was acquired on august 1 , 2011 ; psa insurance , a retirement advisory business located in baltimore , maryland that was acquired on november 1 , 2011 ; advantage benefit planning , an employee benefits business located in pleasantville , new jersey that was acquired on december 30 , 2011 ; meridian , a property and casualty insurance and employee benefits business headquartered in boca raton , florida with an office in atlanta , georgia that was acquired on january 1 , 2012 ; strategic employee benefit services , an employee benefits client list in the chicago , illinois market that was acquired on february 1 , 2012 ; pci , an employee benefits business located in cranston , rhode island that was acquired on may 1 , 2012 ; stoltz , a property and casualty insurance and employee benefits business headquartered in midland , texas that was acquired on july 1 , 2012 ; trinity , a property and casualty insurance business located in atlanta , georgia that was acquired on september 1 , 2012 ; sebs-pruett , an employee benefits business headquartered in nashville , tennessee that was acquired on october 1 , 2012 ; and leavitt , an employee benefits business in the san jose , california market that was acquired on november 1 , 2012. the largest components of operating expenses for the employee services group are personnel costs , which include commissions paid to third party brokers , and occupancy costs , representing 82.6 % and 82.8 % of total operating expenses for the years ended december 31 , 2012 and 2011 , respectively . personnel costs increased approximately $ 7.7 million , primarily as a result of the acquired businesses . personnel costs represented 63.1 % and 64.2 % of revenue for the twelve months ended december 31 , 2012 and 2011 , respectively . occupancy costs are relatively fixed in nature and were $ 10.7 million and $ 9.8 million for the twelve months ended december 31 , 2012 and 2011 , respectively . the increase in occupancy costs was primarily due to business acquisitions . 30 the increase in gross margin percent was primarily attributable to the increases in the property and casualty and retirement plan consulting businesses . the increase in gross margin percent for property and casualty was due to the increase in volume-based carrier bonus payments , which have no corresponding costs , as well as the introduction of various cost-management efforts , including personnel reductions . the increase in gross margin in the retirement plan business is due to the increase in actuarial consulting services , which have a more fixed cost structure , and therefore generate higher profit margins with a corresponding increase in revenue . medical management professionals replace_table_token_12_th same-unit revenue consists of revenue from existing clients and net new business sold . the decrease in same-unit revenue was primarily due to a $ 3.6 million decrease in revenue from existing clients resulting from a decline in pricing and reimbursement rates which resulted in a decrease in the average revenue recognized per procedure . the remaining decline in same-unit revenue related to revenue from client terminations net of new business sold . this decrease was attributable to several reasons including : increased competitive pressures , clients moving the process in-house , and physician groups losing their hospital contracts or being acquired by the hospital .
| executive summary revenue for the year ended december 31 , 2012 increased by 4.4 % to $ 766.1 million from $ 733.8 million for 2011. the increase in revenue was due to a combination of newly acquired operations , which resulted in an increase of $ 26.6 million , or 3.6 % , and an increase in same unit revenue of $ 5.7 million , or 0.8 % . earnings per share from continuing operations were $ 0.63 per diluted share for the year ended december 31 , 2012 compared to $ 0.58 per diluted share for the year ended december 31 , 2011. earnings per share for the years ended december 31 , 2012 and 2011 included a gain of approximately $ 0.03 and $ 0.02 per diluted share , respectively , related to the divestiture of cbiz 's wealth management business in january of 2011. also included in earnings per share for the year ended december 31 , 2012 are proceeds from a legal settlement which are included in other income , net , resulting in $ 0.02 per diluted share . non-gaap earnings per diluted share were $ 1.22 and $ 1.10 for the years ended december 31 , 2012 and 2011 , respectively . cbiz believes non-gaap earnings per diluted share illustrates the impact of certain non-cash charges on income from continuing operations and is a useful performance measure for the company , its analysts and its stockholders . non-gaap earnings per diluted share is a measurement prepared on a basis other than generally accepted accounting principles ( gaap ) . as such , the company has included this data and has provided a reconciliation to the nearest gaap measurement , income per diluted share from continuing operations . reconciliations for the twelve months ended december 31 , 2012 , 2011 and 2010 are provided in the results of operations continuing operations section that follows .
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the accrued net settlements on derivatives that qualify for hedge accounting are recorded in interest income story_separator_special_tag the following analysis is intended to provide the reader with a further understanding of the consolidated financial condition and results of operations of the corporation for the periods shown . for a full understanding of this analysis , it should be read in conjunction with other sections of this annual report on form 10-k , including part i , “ item 1. business ” , part ii , “ item 6. selected financial data ” and part ii , “ item 8. financial statements and supplementary data. ” critical accounting policies and estimates accounting policies involving significant judgments , estimates and assumptions by management , which have , or could have , a material impact on the corporation 's consolidated financial statements are considered critical accounting policies . management considers the following to be its critical accounting policies : the determination of allowance for loan losses , the valuation of goodwill and identifiable intangible assets , the assessment of investment securities for impairment and accounting for defined benefit pension plans . allowance for loan losses establishing an appropriate level of allowance for loan losses necessarily involves a high degree of judgment . the level of the allowance is based on management 's ongoing review of the growth and composition of the loan portfolio , historical loss experience , estimated loss emergence period ( the period from the event that triggers the eventual default until the actual loss is recognized with a charge-off ) , current economic conditions , analysis of asset quality and credit quality levels and trends , the performance of individual loans in relation to contract terms and other pertinent factors . a methodology is used to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses . the methodology is described below . loss allocations are identified for individual loans deemed to be impaired in accordance with gaap . impaired loans are loans for which it is probable that the bank will not be able to collect all amounts due according to the contractual terms of the loan agreements and all loans restructured in a troubled debt restructuring . loss allocations for loans deemed to be impaired are measured on a discounted cash flow method based upon the loan 's contractual effective interest rate , or at the loan 's observable market price , or , if the loan is collateral dependent , at the fair value of the collateral . for collateral dependent loans for which repayment is dependent on the sale of the collateral , management adjusts the fair value for estimated costs to sell . for collateral dependent loans for which repayment is dependent on the operation of the collateral , such as accruing troubled debt restructured loans , estimated costs to sell are not incorporated into the measurement . management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the property . for loans that are collectively evaluated , loss allocation factors are derived by analyzing historical loss experience by loan segment over an established look-back period deemed to be relevant to the inherent risk of loss in the portfolios . loans are segmented by loan type , collateral type , delinquency status and loan risk rating , where applicable . these loss allocation factors are adjusted to reflect the loss emergence period . these amounts are supplemented by certain qualitative risk factors reflecting management 's view of how losses may vary from those represented by historical loss rates . these qualitative risk factors include : 1 ) changes in lending policies and procedures , including changes in underwriting standards and collection , charge-off , and recovery practices not considered elsewhere in estimating credit losses ; 2 ) changes in international , national , regional , and local economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; 3 ) changes in the nature and volume of the portfolio and in the terms of loans ; 4 ) changes in the experience , ability , and depth of lending management and other relevant staff ; 5 ) changes in the volume and severity of past due loans , the volume of nonaccrual loans , and the volume and severity of adversely classified or rated loans ; 6 ) changes in the quality of the institution 's loan review system ; 7 ) changes in the value of underlying collateral for collateral dependent loans ; 8 ) the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; and 9 ) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution 's existing portfolio . because the methodology is based upon historical experience and trends , current economic data , as well as management 's judgment , factors may arise that result in different estimations . adversely different conditions or assumptions could lead to increases in the allowance . in addition , various regulatory agencies periodically review the allowance for loan losses . - 32 - such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination . as of december 31 , 2017 , management believes that the allowance is adequate and consistent with asset quality and delinquency indicators . valuation of goodwill and identifiable intangible assets the corporation allocated the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions consist of wealth management advisory contracts . story_separator_special_tag in 2017 , there were no events or circumstances that occurred that would indicate that the carrying amount of the corporation 's intangible assets may not be recoverable . these assumptions used in the impairment tests of goodwill and intangible assets are susceptible to change based on changes in economic conditions and other factors . any change in the estimates which the corporation uses to determine the carrying value of the corporation 's goodwill and identifiable intangible assets , or which otherwise adversely affects their value or estimated lives could adversely affect the corporation 's results of operations . see note 8 to the consolidated financial statements for additional information . assessment of investment securities for impairment securities that the corporation has the ability and intent to hold until maturity are classified as held to maturity and are accounted for using historical cost , adjusted for amortization of premiums and accretion of discounts . securities available for sale are carried at fair value , with any unrealized gains and losses , net of taxes , reported as accumulated other comprehensive income or loss in shareholders ' equity . the fair values of securities may be based on either quoted market prices or third party pricing services . when the fair value of an investment security is less than its amortized cost basis , the corporation assesses whether the decline in value is other-than-temporary . the corporation 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 impairment , the severity and duration of the impairment , changes in the value subsequent to the reporting date , forecasted performance of the issuer , changes in the dividend or interest payment practices of the issuer , changes in the credit rating of the issuer or the specific security , and the general market condition in the geographic area or industry in which the issuer operates . future adverse changes in market conditions , continued poor operating results of the issuer , projected adverse changes in cash flows , which might impact the collection of all principal and interest related to the security , or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future . in determining whether an other-than-temporary impairment has occurred for debt securities , the corporation compares the present value of cash flows expected to be collected from the security with the amortized cost of the security . if the present value of expected cash flows is less than the amortized cost of the security , then the entire amortized cost of the security will not be recovered ; that is , a credit loss exists , and an other-than-temporary impairment shall be considered to have occurred . when an other-than-temporary impairment has occurred , the amount of the other-than-temporary impairment recognized in earnings for a debt security depends on whether the corporation intends to sell the security or if it is more-likely-than-not that the corporation will be required to sell the security before recovery of its amortized cost less any current period - 34 - credit loss . if the corporation intends to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost , the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the amortized cost and fair value of the security . if the corporation does not intend to sell or it is more-likely-than-not that it will not be required to sell the security before recovery of its amortized cost , the amount of the other-than-temporary impairment related to credit loss shall be recognized in earnings and the noncredit-related portion of the other-than-temporary impairment shall be recognized in other comprehensive income . there were no other-than-temporary impairment losses recognized for the year ended december 31 , 2017 . defined benefit pension plans the determination of the defined benefit obligation and net periodic benefit cost related to our defined benefit pension plans requires estimates and assumptions such as discount rates , mortality , rates of return on plan assets and compensation increases . washington trust evaluates the assumptions annually and uses an actuarial firm to assist in making these estimates . changes in assumptions due to market conditions , governing laws and regulations , or circumstances specific to the corporation could result in material changes to defined benefit pension obligation and net periodic benefit cost . see note 16 to the consolidated financial statements for additional information . overview washington trust offers a comprehensive product line of banking and financial services to individuals and businesses , including commercial , residential and consumer lending , retail and commercial deposit products , and wealth management services through its offices in rhode island , eastern massachusetts and connecticut ; its atm networks ; and its internet website at www.washtrust.com . our largest source of operating income is net interest income , the difference between interest earned on loans and securities and interest paid on deposits and borrowings . in addition , we generate noninterest income from a number of sources , including wealth management services , mortgage banking activities and deposit services . our principal noninterest expenses include salaries and employee benefits , occupancy and facility-related costs , technology and other administrative expenses . our financial results are affected by interest rate fluctuations , changes in economic and market conditions , competitive conditions within our market area and changes in legislation , regulation and or accounting principles . adverse changes in economic growth , consumer confidence , credit availability and corporate earnings could negatively impact our financial results . we continue to leverage our strong statewide brand to build market share and remain steadfast in our commitment to provide superior service . in 2017 , washington trust opened a full-service branch in coventry , rhode island .
| results of operations the following table presents a summarized consolidated statement of operations : replace_table_token_6_th the following table presents a summary of performance metrics and ratios : replace_table_token_7_th comparison of 2017 with 2016 net income totaled $ 45.9 million in 2017 , compared to $ 46.5 million in 2016 . income before income taxes for 2017 increased by $ 8.8 million , or 13 % , compared to 2016 , due to growth in net interest income and a reduction in the loan loss provision , partially offset by an increase in noninterest expense . income tax expense for 2017 increased by $ 9.3 million , or 42 % , over 2016 . on december 22 , 2017 , the tax act was signed into law , permanently lowering the corporate federal income tax rate from 35 % to 21 % , effective january 1 , 2018. the enactment of the tax act in 2017 required companies to revalue and reassess deferred tax assets and liabilities reflecting the new federal income tax rate . as a result , in december 2017 , washington trust 's net deferred tax assets were written down by a non-cash charge of $ 6.2 million , with a corresponding increase to income tax expense . this write-down adjustment reduced 2017 earnings per diluted share by $ 0.36. excluding the impact of the tax act , the increase in income tax expense over 2016 reflected a higher level of pre-tax income and a higher proportion of taxable income to pre-tax book income . see further discussion in the “ income taxes ” section . comparison of 2016 with 2015 net income totaled $ 46.5 million in 2016 , up by 7 % from the $ 43.5 million reported for 2015 .
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, '' `` believe , '' `` will , '' `` expect , '' `` project , '' `` estimate , '' `` anticipate , '' `` plan , '' or `` continue '' and similar expressions . readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties , and that actual results may vary from those in the forward-looking statements as a result of various factors , including , but not limited to : · the effectiveness of management 's strategies and decisions ; · our ability to sign and implement new customer contracts for our solutions ; 26 · our ability to accurately forecast the costs required to successfully implement new contracts ; · our ability to renew and or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations ; · our ability to effectively compete against other entities , whose financial , research , staff , and marketing resources may exceed our resources ; · our ability to accurately forecast our revenues , margins , earnings and net income , as well as any potential charges that we may incur as a result of changes in our business ; · our ability to accurately forecast performance and the timing of revenue recognition under the terms of our customer contracts ahead of data collection and reconciliation ; · the costs and management distraction related to a proxy contest ; · the impact of ppaca on our operations and or the demand for our services ; · our ability to anticipate change and respond to emerging trends in the domestic and international markets for healthcare and the impact of the same on demand for our services ; · the risks associated with deriving a significant concentration of our revenues from a limited number of customers ; · the risks associated with foreign currency exchange rate fluctuations and our ability to hedge against such fluctuations ; · our ability to achieve and reach mutual agreement with customers with respect to the contractually required performance metrics , cost savings and clinical outcomes improvements , or to achieve such metrics , savings and improvements within the timeframes contemplated by us ; · our ability to achieve estimated annualized revenue in backlog in the manner and within the timeframe we expect , which is based on certain estimates regarding the implementation of our services ; · our ability and or the ability of our customers to enroll participants and to accurately forecast their level of enrollment and participation in our programs in a manner and within the timeframe anticipated by us ; · the ability of our customers to provide timely and accurate data that is essential to the operation and measurement of our performance under the terms of our contracts ; · our ability to favorably resolve contract billing and interpretation issues with our customers ; · our ability to service our debt ( including the cash convertible notes and carefirst convertible note ) , make principal and interest payments as those payments become due , and remain in compliance with our debt covenants ; · the risks associated with changes in macroeconomic conditions , which may reduce the demand and or the timing of purchases for our services from customers or potential customers , reduce the number of covered lives of our existing customers , or restrict our ability to obtain additional financing ; · counterparty risk associated with the cash convertible notes hedges , interest rate swap agreements , and foreign currency exchange contracts ; 27 · the risks associated with valuation of the cash convertible notes hedges and the cash conversion derivative , which may result in volatility to our consolidated statements of comprehensive income ( loss ) if these transactions do not completely offset ; · our ability to integrate new or acquired businesses , services ( including outsourced services ) , or technologies into our business and to accurately forecast the related costs ; · our ability to anticipate and respond to strategic changes , opportunities , and emerging trends in our industry and or business and to accurately forecast the related impact on our revenues and earnings ; · the impact of any impairment of our goodwill or other intangible assets ; · our ability to develop new products and deliver and report outcomes on those products ; · our ability to implement our integrated data and technology solutions platform within the required timeframe and expected cost estimates and to develop and enhance this platform and or other technologies to meet evolving customer and market needs ; · our ability to obtain adequate financing to provide the capital that may be necessary to support our operations and to support or guarantee our performance under new contracts ; · unusual and unforeseen patterns of healthcare utilization by individuals with diseases or conditions for which we provide services ; · the ability of our customers to maintain the number of covered lives enrolled in the plans during the terms of our agreements ; · the risks associated with data privacy or security breaches , computer hacking , network penetration and other illegal intrusions ; · the impact of ppaca on our operations and or the demand for our services ; · the impact of any new or proposed legislation , regulations and interpretations relating to the medicare prescription drug , improvement , and modernization act of 2003 and any legislative or regulatory changes with respect to medicare advantage ; · the impact of future state , federal , and international legislation and regulations applicable to our business , including ppaca , on our ability to deliver our services and on the financial health of our customers and their willingness to purchase our services ; · current geopolitical turmoil , the continuing threat story_separator_special_tag performance-related adjustments ( including any amounts recorded as revenue that were ultimately refunded ) , changes in estimates , or data reconciliation differences may cause us to recognize or reverse revenue in a current fiscal year that pertains to services provided during a prior fiscal year . during 2013 , 2012 and 2011 , we recognized a net increase in revenue of $ 8.2 million , $ 9.2 million , and $ 2.9 million , respectively , that related to services provided prior to each respective year . 29 impairment of intangible assets and goodwill we review goodwill for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable . we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . if we conclude during the qualitative assessment that this is the case or if we elect not to perform a qualitative assessment , we perform a quantitative review as described below . during a quantitative review of goodwill , we estimate the fair value of each reporting unit using a combination of a discounted cash flow model and a market-based approach , and we reconcile the aggregate fair value of our reporting units to our consolidated market capitalization . estimating fair value requires significant judgments , including management 's estimate of future cash flows , which is dependent on internal forecasts , estimation of the long-term growth rate for our business , the useful life over which cash flows will occur , and determination of our weighted average cost of capital , as well as relevant comparable company earnings multiples for the market-based approach . changes in these estimates and assumptions could materially affect the estimate of fair value and potential goodwill impairment for each reporting unit . if we determine that the carrying value of goodwill is impaired based upon an impairment review , we calculate any impairment using a fair-value-based goodwill impairment test as required by u.s. gaap . the fair value of a reporting unit is the price that would be received upon a sale of the unit as a whole in an orderly transaction between market participants at the measurement date . except for a trade name that has an indefinite life and is not subject to amortization , we amortize identifiable intangible assets , such as acquired technologies and customer contracts , over their estimated useful lives using the straight-line method . we assess the potential impairment of intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying values may not be recoverable . if we determine that the carrying value of other identifiable intangible assets may not be recoverable , we calculate any impairment using an estimate of the asset 's fair value based on the estimated price that would be received to sell the asset in an orderly transaction between market participants . we review intangible assets not subject to amortization , which consist of a trade name , on an annual basis or more frequently whenever events or circumstances indicate that the assets might be impaired . we estimate the fair value of the trade name using a present value technique , which requires management 's estimate of future revenues attributable to this trade name , estimation of the long-term growth rate for these revenues , and determination of our weighted average cost of capital . changes in these estimates and assumptions could materially affect the estimate of fair value for the trade name . future events could cause us to conclude that impairment indicators exist and that goodwill and or other intangible assets are impaired . any resulting impairment loss could have a material adverse impact on our financial condition and results of operations . income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . accounting for income taxes requires significant judgment in determining income tax provisions , including determination of deferred tax assets , deferred tax liabilities , and any valuation allowances that might be required against deferred tax assets , and in evaluating tax positions . 30 we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . u.s. gaap also provides guidance on derecognition of income tax assets and liabilities , classification of current and deferred income tax assets and liabilities , accounting for interest and penalties associated with tax positions , and income tax disclosures . judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns . variations in the actual outcome of these future tax consequences could materially impact our consolidated financial position , results of operations , and cash flows . share-based compensation we measure and recognize compensation expense for all share-based payment awards over the required vesting period based on estimated fair values at the date of grant . determining the fair value of stock options at the grant date requires judgment in developing assumptions , which involve a number of variables . these variables include , but are not limited to , the expected stock price volatility over the term of the
| results of operations the following table sets forth the components of the statements of operations for the fiscal years ended december 31 , 2013 , 2012 and 2011 expressed as a percentage of revenues . replace_table_token_3_th ( 1 ) figures may not add due to rounding . revenues revenues for fiscal 2013 decreased $ 13.9 million , or 2.1 % , over fiscal 2012 , primarily due to contract terminations , including our contract with cigna in february 2013 as well as one other health plan contract ( the `` two terminated contracts '' ) . these decreases were somewhat offset by the following : the commencement of contracts with new customers ; and increased participation and or increased membership in customers ' existing programs . 31 revenues for fiscal 2012 decreased $ 11.6 million , or 1.7 % , over fiscal 2011 , primarily due to decreases in revenue from the wind-down of our contract with cigna in advance of the contract 's expiration in february 2013 , as well as certain other contract or program terminations with three smaller health plan customers . these decreases were somewhat offset by the following : the commencement of contracts with new customers ; an increase in participation in our fitness solutions , as well as in the number of members eligible to participate in such solutions ; and an increase in performance-based revenues due to our ability to measure and achieve performance targets on certain contracts during the year ended december 31 , 2012. cost of services cost of services ( excluding depreciation and amortization ) as a percentage of revenues for fiscal 2013 increased to 82.5 % compared to 78.8 % for fiscal 2012 , primarily due to the following : the impact of the two terminated contracts , which carried a lower than average cost of services as a percentage of revenues , as well as the impact of certain costs that could not be reduced in the same proportion
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upon disposal , the related cost and accumulated depreciation of the assets are removed from their respective accounts , and any gains or losses are included in “ direct operating expenses ” in the consolidated statements of operations . 72 debt issuance costs we capitalize costs associated with the issuance of debt and amortize them as additional interest expense over the lives of the respective debt instrument on a straight-line basis , which approximates the effective interest method . debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability , consistent with debt discounts . the unamortized balance of debt issuance costs presented in “ long-term debt ” was $ 0.9 million and $ 0.1 million at december 31 , 2020 and 2019 , respectively . deferred story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements , and the notes and schedules related thereto , which are included in this annual report . company overview nuverra provides water logistics and oilfield services to customers focused on the development and ongoing production of oil and natural gas from shale formations in the united states . our business operations are organized into three geographically distinct divisions : the rocky mountain division , the northeast division , and the southern division . within each division , we provide water transport services , disposal services , and rental and other services associated with the drilling , completion , and ongoing production of shale oil and natural gas . rocky mountain division the rocky mountain division is our bakken shale area business . the bakken and underlying three forks shale formations are the two primary oil producing reservoirs currently being developed in this geographic region , which covers western north dakota , eastern montana , northwestern south dakota and southern saskatchewan . we have operations in various locations throughout north dakota and montana , including yards in dickinson , williston , watford city , tioga , stanley , and beach , north dakota , as well as sidney , montana . additionally , we operate a financial support office in minot , north dakota . as of december 31 , 2020 , we had 249 employees in the rocky mountain division . water transport services we manage a fleet of 176 trucks in the rocky mountain division that collect and transport flowback water from drilling and completion activities , and produced water from ongoing well production activities , to either our own or third-party disposal wells throughout the region . additionally , our trucks collect and transport fresh water from water sources to operator locations for use in well completion activities . in the rocky mountain division , we own an inventory of lay flat temporary hose as well as related pumps and associated equipment used to move fresh water from water sources to operator locations for use in completion activities . we employ specially trained field personnel to manage and operate this business . for customers who have secured their own source of fresh water , we provide and operate the lay flat temporary hose equipment to move the fresh water to the drilling and completion location . we may also use third-party sources of fresh water in order to provide the water to customers as a package that includes our water transport service . disposal services we manage a network of 20 owned and leased salt water disposal wells with current capacity of approximately 82 thousand barrels of water per day , and permitted capacity of 104 thousand barrels of water per day . our salt water disposal wells in the rocky mountain division are operated under the landtech brand . additionally , we operate a landfill facility near watford city , north dakota that handles the disposal of drill cuttings and other oilfield waste generated from drilling and completion activities in the region . rental and other services we maintain and lease rental equipment to oil and gas operators and others within the rocky mountain division . these assets include tanks , loaders , manlifts , light towers , winch trucks , and other miscellaneous equipment used in drilling and completion activities . in the rocky mountain division , we also provide oilfield labor services , also called “ roustabout work , ” where our employees move , set-up and maintain the rental equipment for customers , in addition to providing other oilfield labor services . 29 northeast division the northeast division is comprised of the marcellus and utica shale areas , both of which are predominantly natural gas producing basins . the marcellus and utica shale areas are located in the northeastern united states , primarily in pennsylvania , west virginia , new york and ohio . we have operations in various locations throughout pennsylvania , west virginia , and ohio , including yards in masontown and wheeling , west virginia , williamsport and wellsboro , pennsylvania , and cambridge and cadiz , ohio . as of december 31 , 2020 , we had 186 employees in the northeast division . water transport services we manage a fleet of 177 trucks in the northeast division that collect and transport flowback water from drilling and completion activities , and produced water from ongoing well production activities , to either our own or third-party disposal wells throughout the region , or to other customer locations for reuse in completing other wells . additionally , our trucks collect and transport fresh water from water sources to operator locations for use in well completion activities . disposal services we manage a network of 13 owned and leased salt water disposal wells with current and permitted capacity of approximately 22 thousand barrels of water per day in the northeast division . our salt water disposal wells in the northeast division are operated under the nuverra , heckmann , and clearwater brands . story_separator_special_tag although transport of product from the bakken shale area historically has also occurred by rail and other means , which is a higher transportation cost than the dapl , there can be no assurance that there will be sufficient future takeaway capacity . an appeals court has allowed the dapl to continue to operate in the near term , but courts have also vacated needed easements making dapl vulnerable to being shut down by government action or further litigation . the potential closure of the dapl has customers cautious about returning to more normal business volumes and or deferring capital expenditure projects until the litigation has been adjudicated . as a result , the recovery of the rocky mountain division has been slower than other oil producing basins . the reduction in customer activity related to commodity prices most directly impacts our services that cater to drilling and completion activities . this includes fresh water transportation via lay flat hose , our rental equipment business and our landfill business in the rocky mountain division . additionally , a portion of our trucking and salt water disposal business comes from completion-related flowback work ; however , the majority of this business is derived from produced water transportation and disposal from existing wells . as such , we anticipate meaningful reductions in revenue and profitability to continue during fiscal 2021 . 32 an additional important trend in recent years has been the focus of wall street and investors in the energy sector to encourage exploration and production operators to spend as a function of the cash flow they generate . historically , as a result of accommodating debt and equity markets , exploration and production companies were able to spend in excess of the cash flow generated by the business . this shift in investor sentiment has brought increased capital discipline to exploration and production companies who are careful to make more selective capital allocation decisions . the drop during 2020 in underlying commodity prices , net of hedging activities , will impact our customers ' underlying cash flows and therefore their drilling plans . additionally , following the decrease in commodity prices and the impact of covid-19 , a number of our customers witnessed a material drop in their public stock prices and received debt rating downgrades . we believe this trend will make it more difficult for our customers to raise new sources of capital , which may further limit their ability to spend capital on future drilling and completion activities . lastly , during 2020 , we have seen an increase in reuse and water sharing in the northeast . some of our customers are using produced and flowback water for fracking as they have determined it is more economical to transport produced water to sites than it is to dispose of the water . operators are also sharing water with other operators to avoid disposal . transporting shared or reused water still requires trucking services , but it is generally shorter haul work done at an hourly rate which negatively impacts our revenues . other factors affecting our operating results our results are also driven by a number of other factors , including ( i ) availability of our equipment , which we have built through acquisitions and capital expenditures , ( ii ) transportation costs , which are affected by fuel costs , ( iii ) utilization rates for our equipment , which are also affected by the level of our customers ' drilling and production activities , competition , and our ability to relocate our equipment to areas in which oil and natural gas exploration and production activities are more robust on a relative basis , ( iv ) the availability of qualified employees ( or alternatively , subcontractors ) in the areas in which we operate , ( v ) labor costs , ( vi ) changes in governmental laws and regulations at the federal , state and local levels , ( vii ) seasonality and weather events , ( viii ) pricing and ( ix ) our health , safety and environmental performance record . while we have agreements in place with certain of our customers to establish pricing for our services and various other terms and conditions , these agreements typically do not contain minimum volume commitments or otherwise require the customer to use us . accordingly , our customer agreements generally provide the customer the ability to change the relationship by either in-sourcing some or all services we have historically provided or by contracting with other service providers . as a result , even with respect to customers with which we have an agreement to establish pricing , the revenue we ultimately receive from that customer , and the mix of revenue among lines of services provided , is unpredictable and subject to variation over time . 33 results of operations : year ended december 31 , 2020 compared to the year ended december 31 , 2019 the following table sets forth for each of the periods indicated our statements of operations data ( dollars in thousands ) : replace_table_token_1_th nm - percentages over 100 % are not displayed . service revenue service revenue consists of fees charged to customers for water transport services , disposal services and other service revenues associated with the drilling , completion , and ongoing production of shale oil and natural gas . on a consolidated basis , service revenue for the year ended december 31 , 2020 was $ 102.8 million , down $ 49.7 million , or 32.6 % , from $ 152.5 million for the year ended december 31 , 2019. the decline in service revenue is primarily due to decreases in water transport services and disposal services in all three divisions . as the primary causes of the decreases in water transport services and decreases in disposal services are different for all three divisions , see “ segment operating results ” below for further discussion .
| trends affecting our operating results covid-19 pandemic and oil price declines the outbreak of covid-19 in the first quarter of 2020 and its continued spread across the globe throughout 2020 has resulted , and is likely to continue to result , in significant economic disruption , including reduction in energy demand and commodity price volatility that adversely impacted our business . beginning in the first quarter of 2020 , federal , state and local governments implemented significant actions to mitigate the public health crisis , including shelter-in-place orders , business closures and capacity limits , quarantines , travel restrictions , executive orders and similar restrictions intended to control the spread of covid-19 . over the remainder of 2020 , many of these restrictions were adjusted based on the severity of the covid-19 outbreak in particular communities , sometimes resulting in an easing of restrictions while other times resulting in a reinstatement or tightening of restrictions . as a result , the economy was marked by significant uncertainty , and changes in travel patterns have resulted in a generally reduced demand for refined products , such as gasoline and jet fuel , and consequently a reduction in the demand for crude oil . the uncertainty of the ongoing covid-19 pandemic has continued to impact travel patterns and generally depress market demand for crude oil . additionally , beginning in early march 2020 , the global oil markets were negatively impacted by an oil supply conflict occurring when the organization of petroleum exporting countries and other oil producing nations ( “ opec+ ” ) were initially unable to reach an agreement on production levels for crude oil , at which point saudi arabia and russia initiated efforts to aggressively increase crude oil production . the result was an oversupply of oil , which put downward pressure on the price of crude oil .
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we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates , which may materially affect our operating results and financial position . the accounting policies described below are those which , in our opinion , involve the most significant application of judgment , or involve complex estimation , and which could , if different judgments or estimates were made , materially affect our reported results of operations and financial position . revenue recognition . our net sales are generated from sales of fiber lasers , fiber amplifiers , diode lasers and complementary products . our products are used in a wide range of applications by different types of end users or used as components integrated into systems by oems or system integrators . we also sell communications systems that include our fiber lasers and amplifiers as components . we recognize revenue when four basic criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred or services have been rendered ; ( iii ) the fee is fixed or determinable ; and ( iv ) collectability is reasonably assured . revenue from the sale of our products is generally recognized upon shipment , provided that the other revenue recognition criteria have been met . we have no obligation to provide upgrades , enhancements or customer support subsequent to the sale , other than warranty . revenue from orders with multiple deliverables is divided into separate units of accounting when certain criteria are met . the consideration for the arrangement is then allocated to the separate units of accounting based on their relative fair values . our primary deliverables are equipment and installation services , for which we are able to identify the fair value . installation services are based on a standard rate per day and are not a significant portion of our total revenue . returns and customer credits are infrequent and are recorded as a reduction to revenue . rights of return generally are not included in sales arrangements . we receive a customer purchase order or contract as evidence of an arrangement and product shipment terms are typically free on board , or f.o.b. , shipping point . periodically , our revenue arrangements include customer acceptance clauses . if an acceptance clause defines a performance requirement in a process or application that we can not effectively test prior to delivery or that has not been accepted previously , we defer recognition of revenue until satisfaction of the performance requirement has been proved . 43 inventory . inventory is stated at the lower of cost ( first-in , first-out method ) or market value . inventory includes parts and components that may be specialized in nature and subject to rapid obsolescence . we maintain a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory . the reserve is based upon a review of inventory materials on hand , which we compare with estimated future usage and age . in addition , we review the inventory and compare recorded costs with estimates of current market value . write-downs are recorded to reduce the carrying value to the net realizable value with respect to any part with costs in excess of current market value . estimating demand and current market values is inherently difficult , particularly given that we make highly specialized components and products . we determine the valuation of excess and obsolete inventory by making our best estimate considering the current quantities of inventory on hand and our forecast of the need for this inventory to support future sales of our products . we often have limited information on which to base our forecasts . if future sales differ from these forecasts , the valuation of excess and obsolete inventory may change and additional inventory provisions may be required . because of our vertical integration , a significant or sudden decrease in sales could result in a significant change in the estimates of excess or obsolete inventory valuation . we recorded inventory charges of $ 6.1 million , $ 2.7 million and $ 5.3 million in 2011 , 2010 and 2009 , respectively . stock-based compensation . stock-based compensation is included in the following financial statement captions as follows : replace_table_token_7_th we allocate and record stock-based compensation expense on a straight-line basis over the requisite service period . we calculate the fair value of stock option grants using the black-scholes option pricing model . determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . the assumptions used to calculate the fair value of stock-based payment awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . the weighted average assumptions used in the black-scholes model or the calculation of compensation were as follows : replace_table_token_8_th 44 as stock-based compensation expense recorded in our statements of operations is based on options ultimately expected to vest , it has been reduced for estimated forfeitures . story_separator_special_tag we estimate forfeitures at the time of grant and revise these estimates , if necessary , in subsequent periods if actual forfeitures differ from the estimates . we have offered an employee stock purchase plan covering our u.s. and german employees . the plan allows employees who participate to purchase shares of common stock through payroll deductions at a 15 % discount to the lower of the stock price on the first day or last day of the six-month purchase period . payroll deductions may not exceed 10 % of the employee 's compensation . compensation expense related to the employee stock purchase plan for the years ended december 31 , 2011 , 2010 and 2009 , was approximately $ 359,000 , $ 206,000 and $ 205,000 , respectively . income taxes and deferred taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . we file federal and state income tax returns in the united states and tax returns in nine international jurisdictions . we must estimate our income tax expense after considering , among other factors , intercompany transactions on an arm 's length basis , differing tax rates between jurisdictions , allocation factors , tax credits , nondeductible items and changes in enacted tax rates . significant judgment is required in determining our annual tax expense and in evaluating our tax positions . as we continue to expand globally , there is a risk that , due to complexity within and diversity among the various jurisdictions in which we do business , a governmental agency may disagree with the manner in which we have computed our taxes . additionally , due to the lack of uniformity among all of the foreign and domestic taxing authorities , there may be situations where the tax treatment of an item in one jurisdiction is different from the tax treatment in another jurisdiction or that the transaction causes a tax liability to arise in another jurisdiction . deferred taxes arise because of the different treatment between financial statement accounting and tax accounting , known as temporary differences. the tax effects of these temporary differences are recorded as deferred tax assets and deferred tax liabilities on the consolidated balance sheet . at december 31 , 2011 , we recorded a net deferred tax asset of $ 10.3 million . if insufficient evidence of our ability to generate future taxable income arises , we may be required to record a valuation allowance against these assets , which will result in additional income tax expense . on a quarterly basis , we evaluate whether the deferred tax assets may be realized in the future and assess the need for a valuation allowance . we provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues . reserves recorded are based on a determination of whether and how much of a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit , assuming that the matter in question will be raised by the tax authorities . potential interest and penalties associated with such uncertain tax positions is recorded as a component of income tax expense . at december 31 , 2011 , we had unrecognized tax benefits of approximately $ 4.5 million that , if recognized , would be recorded as a reduction in income tax expense . deferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to be indefinitely reinvested in the foreign jurisdiction . historically , we have reinvested the undistributed earnings of our foreign subsidiaries . we intend to continue to do this and keep such earnings indefinitely reinvested in the applicable tax jurisdictions . 45 story_separator_special_tag increased sales for optical pumping and research and development applications . cost of sales and gross margin . cost of sales increased by $ 31.2 million , or 25.6 % , to $ 152.8 million in 2010 from $ 121.6 million in 2009. our gross margin increased to 48.9 % in 2010 from 34.6 % in 2009. the increase in gross margin was the result of an increase in net sales and more favorable absorption of our fixed manufacturing costs due to an increase in production volume . in addition , cost of sales benefited from a reduction in the cost per watt of our diodes and lower costs associated with greater use of internally manufactured components and accessories . expenses related to inventory reserves and other valuation adjustments decreased by $ 2.6 million to $ 2.7 million , or 0.9 % of sales , for the year ended december 31 , 2010 , as compared to $ 5.3 million , or 2.9 % of sales , for the year ended december 31 , 2009. sales and marketing expense . sales and marketing expense increased by $ 3.9 million , or 26.0 % , to $ 19.1 million in 2010 from $ 15.2 million in 2009 , primarily as a result of an increase in personnel costs due to an increase in headcount and bonus accruals . as a percentage of sales , sales and marketing expense decreased to 6.4 % in 2010 from 8.2 % in 2009. research and development expense . research and development expense increased by $ 0.7 million , or 3.3 % , to $ 19.2 million in 2010 from $ 18.5 million in 2009. this increase was primarily the result of an increase 48 in personnel and consultant costs , partially offset by a decrease in materials used in research and development activities . the increase in personnel costs was driven primarily by bonus accruals . research and development activity continues to focus on enhancing the performance of our internally manufactured components , refining
| results of operations the following table sets forth selected statement of operations data for the periods indicated in dollar amounts and expressed as a percentage of net sales . replace_table_token_9_th comparison of year ended december 31 , 2011 to year ended december 31 , 2010 net sales . net sales increased by $ 175.2 million , or 58.6 % , to $ 474.5 million in 2011 from $ 299.3 million in 2010. the table below sets forth sales by application ( in thousands , except for percentages ) : replace_table_token_10_th 46 sales for materials processing applications increased due to substantially increased sales of high-power lasers used in cutting and welding applications and pulsed lasers used in marking and engraving applications . sales for communications applications increased due to increased sales of amplifiers in both the united states and russia . sales for medical applications increased due to increased demand from our primary medical applications customer in the united states and sales to new customers in europe and asia . the increase in sales of advanced applications was due to higher sales of high-power lasers used in university applications partially offset by decreased sales for optical pumping and research and development applications . cost of sales and gross margin . cost of sales increased by $ 64.4 million , or 42.2 % , to $ 217.2 million in 2011 from $ 152.8 million in 2010. our gross margin increased to 54.2 % in 2011 from 48.9 % in 2010. the increase in gross margin was the result of an increase in net sales and more favorable absorption of our fixed manufacturing costs due to an increase in production volume . in addition , cost of sales benefited from a reduction in the cost per watt of our diodes and lower costs associated with greater use of internally manufactured components and accessories .
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, after adjusting for identified intangible assets and the net assets recorded at fair value , was $ 47.4 million , which was allocated to goodwill story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed in item 1a risk factors. see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. fiscal 2012a review of this past year in fiscal 2012 , zumiez achieved record sales and earnings levels and continued to build on the momentum we had seen in fiscal 2011. during the year , we continued to make strategic investments that we believe will reap long-term benefits focused on enhancing the customer experience across multiple sales channels , domestic and international growth and on our people and infrastructure aimed at improving decision making and product speed to market . in july 2012 , we completed the acquisition of blue tomato . blue tomato is a multi-channel retailer 27 for board sports and related apparel and footwear in the european marketplace . the blue tomato acquisition represents a presence in the european action sports market with an established brand identity and operational philosophies that are strategically aligned with zumiez . the following table shows net sales , operating profit and margin and diluted earnings per share growth for fiscal 2012 compared to fiscal 2011. the fiscal 2012 results include $ 7.3 million in costs associated with the acquisition of blue tomato , including one-time acquisition costs , amortization of intangible assets and the costs associated with the future incentive payments related to the transaction as well as $ 2.1 million in charges for the relocation of our home office and ecommerce fulfillment center : replace_table_token_8_th ( 1 ) the fiscal year ended february 2 , 2013 consisted of 53 weeks versus 52 weeks in the fiscal year ended january 28 , 2012. the increase in net sales reflected a comparable store sales increase of 5.0 % for fiscal 2012 as well as the net addition of 56 stores ( 61 new or acquired stores offset by five store closures ) , which includes the acquisition of blue tomato during the second quarter of fiscal 2012. the increase in comparable stores sales was primarily driven by an increase in dollars per transaction partially offset by a decrease in comparable store transactions . dollars per transaction increased primarily due to an increase in average unit retail , partially offset by a decline in units per transaction . these sales results were achieved with record product margins , demonstrating the strength of our distinctive product offering and the unique customer experience our store associates provide . as a result of our continued focus on managing our cost structure , these sales results translated into strong operating profit and diluted earnings per share growth despite the impact of charges related to the acquisition costs associated with blue tomato and relocation of our home office and ecommerce fulfillment center . while the results of fiscal 2012 were positive , the back half of the year trended downward , particularly in the fourth quarter when same store sales decreased 1.0 % . contributing to these results were category challenges as we faced headwinds , such as footwear and snow hardgoods and outerwear . fiscal 2013a look at the upcoming year as we enter fiscal 2013 , we continue to face some of the challenges we encountered during the second half of fiscal 2012. in addition , we believe that consumers continue to face challenging economic conditions and uncertainty both domestically and globally that cause concern in the retail environment and lead us to be cautious in our outlook for the coming year . however , regardless of the macro economic landscape , we believe that we are well positioned to perform well relative to other retailers by staying true to what makes us unique while continuing to make return based investments . long-term we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing on our growth initiatives while managing our cost structure . our primary growth vehicles are : 1. initiatives that drive comparable store sales gains ; 2. opening high return stores ; 3. ecommerce penetration ; and 4. international growth 28 in fiscal 2013 , we expect total sales to increase driven by an increase in comparable store sales , the opening of approximately 60 new stores , including approximately 15 stores through international expansion in canada and europe , increased sales from our ecommerce channel and a full year of sales attributed to the blue tomato acquisition . if we achieve our sales projections , we expect earnings will increase . we will make further investments in people and infrastructure in fiscal 2013 , building on the progress we have made through fiscal 2012 , primarily focused on the development of our omni-channel sales strategies and our international growth . we anticipate inventory levels per square foot to grow slightly . we expect our cash , short-term investments and working capital to increase , and do not anticipate any new borrowings during the year . general net sales constitute gross sales net of actual and estimated returns , deductions for promotions and shipping revenue . net sales include our in-store sales and our ecommerce sales . we record the sale of gift cards as a current liability and recognize revenue when a customer redeems a gift card . story_separator_special_tag however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . our significant accounting policies are discussed in note 2 , summary of significant accounting policies , in the notes to consolidated financial statements found in part iv item 15 of this form 10-k. we believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results , and they require our most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . 30 description judgments and uncertainties effect if actual results differ from assumptions valuation of merchandise inventories we value our inventory at the lower of cost or fair market value through the establishment of write-down and inventory loss reserves . our write-down reserve represents the excess of the carrying value over the amount we expect to realize from the ultimate sales or other disposal of the inventory . write-downs establish a new cost basis for our inventory . subsequent changes in facts or circumstances do not result in the restoration of previously recorded write-downs or an increase in that newly established cost basis . our inventory loss reserve represents anticipated physical inventory losses ( shrinkage reserve ) that have occurred since the last physical inventory dates . our write-down reserve contains uncertainties because the calculation requires management to make assumptions based on the current rate of sales , the age and profitability of inventory and other factors . our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors , including historical percentages that can be affected by changes in merchandise mix and changes in actual shrinkage trends . we have not made any material changes in the accounting methodology used to calculate our write-down and shrinkage reserves in the past three fiscal years . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory reserves . however , if actual results are not consistent with our estimates and assumptions , we may be exposed to losses or gains that could be material . a 10 % decrease in ultimate sales price at february 2 , 2013 would have decreased net income by $ 0.1 million in fiscal 2012. a 10 % increase in actual physical inventory shrinkage reserved at february 2 , 2013 would have decreased net income by $ 0.2 million in fiscal 2012. fixed assets we review the carrying value of our fixed assets for impairment whenever events or changes in circumstances indicate that the carrying value of such asset may not be recoverable . recoverability of assets to be held and used is determined by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered impaired , the impairment recognized is measured by comparing the projected discounted cash flow of the asset to the asset carrying value . declines in projected cash flow of the assets could result in impairment . the actual economic lives of our fixed assets may be different from our estimated useful lives , thereby resulting in a different carrying value . these evaluations could result in a change in the depreciable lives of these assets and therefore our depreciation expense in future periods . our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values , including forecasting future sales , gross profit and operating expenses . our fixed assets accounting methodology contains uncertainties because it requires management to make estimates with respect to the useful lives of our fixed assets that we believe are reasonable . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate fixed asset impairment losses . however , if actual results are not consistent with our estimates and assumptions , our operating results could be adversely affected . although management believes that the current useful lives estimates assigned to our fixed assets are reasonable , factors could cause us to change our estimates , thus affecting the future calculation of depreciation . 31 description judgments and uncertainties effect if actual results differ from assumptions revenue recognition revenue is recognized upon purchase at our retail store locations . for our ecommerce sales , revenue is recognized upon estimated delivery to the customer . revenue is recorded net of estimated and actual sales returns and deductions for promotions . revenue is not recorded on the sale of gift cards . we record the sale of gift cards as a current liability and recognize revenue when a customer redeems a gift card . additionally , an estimate of the portion of gift cards that is not expected to be redeemed ( gift card breakage ) is recognized in net sales after 24 months , at which time the likelihood of redemption is considered remote based on our historical redemption data . our revenue recognition accounting methodology contains uncertainties because it requires management to make assumptions regarding future sales returns and the amount and timing of gift cards projected to be redeemed by gift card recipients . our estimate of the amount and timing of sales returns and gift cards to be redeemed is based primarily on historical transaction experience . we have not made any material changes in the accounting methodology used to measure future sales returns or recognize revenue for our gift card program in the past three fiscal years .
| results of operations the following table presents , for the periods indicated , selected items on the consolidated statements of income as a percent of net sales : replace_table_token_9_th fiscal 2012 results compared with fiscal 2011 net sales fiscal 2012 had 53 weeks versus 52 weeks in fiscal 2011. net sales numbers for the year include this additional week and fiscal 2012 comparable stores sales are compared to the comparable store sales for the 53 weeks ended february 4 , 2012. net sales were $ 669.4 million for fiscal 2012 compared to $ 555.9 million for fiscal 2011 , an increase of $ 113.5 million or 20.4 % . the increase reflected a comparable store sales increase of 5.0 % for fiscal 2012 as well as the net addition of 56 stores ( 61 new or acquired stores offset by five store closures ) , which includes the acquisition of blue tomato during the second quarter of fiscal 2012. included in the results for fiscal 2012 were $ 28.3 million in net sales of blue tomato . the 5.0 % increase in comparable store sales was a result of a 2.9 % increase for our comparable in-store sales and a 31.8 % increase for our comparable ecommerce sales . total ecommerce sales represented 11.2 % of sales for fiscal 2012 , compared to 7.3 % of sales for fiscal 2011 , and this increase was driven by the growth in comparable ecommerce sales mentioned above and our blue tomato acquisition . the increase in comparable stores sales was primarily driven by an increase in dollars per transaction , partially offset by a decline in comparable store transactions . dollars per transaction increased due to an increase in average unit retail , partially offset by a decrease in units per transaction .
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the company 's code of business conduct and ethics may be found in our 2004 proxy which was filed on june 30 , 2004. you may also obtain a copy of our code of business conduct and ethics free of charge by contacting investor relations at 1-800-738-6337. item 11. executive compensation the information required by this item will be set forth in our proxy statement , to be filed with the sec within 120 days after the end of the fiscal year ended march 31 , 2014 , relating to our 2014 annual meeting of stockholders to be held on july 25 , 2014 , and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by this item ( other than information required by item 201 ( d ) of regulation s-k with respect to equity compensation plans , which is set forth under item 5. in this annual report on form 10-k ) will be set forth in our proxy statement , to be filed with the sec within 120 days after the end of the fiscal year ended march 31 , 2014 , relating to our 2014 annual meeting of stockholders to be held on july 25 , 2014 , and is incorporated herein by reference . item 13. certain relationships and related transactions , and director independence the information required by this item will be set forth in our proxy statement , to be filed with the sec within 120 days after the end of the fiscal year ended march 31 , 2014 , relating to our 2014 annual meeting of stockholders to be held on july 25 , 2014 , and is incorporated herein by reference . item 14. principal accountant fees and services the information required by this item will be set forth in our proxy statement , to be filed with the sec within 120 days after the end of the fiscal year ended march 31 , 2014 , relating to our 2014 annual meeting of stockholders to be held on july 25 , 2014 , and is incorporated herein by reference . 42 part iv item 15. exhibits , financial statement schedules ( a ) the following documents are filed as part of this report on form 10-k. ( 1 ) consolidated financial statements the following exhibits are filed as part of this report on form 10-k. ( 3 ) articles of incorporation and by-laws 3.1 amended and restated articles of incorporation ( incorporated by reference to exhibit 3.1 to the registration statement on form 10-sb , file no . 000-28827 , filed january 10 , 2000 ) . 3.2 by-laws of the corporation ( incorporated by reference to exhibit 3.2 to the registration statement on form 10-sb , file no . 000-28827 , filed january 10 , 2000 ) . ( 4 ) instruments defining the rights of security holders 4.1 specimen common stock certificate ( incorporated by reference to exhibit 4.2 to the registration statement on form 10-sb , file no . 000-28827 , filed january 10 , 2000 ) . ( 10 ) material contracts 10.1 1998 stock option plan incorporated by reference to exhibit 10.1 to the registration statement on form 10-sb , file no . 000-28827 , filed january 10 , 2000 ) . 10.2 employment agreement with menderes akdag ( incorporated by reference to exhibit 10 of the registrant 's form 8-k filed march 30 , 2001 ) . 10.3 agreement for the sale and leaseback of the land and building ( incorporated by reference to exhibit 99.1 of the registrant 's form 8-k filed june 14 , 2001 ) . 10.4 amendment number 1 to executive employment agreement with menderes akdag ( incorporated by reference to exhibit 99.1 of the registrant 's form 8-k filed march 18 , 2004 ) . 10.5 amendment number 2 to executive employment agreement with menderes akdag ( incorporated by reference to exhibit 10.1 of the registrant 's form 8-k filed february 28 , 2007 ) . 10.6 2006 employee equity compensation restricted stock plan ( incorporated by reference to our definitive proxy statement for our 2006 annual meeting of stockholders filed june 22 , 2006 story_separator_special_tag executive summary petmed express was incorporated in the state of florida in january 1996. the company 's common stock is traded on the nasdaq global select market under the symbol “ pets. ” the company began selling pet medications and other pet health products in september 1996. in march 2010 the company started offering for sale additional pet supplies on its website , and these items are drop shipped to customers by third party vendors . presently , the company 's product line includes approximately 3,000 of the most popular pet medications , health products , and supplies for dogs and cats . the company markets its products through national television , online , and direct mail/print advertising campaigns which aim to increase the recognition of the “ 1-800-petmeds ” brand name , and “ petmeds ” family of trademarks , increase traffic on its website at www.1800petmeds.com , acquire new customers , and maximize repeat purchases . approximately 79 % of all sales were generated via the internet in fiscal 2014 , compared to 77 % in fiscal 2013. the company 's sales consist of products sold mainly to retail consumers . the twelve-month average purchase was approximately $ 75 and $ 73 per order for the fiscal years ended march 31 , 2014 and 2013 , respectively . critical accounting policies our discussion and analysis of our financial condition and the results of our operations are based upon our consolidated financial statements and the data used to prepare them . story_separator_special_tag interest income may decrease in the future as the company utilizes its cash balances on its share repurchase plan , with approximately $ 10.2 million remaining as of march 31 , 2014 , on any quarterly dividend payment , or on its operating activities . provision for income taxes for the fiscal years ended march 31 , 2014 and 2013 , the company recorded an income tax provision for approximately $ 10.4 million and $ 10.1 million , respectively . the effective tax rate for the fiscal years ended march 31 , 2014 and 2013 were 36.7 % and 37.1 % , respectively . the effective tax rate decrease for the fiscal year ended march 31 , 2014 , was due to a one-time benefit related to a fiscal 2013 income tax over-accrual , which was recognized in fiscal 2014 , compared to a one-time charge related to a fiscal 2012 income tax under-accrual , which was recognized in fiscal 2013. the company estimates its effective tax rate will be approximately 37.0 % for fiscal 2015. net income net income increased by approximately $ 807,000 , or 4.7 % , to approximately $ 18.0 million for the fiscal year ended march 31 , 2014 from approximately $ 17.2 million for the fiscal year ended march 31 , 2013. the increase was primarily due to an increase in sales and a decrease in operating expenses in fiscal 2014. fiscal 2013 compared to fiscal 2012 sales sales decreased by approximately $ 10.5 million , or 4.4 % , to approximately $ 227.8 million for the fiscal year ended march 31 , 2013 , from approximately $ 238.3 million for the fiscal year ended march 31 , 2012. the reduction in sales for the fiscal year ended march 31 , 2013 can be attributed to a reduction in new order sales , due to reduced advertising spending , and reorder sales . our sales were negatively impacted because of the unavailability of novartis brands during the year due to the manufacturer 's suspended production . our sales were also down because of a decline in average order size , which was due to a change in product mix to lower priced items , including generics , additional discounts given , and increased competition . the company acquired approximately 630,000 new customers for the year ended march 31 , 2013 , compared to approximately 722,000 new customers for the same period the prior year . 19 the following chart illustrates sales by various sales classifications : replace_table_token_9_th sales may be adversely affected in fiscal 2014 due to increased competition and consumers giving more consideration to price and trading down to less expensive brands , including generics . in response to these trends , the company will focus on advertising efficiency to improve new order sales and shifting sales to higher margin items , including generics , combined with expanding our product offerings . no guarantees can be made that the company 's efforts will be successful , or that sales will grow in the future . the majority of our product sales were affected by the seasons , due to the seasonality of mainly heartworm , and flea and tick medications . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2013 , the company 's sales were approximately 30 % , 26 % , 22 % , and 22 % , respectively . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2012 , the company 's sales were approximately 31 % , 24 % , 21 % , and 24 % , respectively . sales in the march quarter of fiscal 2013 were negatively impacted by the colder than normal weather compared to the warmer than normal weather in the march quarter of fiscal 2012. cost of sales cost of sales decreased by $ 7.4 million , or 4.7 % , to $ 150.7 million for the fiscal year ended march 31 , 2013 , from $ 158.1 million for the fiscal year ended march 31 , 2012. the decrease in cost of sales is directly related to decreased sales . as a percentage of sales , cost of sales was 66.1 % in fiscal 2013 , as compared to 66.3 % in fiscal 2012. the cost of sales percentage decrease can be related to a change in product mix to lower cost items , which includes generics . gross profit gross profit decreased by $ 3.1 million , or 3.8 % , to $ 77.1 million for the fiscal year ended march 31 , 2013 , from $ 80.2 million for the fiscal year ended march 31 , 2012. gross profit as a percentage of sales for fiscal 2013 was 33.9 % compared to 33.7 % , for fiscal 2012. the gross profit percentage increase can be mainly attributed to a change in product mix to higher margin items , which includes generics . general and administrative expenses general and administrative expenses decreased by $ 771,000 , or 3.4 % , to $ 21.6 million for the fiscal year ended march 31 , 2013 from $ 22.4 million for the fiscal year ended march 31 , 2012. the decrease in general and administrative expenses for the fiscal year ended march 31 , 2013 was primarily due to the following : a $ 543,000 decrease in bank service fees due to a reduction in credit card fees ; a $ 293,000 reduction in payroll expenses related primarily to a decrease in stock compensation expense ; a $ 147,000 decrease in professional fees , with the majority of the decrease relating to legal and accounting fees ; and a $ 95,000 decrease in telephone expenses .
| results of operations the following should be read in conjunction with the company 's consolidated financial statements and the related notes thereto included elsewhere herein . the following table sets forth , as a percentage of sales , certain operating data appearing in the company 's consolidated statements of comprehensive income : replace_table_token_7_th fiscal 2014 compared to fiscal 2013 sales sales increased by approximately $ 5.6 million , or 2.4 % , to approximately $ 233.4 million for the fiscal year ended march 31 , 2014 , from approximately $ 227.8 million for the fiscal year ended march 31 , 2013. the increase in sales for the fiscal year ended march 31 , 2014 can be attributed to increased reorder sales , offset by a reduction to new order sales . our sales increase was also due to an increase in the average order size during the year . the company acquired approximately 597,000 new customers for the year ended march 31 , 2014 , compared to approximately 630,000 new customers for the same period the prior year . 17 the following chart illustrates sales by various sales classifications : replace_table_token_8_th future sales may be adversely affected due to increased competition and consumers giving more consideration to price . no guarantees can be made that sales will grow in the future . the majority of our product sales were affected by the seasons , due to the seasonality of mainly heartworm , and flea and tick medications . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2014 , the company 's sales were approximately 32 % , 26 % , 21 % , and 21 % , respectively . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2013 , the company 's sales were approximately 30 % , 26 % , 22 % , and 22 % , respectively .
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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 1a.—risk factors and other sections in this annual report . executive overview live nation had another exceptional year in 2016 , a year of market and product expansion while achieving new levels in our key financial and operational metrics . our total revenue for the year was $ 8.4 billion , making this our eleventh consecutive year of revenue growth , so once again , live nation delivered its highest revenue ever this year . our concerts , sponsorship & advertising and ticketing segments all reported revenue growth for the sixth consecutive year as a result of both our highest level of attendance at our concerts and record ticket sales in our ticketing business . more than ever , we are seeing the unique power of the live concert experience and the importance of technology to enable fans around the world to connect with artists and each other . our overall revenue in 2016 increased by $ 1.1 billion on a reported basis as compared to last year , or $ 1.2 26 billion , a 17 % increase , without the impact of changes in foreign exchange rates . the increase was largely driven by growth in our concerts segment with an increase in the number of events , fans , and the revenue we are generating onsite at the events . ticketing increased as well , with strong growth in concert event sales both in the united states and our international markets as well as the continued expansion of our resale business . additionally , sponsorship & advertising again delivered strong growth over 2015 due to a number of new strategic multi-year deals and continued growth of our festival sales . as the leading global live event and ticketing company , we believe that we are well-positioned to provide the best service to artists , teams , fans and venues and therefore drive growth across all our businesses . we believe that by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience , we will sell more tickets and uniquely engage more advertising partners . by advancing innovation in ticketing technology , we will continue to improve the fan experience by offering increased and more diversified choices in an expanded ticketing marketplace . this gives us a compelling opportunity to grow our fan base and our results . our concerts segment was the largest contributor to our overall revenue growth , with an increase of $ 909.1 million on a reported basis as compared to last year , or $ 1.0 billion , a 20 % increase , without the impact of changes in foreign exchange rates . this higher revenue was partially due to additional stadium and arena shows both in the united states and internationally , including tours by beyoncé , rihanna , coldplay and guns n ' roses . we continued to expand our global festival portfolio in 2016 , adding brands like governors ball to our leading roster and growing total festival attendance by 15 % . nearly 17 million fans attended our amphitheater shows throughout the year , a record for live nation , with florida georgia line , dave matthews band and luke bryan all playing to sold out audiences over the summer . the results of our amphitheater onsite business accelerated in 2016 with the introduction of higher-end beer and wine options , premium brand-name food kiosks and restaurants , and “ grab and go ” options . these programs helped grow our ancillary revenue per fan by over 9 % in 2016. in our international business , our new promotions business in germany had an outstanding first year , adding three quarters of a million new fans . we also launched 20 festival apps in europe and saw our festival attendance grow by 18 % year-over-year internationally . our operating income for the year improved over 2015 largely due to the impact of these business improvements and strategic initiatives mentioned above . we will continue to look for expansion opportunities , both domestically and internationally , as well as ways to market our events more effectively , in order to continue to expand our fan base and geographic reach and to sell more tickets and onsite products . our sponsorship & advertising segment revenue for the year was up $ 43.9 million on a reported basis as compared to last year , or $ 50.7 million , a 15 % increase , without the impact of changes in foreign exchange rates . higher revenue resulted from new clients and increased festival sponsorships . in 2016 , we extended agreements with several major clients for multi-year deals that utilize our venue , media and ticketing assets , providing our clients with a unique opportunity to advertise their brands and reward their customers with the rich diversity of live music . we believe this was driven in part by our focus on introducing new amphitheater and festival products as well as adding new sales categories . operating income for the year improved by 4 % on a reported basis which was driven by higher revenue , partially offset by the impact of changes in foreign exchange rates . we believe that our extensive onsite and online reach , global venue distribution network , artist relationships , ticketing operations and live entertainment content are the key to securing long-term sponsorship agreements with major brands , and we plan to expand these assets while extending further into new markets internationally . our ticketing segment revenue for the year increased by $ 188.4 million on a reported basis as compared to last year , or $ 212.0 million , a 13 % increase , without the impact of changes in foreign exchange rates . story_separator_special_tag we also offer ticket resale services , sometimes referred to as secondary ticketing , primarily through our integrated inventory platform , league/team platforms and other platforms internationally . our ticketing segment also manages our online activities including enhancements to our websites and product offerings . through our websites , we sell tickets to our own events as well as tickets for our clients and provide event information . revenue related to ticketing service charges is recognized when the ticket is sold except for our own events where our concert promoters control ticketing and then the revenue is deferred and recognized as the event occurs . to judge the health of our ticketing segment , we primarily review the gross transaction value and the number of tickets sold through our primary and secondary ticketing operations , the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services . in addition , we review the number of visits to our websites , the overall number of customers in our database , the number and percentage of tickets sold via mobile , the number of app installs and gross transaction value and fees related to secondary ticket sales . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . 28 artist nation our artist nation segment primarily provides management services to music artists and other clients in exchange for a commission on the earnings of these artists . revenue earned from our artist nation segment is impacted to a large degree by the touring schedules of the artists we represent and generally we experience higher revenue during the second and third quarters as the period from may through october tends to be a popular time for touring events . to judge the health of our artist nation segment , we primarily review the number of major clients represented . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of foreign exchange rates . key operating metrics replace_table_token_6_th _ ( 1 ) events generally represent a single performance by an artist . fans generally represent the number of people who attend an event . festivals are counted as one event in the quarter in which the festival begins , but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters . events and fan attendance metrics are estimated each quarter . ( 2 ) the number of fee-bearing tickets sold includes primary and secondary tickets that are sold using our ticketmaster systems or that we issue through affiliates . this metric includes primary tickets sold during the year regardless of event timing except for our own events where our concert promoters control ticketing which are reported as the events occur . the non-fee-bearing tickets sold reported above includes primary tickets sold using our ticketmaster systems , through season seat packages and our venue clients ' box offices , along with tickets sold on our ‘ do it yourself ' platform . 29 non-gaap measures reconciliation of segment adjusted operating income ( loss ) aoi is a non-gaap financial measure that we define as operating income ( loss ) before acquisition expenses ( including transaction costs , changes in the fair value of accrued acquisition-related contingent consideration obligations , and acquisition-related severance and compensation ) , depreciation and amortization ( including goodwill impairment ) , loss ( gain ) on disposal of operating assets and certain stock-based compensation expense . we use aoi to evaluate the performance of our operating segments . we believe that information about aoi assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income , thus providing insights into both operations and the other factors that affect reported results . aoi is not calculated or presented in accordance with gaap . a limitation of the use of aoi as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi should be considered in addition to , and not as a substitute for , operating income ( loss ) , net income ( loss ) , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi as presented herein may not be comparable to similarly titled measures of other companies . 30 the following table sets forth the reconciliation of aoi to operating income ( loss ) : replace_table_token_7_th constant currency constant currency is a non-gaap financial measure . we calculate currency impacts as the difference between current period activity translated using the current period 's currency exchange rates and the comparable prior period 's currency exchange rates . we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations . 31 segment operating results concerts our concerts segment operating results were , and discussions of significant variances are , as follows : replace_table_token_8_th _ * percentages are not meaningful . * * aoi is defined and reconciled to operating income ( loss ) above . year ended 2016 compared to year ended 2015 revenue concerts revenue increased $ 909.1 million , or 18 % , during the year ended december 31 , 2016 as compared to the prior year . excluding the decrease of $ 87.8 million related to currency impacts , revenue increased $ 996.9 million , or 20 % , primarily due to more shows and higher average ticket prices in our worldwide stadium , arena and theater and club events and our north america amphitheaters , increased festival activity globally and higher vip package sales .
| operating results the increased operating loss for artist nation for the year ended december 31 , 2016 was primarily driven by lower event activity and increased compensation costs . year ended 2015 compared to year ended 2014 revenue artist nation revenue increased $ 44.8 million , or 11 % , during the year ended december 31 , 2015 as compared to the prior year . excluding the decrease of $ 6.6 million related to currency impacts , revenue increased $ 51.4 million , or 13 % , primarily due to higher revenue in our management business and incremental revenue of $ 25.3 million from the acquisitions or prospective consolidation of various artist management businesses . these increases were partially offset by lower tour merchandise sales . operating results the operating loss for artist nation for the year ended december 31 , 2015 was relatively unchanged from 2014 as improved results in our management business and the impact of a goodwill impairment related to our artist services ( non-management ) business in the fourth quarter of 2014 in connection with our annual impairment test were offset by higher compensation costs . 35 consolidated results of operations replace_table_token_12_th 36 replace_table_token_13_th * percentages are not meaningful . * * see “ —non-gaap measures ” above for definition of constant currency . * * * in accounting for the merger between live nation and ticketmaster in january 2010 , the nonrecoupable ticketing contract advances that existed at the date of the merger were written off in acquisition accounting in accordance with gaap . had we continued amortizing the net book value of these nonrecoupable ticketing contract advances , the amortization above would have been $ 1.3 million , $ 1.7 million and $ 7.5 million higher for the years ended december 31 , 2016 , 2015 and 2014 , respectively .
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2018-02 , “ income statement – reporting comprehensive income ( topic 220 ) : reclassification of story_separator_special_tag forward-looking statements and factors that could affect future results certain statements contained in this annual report on form 10-k that are not statements of historical fact constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995 ( “ act ” ) , notwithstanding that such statements are not specifically identified as such . in addition , certain statements may be contained in the company 's future filings with the sec , in press releases , and in oral and written statements made by or with the approval of the corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the act . examples of forward-looking statements include , but are not limited to : ( i ) projections of revenues , expenses , income or loss , earnings or loss per common share , the payment or nonpayment of dividends , capital structure and other financial items ; ( ii ) statements of plans , objectives and expectations of first defiance or its management or board of directors , including those relating to products or services ; ( iii ) statements of future economic performance ; and ( iv ) statements of assumptions underlying such statements . words such as “ believes ” , “ anticipates ” , “ expects ” , “ intends ” , “ targeted ” , “ continue ” , “ remain ” , “ will ” , “ should ” , “ may ” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements . forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements . factors that could cause actual results to differ from those discussed in the forward-looking statements include , but are not limited to : · local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact . · volatility and disruption in national and international financial markets . · government intervention in the u.s. financial system . · changes in the level of non-performing assets and charge-offs . · changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements . · the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve . · inflation , interest rate , securities market and monetary fluctuations . · political instability . · acts of god or of war or terrorism . · the timely development and acceptance of new products and services and perceived overall value of these products and services by users . · changes in consumer spending , borrowing and saving habits . · changes in the financial performance and or condition of the company 's borrowers . · technological changes including core system conversions . · acquisitions and integration of acquired businesses . · the ability to increase market share and control expenses . · changes in the competitive environment among financial holding companies and other financial service providers . · the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and its subsidiaries must comply . - 35 - · the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board and other accounting standard setters . · the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews . · greater than expected costs or difficulties related to the integration of new products and lines of business . · the company 's success at managing the risks involved in the foregoing items . forward-looking statements speak only as of the date on which such statements are made . the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events . this item 7 presents information to assess the financial condition and results of operations of first defiance . this item should be read in conjunction with the consolidated financial statements and the supplemental financial data contained elsewhere in this annual report on form 10-k. non-gaap financial measures this annual report on form 10-k contains gaap financial measures and certain non-gaap financial measures . management believes that these measures are helpful in understanding the company 's results of operations or financial position . fully taxable-equivalent ( “ fte ” ) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis . the following tables present a reconciliation of non-gaap measures to their respective gaap measures at december 31 , 2017 and 2016. non-gaap financial measures – net interest income on an fte basis , net interest margin and efficiency ratio replace_table_token_24_th non-gaap financial measures – tangible book value replace_table_token_25_th - 36 - overview first defiance is a unitary thrift holding company that conducts business through its wholly-owned subsidiaries , first federal , first insurance and first defiance risk management . first federal is a federally chartered stock savings bank that provides financial services to communities based in northwest ohio , northeast indiana , and southeastern michigan where it operates 43 full service banking centers in fourteen northwest and central ohio counties , one northeast indiana county , and one southeastern michigan county . first federal operates one loan production office in ann arbor , michigan which is located in washtenaw county . story_separator_special_tag the company requires an appraisal that is less than one year old for all new collateral dependent real estate loans , and all renewed collateral dependent real estate loans where significant new money is extended . the appraisal process is handled by the credit department , which selects the appraiser and orders the appraisal . first defiance 's loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making a determination of value . first federal generally does not require updated appraisals for performing loans unless significant new money is requested by the borrower . when a collateral dependent loan is downgraded to classified status , first federal reviews the most current appraisal on file and if appropriate , based on first federal 's assessment of the appraisal , such as age , market , etc . first federal will discount the appraisal amount to a more appropriate current value based on inputs from lenders and realtors . this amount may then be discounted further by first federal 's estimation of the selling costs . in most instances , if the appraisal is more than twelve to fifteen months old , a new appraisal may be required . finally , first federal assesses whether there is any collateral short fall , taking into consideration guarantor support and liquidity , and determines if a charge off is necessary . all loans over 90 days past due and or on non-accrual are classified as non-performing loans . non-performing status automatically occurs in the month in which the 90-day delinquency occurs . when a collateral dependent loan moves to non-performing status , first federal generally gets a new third party appraisal and charges the loan down appropriately based upon the new appraisal and an estimate of costs to liquidate the collateral . all properties that are moved into the other real estate owned ( “ oreo ” ) category are supported by current appraisals , and the oreo is carried at the lower of cost or fair value , which is determined based on appraised value less first federal 's estimate of the liquidation costs . - 38 - first federal does not adjust any appraisals upward without written documentation of this valuation change from the appraiser . when setting reserves and charge offs on classified loans , appraisal values may be discounted downward based upon first federal 's experience with liquidating similar properties . appraisals are received within approximately 60 days after they are requested . the first federal loan loss reserve committee reviews the amount of each new appraisal and makes any necessary charge off decisions at its meeting prior to the end of each quarter . any partially charged-off collateral dependent loans are considered non-performing , and as such , would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before first federal will consider an upgrade to performing status . first federal may consider moving the loan to accruing status after approximately six months of satisfactory payment performance . for loans where first federal determines that an updated appraisal is not necessary , other means are used to verify the value of the real estate , such as recent sales of similar properties on which first federal had loans as well as calls to appraisers , brokers , realtors and investors . first federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge offs . based on these results , changes may occur in the processes used . loan modifications constitute a troubled debt restructuring ( “ tdr ” ) if first federal , for economic or legal reasons related to the borrower 's financial difficulties , grants a concession to the borrower that it would not otherwise consider . for loans that are considered tdrs , first federal either computes the present value of expected future cash flows discounted at the original loan 's effective interest rate or it may measure impairment based on the fair value of the collateral . for those loans measured for impairment utilizing the present value of future cash flows method , any discount is carried as a specific reserve in the allowance for loan and lease losses . for those loans measured for impairment utilizing the fair value of the collateral , any shortfall is charged off . as of december 31 , 2017 and december 31 , 2016 , first federal had $ 13.8 million and $ 10.5 million , respectively , of loans that were still performing and which were classified as tdrs . allowance for loan losses the allowance for loan losses represents management 's assessment of the estimated probable incurred credit losses in the loan portfolio at each balance sheet date . management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio . consideration is given to economic conditions , changes in interest rates and the effect of such changes on collateral values and borrower 's ability to pay , changes in the composition of the loan portfolio and trends in past due and non-performing loan balances . the allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management 's evaluation of the inherent risk in the loan portfolio . in addition to extensive in-house loan monitoring procedures , the company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships . the goal is to have approximately 55 % to 60 % of the portfolio reviewed annually .
| summary first defiance reported net income of $ 32.3 million for the year ended december 31 , 2017 , compared to $ 28.8 million and $ 26.4 million for the years ended december 31 , 2016 and 2015 , respectively . on a diluted per common share basis , first defiance earned $ 3.22 in 2017 , $ 3.19 in 2016 and $ 2.82 in 2015. net interest income first defiance 's net interest income is determined by its interest rate spread ( i.e . the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities ) and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income was $ 96.7 million for the year ended december 31 , 2017 , compared to $ 78.9 million and $ 74.1 million for the years ended december 31 , 2016 and 2015 , respectively . the tax-equivalent net interest margin was 3.88 % , 3.74 % and 3.81 % for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the margin increased 14 basis points between 2016 and 2017. the increase in margin in 2017 was primarily due to csb 's earning asset mix as well an increase in interest rates . interest-earning asset yields increased 20 basis points ( to 4.33 % in 2017 from 4.13 % in 2016 ) and the cost of interest bearing liabilities between the two periods increased 7 basis points ( to 0.59 % in 2017 from 0.52 % in 2016 ) . total interest income increased by $ 20.7 million or 23.7 % to $ 108.1 million for the year ended december 31 , 2017 , from $ 87.4 million for the year ended december 31 , 2016. this is due to continued loan growth , the csb acquisition , the increase in interest rates and a more profitable earning asset mix .
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forward-looking statements reflect management 's current expectations and are inherently uncertain . actual results could differ materially for a variety of reasons , including , among others , the effects on the airline industry and the global economy of events such as terrorist activity , changes in oil prices and other disruptions to the world markets ; trends in the airline industry , including growth rates of markets and other economic factors ; risks associated with owning and leasing jet engines and aircraft ; our ability to successfully negotiate equipment purchases , sales and leases , to collect outstanding amounts due and to control costs and expenses ; changes in interest rates and availability of capital , our ability to continue to meet the changing customer demands ; regulatory changes affecting airline operations , aircraft maintenance , accounting standards and taxes ; the market value of engines and other assets in our portfolio . these risks and uncertainties , as well as other risks and uncertainties that could cause our actual results to differ significantly from management 's expectations , are described in greater detail in item 1a of part i , risk factors , which , along with the previous discussion , describes some , but not all , of the factors that could cause actual results to differ significantly from management 's expectations . general . our core business is acquiring and leasing pursuant to operating leases , commercial aircraft engines and related aircraft equipment , and the selective sale of such engines , all of which we sometimes refer to as equipment. as of december 31 , 2012 , 160 of our leases were operating leases and 1 was a finance lease . as of december 31 , 2012 , we had 78 lessees in 42 countries . our portfolio is continually changing due to acquisitions and sales . as of december 31 , 2012 , our total lease portfolio consisted of 184 engines and related equipment , 7 aircraft and 4 spare engine parts packages with an aggregate net book value of $ 961.5 million . as of december 31 , 2012 , we also managed 33 engines and related equipment on behalf of other parties . on december 30 , 2005 , we entered into a joint venture called wolf with oasis international leasing ( usa ) , inc. , which is now known as waha capital pjsc , and wolf completed the purchase of two airbus a340-313 aircraft from boeing aircraft holding company for a purchase price of $ 96.0 million . on may 25 , 2011 , we entered into an agreement with mitsui & co. , ltd. to participate in a joint venture formed as a dublin-based irish limited company willis mitsui & company engine support limited ( wmes ) for the purpose of acquiring and leasing jet engines . each partner holds a fifty percent interest in the joint venture . wmes owns and leases 15 engines with a net book value of $ 139.8 million at december 31 , 2012. we actively manage our portfolio and structure our leases to maximize the residual values of our leased assets . our leasing business focuses on popular stage iii commercial jet engines manufactured by cfmi , general electric , pratt & whitney , rolls royce and international aero engines . these engines are the most widely used engines in the world , powering airbus , boeing , mcdonnell douglas , bombardier and embraer aircraft . critical accounting policies and estimates the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to residual values , estimated asset lives , impairments and bad debts . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies , grouped by our activities , affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : leasing related activities . revenue from leasing of aircraft equipment is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements . where collection can not be reasonably assured , for example , upon a lessee bankruptcy , we do not recognize revenue until cash is received . we also estimate and charge to income a provision for bad debts based on our experience in the business and with each specific customer and the level of past due accounts . the financial condition of our customers may deteriorate and result in actual losses exceeding the estimated allowances . in addition , any deterioration in the financial condition of our customers may adversely affect future lease revenues . as of december 31 , 2012 , all but one of our leases are accounted for as operating leases . under an operating lease , we retain title to the leased equipment , thereby retaining the potential benefit and assuming the risk of the residual value of the leased equipment . 25 we generally depreciate engines on a straight-line basis over 15 years to a 55 % residual value . spare parts packages are generally depreciated on a straight-line basis over 15 years to a 25 % residual value . aircraft are generally depreciated on a straight-line basis over 13-20 years to a 15 % -17 % residual value . major overhauls paid for by us , which improve functionality or extend the original useful life , are capitalized and depreciated over the shorter of the estimated period to the next overhaul ( deferral method ) or the remaining useful life of the equipment . story_separator_special_tag other revenue also increased in the current period due to an increase in the number of engines managed , an increase in engine purchase arrangement fees , an increase in termination and other lessee settlements and the recording of a $ 0.2 million gain related to the settlement of an insurance claim of a casualty loss on a leased engine . depreciation expense . depreciation expense increased $ 1.3 million or 2.6 % to $ 52.6 million for the year ended december 31 , 2012 , from the comparable period in 2011 due to changes in estimates of useful lives and residual values on certain older engine types . on july 1 , 2011 and again on july 1 , 2012 , we adjusted the depreciation for certain older engine types within the portfolio . it is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines . the 2012 change in depreciation estimate resulted in a $ 2.0 million increase in depreciation for 2012. the net effect of the 2012 change in depreciation estimate is a reduction in 2012 net income of $ 1.0 million or $ 0.12 in diluted earnings per share over what net income would have otherwise been had the change in depreciation estimate not been made . write-down of equipment . write-down of equipment to their estimated fair values totaled $ 5.9 million for the year ended december 31 , 2012 , an increase of $ 2.5 million from the $ 3.3 million recorded in the comparable period in 2011. a write-down of $ 1.2 million was recorded for the year ended december 31 , 2012 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed . a write-down of $ 4.7 million was recorded in the year ended december 31 , 2012 due to a management decision to sell 2 engines and consign 5 engines for part out and sale . a write-down of $ 2.3 million was recorded for the year ended december 31 , 2011 to adjust the carrying values of engine parts held on consignment for which market conditions for the sale of parts has changed . write-downs on held for use equipment to their estimated fair values totaled $ 1.0 million for the year ended december 31 , 2011 , due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values . story_separator_special_tag style= '' margin:0in 0in .0001pt ; text-indent : .5in ; '' > gain on sale of leased equipment . during the year ended december 31 , 2011 , we sold 12 engines and various engine-related equipment from the lease portfolio for a net gain of $ 11.1 million . the 2011 gain on sales included $ 3.6 million which represents 50 % of the total $ 7.2 million gain related to the sale by the company of seven engines to wmes in the period , as described in footnote 4 to our consolidated financial statements . during the year ended december 31 , 2010 , we sold 7 engines and various engine-related equipment from the lease portfolio and one airframe for a net gain of $ 8.0 million . 28 other revenue . our other revenue consists primarily of management fee income and lease administration fees , and decreased $ 1.7 million from the prior year . the decrease was primarily due to the sale of our interest in the ssamc joint venture in 2010 for $ 3.5 million , which generated a gain of $ 2.0 million in the prior year . this was partially offset in 2011 by higher fees earned on a larger portfolio of engines managed on behalf of third parties . depreciation expense . depreciation expense increased $ 2.5 million or 5.2 % to $ 51.3 million for the year ended december 31 , 2011 , from the comparable period in 2010 due to an increase in the average lease portfolio value . on july 1 , 2010 and again on july 1 , 2011 , we adjusted the depreciation for certain older engine types within the portfolio . it is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines . the net effect of the change in depreciation estimate had no significant impact to the net income and diluted earnings per share for the year ended december 31 , 2011 over what net income would have otherwise been had the change in depreciation estimate not been made . write-down of equipment . write-down of equipment to their estimated fair values totaled $ 3.3 million for the year ended december 31 , 2011 , an increase of $ 0.4 million from the $ 2.9 million recorded in the comparable period in 2010. a write-down of $ 2.3 million was recorded for the year ended december 31 , 2011 to adjust the carrying values of engine parts held on consignment for which market conditions for the sale of parts has changed . write-downs on held for use equipment to their estimated fair values totaled $ 1.0 million for the year ended december 31 , 2011 , due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values . a write-down of $ 2.7 million was recorded for the year ended december 31 , 2010 to adjust the carrying values of engine parts held on consignment for which market conditions for the sale of parts has changed . write-downs on held for use equipment to their estimated fair values totaled $ 0.2 million for the year ended december 31 , 2010 , due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values . general and administrative expenses .
| general and administrative expenses . general and administrative expenses decreased 3.2 % to $ 34.6 million for the year ended december 31 , 2012 , from the comparable period in 2011 due to a decrease in employee bonus related to the company 's financial results ( $ 1.5 million ) , decreased legal and consulting expense ( 0.7 million ) and decreased selling expenses ( $ 0.3 million ) , which was partially offset by increases in taxes , fees and licenses ( $ 0.5 million ) , bad debt expense ( $ 0.4 million ) , employee benefits ( $ 0.2 million ) and system conversion expenses ( $ 0.2 million ) . technical expense . technical expenses consist of the cost of engine repairs , engine thrust rental fees , outsourced technical support services , sublease engine rental expense , engine storage and freight costs . these expenses decreased 16.5 % to $ 7.0 million for the year ended december 31 , 2012 , from the comparable period in 2011 due mainly to a decrease in engine maintenance costs due to lower repair activity ( $ 1.3 million ) , lower engine thrust rental fees due to a decrease in the number of engines being operated at higher thrust levels under the cfm thrust rental program ( $ 0.4 million ) and decreased sub-lease rental expense resulting from the termination of a sublease rental program in september 2011 ( $ 0.3 million ) . the decreases were partially offset by an increase in storage expenses ( $ 0.7 million ) . net finance costs . net finance costs include interest expense , interest income and net ( gain ) /loss on debt extinguishment and derivatives termination .
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the specialty admitted market is subject to more state regulation than the excess and surplus market , particularly with regard to rate and form filing requirements , restrictions on the ability to exit lines of business , premium tax payments and membership in various state associations , such as state guaranty funds and assigned risk plans . we also underwrite coverages in the excess and surplus market . the excess and surplus market , unlike the admitted market , is less regulated and more flexible in terms of policy forms and premium rates . this market provides an alternative for customers with risks or loss exposures that generally can not be written in the standard market . this typically results in coverages that are more restrictive and more expensive than coverages in the admitted market . when we underwrite within the excess and surplus market , we are selective in the lines of business and type of risks we choose to write . using our non-admitted status in this market allows us to tailor terms and conditions to manage these exposures effectively . often , the development of these coverages is generated through proposals brought to us by an agent or broker seeking coverage for a specific group of clients or loss exposures . once a proposal is submitted , our underwriters determine whether it would be a viable product based on our business objectives . the foundation of our overall business strategy is to underwrite for profit in all market conditions and we achieved this for the 18th consecutive year in 2013 , averaging an 87.6 combined ratio over that period of time . this foundation drives our ability to provide shareholder returns in three different ways : the underwriting income itself , net investment income from our investment portfolio and long-term appreciation in our equity portfolio . our investment strategy is based on preservation of capital as the first priority with a secondary focus on generating total return . the fixed income portfolio consists primarily of highly-rated , diversified , liquid investment-grade securities . consistent underwriting income allows a portion of our shareholders ' equity to be invested in equity securities . our equity portfolio consists of a core stock portfolio weighted toward dividend-paying stocks , as well as exchange traded funds ( etfs ) . our minority equity ownership in maui jim , inc. ( maui jim ) , a manufacturer of high-quality sunglasses , has also enhanced overall returns . we have a diversified investment portfolio and closely monitor our investment risks . despite periodic fluctuations in market value , our equity portfolio is part of a long-term asset allocation strategy and has contributed significantly to our historic growth in book value . we measure the results of our insurance operations by monitoring certain measures of growth and profitability across three distinct business segments : casualty , property and surety . growth is measured in terms of gross premiums written , and profitability is analyzed through combined ratios , which are further subdivided into their respective loss and expense 32 components . the casualty portion of our business consists largely of general liability , personal umbrella , transportation , executive products , commercial umbrella , package business and other specialty coverages , such as our professional liability for design professionals . we also offer fidelity and crime coverage for commercial insureds and select financial institutions and recently expanded our casualty offerings to include medical professional liability coverage in the excess and surplus market . the casualty business is subject to the risk of estimating losses and related loss reserves because the ultimate settlement of a casualty claim may take several years to fully develop . the casualty segment is also subject to inflation risk and may be affected by evolving legislation and court decisions that define the extent of coverage and the amount of compensation due for injuries or losses . our property segment is comprised primarily of commercial fire , earthquake , difference in conditions , marine , facultative and treaty reinsurance including crop and select personal lines policies , such as recreational vehicle and hawaii homeowners coverages . while our marine and facultative reinsurance coverages are predominantly domestic risks , these portfolios do contain a relatively small portion of foreign risks . property insurance and reinsurance results are subject to the variability introduced by perils such as earthquakes , fires and hurricanes . our major catastrophe exposure is to losses caused by earthquakes , primarily on the west coast . our second largest catastrophe exposure is to losses caused by hurricanes to commercial properties throughout the gulf and east coast , as well as to homes we insure in hawaii . we limit our net aggregate exposure to a catastrophic event by minimizing the total policy limits written in a particular region , purchasing reinsurance and through extensive use of computer-assisted modeling techniques . these techniques provide estimates that help us carefully manage the concentration of risks exposed to catastrophic events . our assumed multi-peril crop and hail treaty reinsurance business covers revenue shortfalls or production losses due to natural causes such as drought , excessive moisture , hail , wind , frost , insects and disease . significant aggregation of these losses is mitigated by the u.s. federal government reinsurance program that provides stop loss protection inuring to our benefit . the surety segment specializes in writing small-to-large commercial and contract surety coverages , as well as those for the energy , petrochemical and refining industries . we offer miscellaneous bonds including license and permit , notary and court bonds . often , our surety coverages involve a statutory requirement for bonds . while these bonds typically maintain a relatively low loss ratio , losses may fluctuate due to adverse economic conditions affecting the financial viability of our insureds . the contract surety product guarantees the construction work of a commercial contractor for a specific project . generally , losses occur due to the deterioration of a contractor 's financial condition . story_separator_special_tag the loss reserve estimates are expectations of what ultimate settlement and administration of claims will cost upon final resolution . these estimates are based on facts and circumstances then known to us , review of historical settlement patterns , estimates of trends in claims frequency and severity , projections of loss costs , expected interpretations of legal theories of liability and many other factors . in establishing reserves , we also take into account estimated recoveries from reinsurance , salvage and subrogation . the reserves are reviewed regularly by a team of actuaries we employ . the process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables . these variables can be affected by both internal and external events , such as changes in claims handling procedures , claim personnel , economic inflation , legal trends and legislative changes , among others . the impact of many of these items on ultimate costs for loss and lae is difficult to estimate . loss reserve estimations also differ significantly by coverage due to differences in claim complexity , the volume of claims , the policy limits written , the terms and conditions of the underlying policies , the potential severity of individual claims , the determination of occurrence date for a claim and reporting lags ( the time between the occurrence of the policyholder event and when it is actually reported to the insurer ) . informed judgment is applied throughout the process . we continually refine our loss reserve estimates as historical loss experience develops and additional claims are reported and settled . we rigorously attempt to consider all significant facts and circumstances known at the time loss reserves are established . due to inherent uncertainty underlying loss reserve estimates , including , but not limited to , the future settlement environment , final resolution of the estimated liability may be different from that anticipated at the reporting date . therefore , actual paid losses in the future may yield a significantly different amount than currently reserved favorable or unfavorable . the amount by which estimated losses differ from those originally reported for a period is known as development. development is unfavorable when the losses ultimately settle for more than the levels at which they were reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims . development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on unresolved claims . we reflect favorable or unfavorable developments of loss reserves in the results of operations in the period the estimates are changed . we record two categories of loss and lae reserves case-specific reserves and ibnr reserves . within a reasonable period of time after a claim is reported , our claim department completes an initial investigation and establishes a case reserve . this case-specific reserve is an estimate of the ultimate amount we will have to pay for the claim , including related legal expenses and other costs associated with resolving and settling it . the estimate reflects all of the current information available regarding the claim , the informed judgment of our professional claim personnel regarding the nature and value of the specific type of claim and our reserving practices . during the life cycle of a particular claim , as more information becomes available , we may revise the estimate of the ultimate value of the claim either upward or downward . we may determine that it is appropriate to pay portions of the reserve to the claimant or related settlement expenses before final resolution of the claim . the amount of the individual claim reserve will be adjusted accordingly and is based on the most recent information available . we establish ibnr reserves to estimate the amount we will have to pay for claims that have occurred , but have not yet been reported to us , claims that have been reported to us that may ultimately be paid out differently than reflected in our case-specific reserves and claims that have been closed but may reopen and require future payment . our ibnr reserving process involves three steps : ( 1 ) an initial ibnr generation process that is prospective in nature , ( 2 ) a loss and lae reserve estimation process that occurs retrospectively and ( 3 ) a subsequent discussion and reconciliation between our prospective and retrospective ibnr estimates , which includes changes in our provisions for ibnr where deemed appropriate . these three processes are discussed in more detail in the following sections . lae represents the cost involved in adjusting and administering losses from policies we issued . the lae reserves are frequently separated into two components : allocated and unallocated . allocated loss adjustment expense ( alae ) reserves represent an estimate of claims settlement expenses that can be identified with a specific claim or case . examples of alae would be the hiring of an outside adjuster to investigate a claim or an outside attorney to defend our insured . the claim professional typically estimates this cost separately from the loss component in the case reserve . unallocated loss adjustment expense ( ulae ) reserves represent an estimate of claims settlement expenses that can not be identified with a 35 specific claim . an example of ulae would be the cost of an internal claim examiner to manage or investigate a reported claim . all decisions regarding our best estimate of ultimate loss and lae reserves are made by our loss reserve committee ( lrc ) . the lrc is made up of various members of the management team including the chief executive officer , chief operating officer , chief financial officer , chief actuary , general counsel and other selected executives . we do not use discounting ( recognition of the time value of money ) in reporting our estimated reserves for losses and settlement expenses .
| results of operations consolidated revenue , as displayed in the table that follows , totaled $ 705.6 million for 2013 , compared to $ 660.8 million for 2012 and $ 619.2 million in 2011. replace_table_token_18_th consolidated revenue increased 7 percent in 2013 , after also advancing 7 percent in 2012. premiums earned from insurance operations have improved in each of the past three years and have served to offset declines in investment income over this same period . net premiums earned advanced 9 percent in 2013 , following a 7 percent and 9 percent increase in 2012 and 2011 , respectively . premium growth for 2013 was experienced across our diversified portfolio of products , particularly within our casualty segment , as both established product lines and newer initiatives contributed to the improved result . newer products , primarily within our property and casualty segments , continue to post premium increases as investments in expansion , both geographically and in product offerings , begin to gain scale . in addition , moderate rate increases for most products , but in particular within casualty , held steady throughout 2013 and contributed to the improved premium . the improved rate environment seen recently for casualty is a reversal from a declining rate environment experienced as recently as 2011. given our growth and the improved rate environment , we increased retentions on select lines , which also served to increase consolidated revenues . investment income declined for the third consecutive year in 2013. despite an increase in market yields during the year , reinvestment rates remained below the portfolio 's average yield and contributed to the continued decline . in addition , a higher allocation to tax-exempt municipals in 2013 , which have lower nominal yields than taxable alternatives , also impacted investment results . we recorded net realized investment gains on our investment portfolio in each of the past three years .
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unless the context otherwise requires , in this annual report on form 10-k , “ hc2 ” means hc2 holdings , inc. and the “ company , ” “ we ” and “ our ” mean hc2 together with its subsidiaries . “ u.s . gaap ” means accounting principles accepted in the united states of america . our business we are a diversified holding company with principal operations conducted through seven operating platforms or reportable segments : construction ( dbmg ) , marine services ( gmsl ) , energy ( ang ) , telecommunications ( ics ) , insurance ( cig ) , life sciences ( pansend ) , and other , which includes non-controlling assets that do not meet the separately reportable segment thresholds . we continually evaluate acquisition opportunities , as well as monitor a variety of key indicators of our underlying platform companies in order to maximize stakeholder value . these indicators include , but are not limited to revenue , cost of revenue , operating profit , adjusted ebitda and free cash flow . furthermore , we work very closely with our subsidiary platform executive management teams on their operations and assist them in the evaluation and diligence of asset acquisitions , dispositions and any financing or operational needs at the subsidiary level . we believe , this close relationship allows us to capture synergies within the organization , across all platforms and strategically position the company for ongoing growth and value creation . the potential for additional acquisitions and new business opportunities , while strategic , may result in acquiring assets unrelated to our current or historical operations . as part of any acquisition strategy , we may raise capital in the form of debt and or equity securities ( including preferred stock ) or a combination thereof . we have broad discretion and experience in identifying and selecting acquisition and business combination opportunities and the industries in which we seek such opportunities . many times , we face significant competition for these opportunities , including from numerous companies with a business plan similar to ours . as such , there can be no assurance that any of the past or future discussions we have had or may have with candidates will result in a definitive agreement and if they do , what the terms or timing of any potential agreement would be . as part of our acquisition strategy , we may utilize a portion of our available cash to acquire interests in possible acquisition targets . any securities acquired are marked to market and may increase short-term earnings volatility as a result . we believe our track record , our platform and our strategy will enable us to deliver strong financial results , while positioning our company for long-term growth . we believe the unique alignment of our executive compensation program , with our objective of increasing long-term stakeholder value , is paramount to executing our vision of long-term growth , while maintaining our disciplined approach . having designed our business structure to not only address capital allocation challenges over time , but also maintain the flexibility to capitalize on opportunities during periods of market volatility , we believe the combination thereof positions us well to continue to build long-term stakeholder value . our operations refer to note 1. organization and business to our audited financial statements included elsewhere in this report on form 10-k for additional information . seasonality other than as described below our businesses are not materially affected by seasonality . 55 marine services net revenue within our marine services segment can fluctuate depending on the season . revenues are relatively stable for our maintenance business as the core driver is the annual contractual obligation . however , this is not the case with our installation business ( other than for long-term charter arrangements ) , in which revenues show a degree of seasonality . revenues in the installation business are driven by our customers ' need for new cable installations . generally , weather downtime , and the additional costs related to downtime , is a significant factor in customers determining their installation schedules , and most installations are therefore scheduled for the warmer months . as a result , installation revenues are generally lower towards the end of the fourth quarter and throughout the first quarter , as most business is concentrated in the northern hemisphere . telecommunications net revenue within the wholesale telecommunications business can fluctuate throughout the year due to seasonal events . the first quarter of the year is typically the softest quarter , increasing through the remainder of the year as religious holidays along with typical end-of-year revenue increases are realized . while seasonality is a factor , the wholesale telecommunications business relies heavily on its sales efforts and customers relationships to drive sales and net margin throughout the year . recent developments debt issuance in january 2017 , hc2 issued $ 55.0 million in aggregate principal amount of 11.0 % notes . these new notes were issued as additional notes under the 11.0 % notes indenture , pursuant to which hc2 had previously issued $ 307 million in aggregate principal amount of 11.0 % notes . these new notes constitute part of a single class of securities with the existing 11.0 % notes for all purposes and have the same terms as the existing 11.0 % notes . the net proceeds from these new 11.0 % notes were used to refinance all $ 35 million in aggregate principal amount of the 11.0 % bridge note , for working capital , and for general corporate purposes ( including the financing of potential future acquisitions and investments ) . refer to note 26. subsequent events for further details . acquisitions dbmg in october 2016 , dbmg acquired the detailing and building information modeling ( “ bim ” ) management business of pdc . the new businesses provide steel detailing , bim modelling and bim management services for industrial and commercial construction projects in australia and north america . in november 2016 , dbmg acquired bds . story_separator_special_tag million for the year ended december 31 , 2015 and 2014 , respectively . the increase in interest expense was primarily due to the full year impact of the issuance of the initial $ 250 million of hc2 's 11.0 % notes and other 11.0 % notes throughout 2015. net loss on contingent consideration : net loss on contingent consideration was $ 8.9 million , largely driven by a contingency reserve established by the company related to the insurance acquisition , offset by a gain recognized by our marine segment related to settlement of contingent consideration upon the purchase of the remaining interest of cwind . income ( loss ) from equity investees : income ( loss ) from equity investees was income of $ 10.8 million and a loss of $ 1.5 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in income was driven by growth in joint venture income in our marine services segment , principally from its equity interests in hmn and s.b . submarine systems ( `` sbss '' ) which have increased income through sustained growth in the period , and by our other segment as a result of a reduction in our share of losses recognized from our inseego ( f/k/a novatel wireless ) investment . this was offset in part by our life sciences segment driven by increased losses of our equity investment in medibeacon . income ( loss ) from equity investees was a loss of $ 1.5 million and income of $ 3.1 million for the years ended december 31 , 2015 and 2014 , respectively . the change was due primarily due to the full year impact of investments within our other segment that were made in the second half of 2014 which operated at a net loss . other income ( expense ) , net : other expense decreased to $ 2.8 million from $ 6.8 million for the years ended december 31 , 2016 and 2015 , respectively . the decrease in expense was partly driven by net gains on step acquisitions , net gain on mark to market adjustments of derivative instruments , an increase in foreign currency transaction gains and the one-time settlement payment to our preferred holders in 2015 , partially offset by impairments of investments . other income ( expense ) , net was an expense of $ 6.8 million and income of $ 0.7 million for the years ended december 31 , 2015 and 2014 , respectively . the increase in expense was due to the settlement payment to our preferred holders , partially offset by interest income and net gains related to our long-term investments . 58 income tax ( expense ) benefit : income tax benefit ( expense ) was ( $ 51.6 ) million and $ 10.9 million for the years ended december 31 , 2016 and 2015 , respectively . the amount recorded primarily relates to the establishment of valuation allowances on the deferred tax assets of the hc2 holdings , inc. u.s. consolidated filing group and insurance companies through continuing operations . additionally , the tax benefits associated with losses generated by certain businesses that do not qualify to be included in the hc2 holdings , inc. u.s. consolidated income tax return have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration . income tax benefits were $ 10.9 million and $ 22.9 million for the years ended december 31 , 2015 and 2014 , respectively . the benefit recorded in both periods relate to losses generated for which we expected to obtain benefits in the future . the tax benefit associated with losses generated by certain businesses that do not qualify to be included in the u.s. consolidated income tax return are being reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration . in addition , genovel was no longer eligible to be included in the hc2 's u.s. consolidated income tax return in july 2015 , therefore , a full valuation allowance was recorded against the genovel deferred tax assets during the third quarter of 2015. preferred stock dividends and accretion : preferred stock dividends and accretion was $ 10.8 million and $ 4.3 million for the years ended december 31 , 2016 and 2015 , respectively . the increase is a result of inducements to certain preferred shareholders for the conversion of their preferred stock into the company 's common stock . preferred stock dividends and accretion was $ 4.3 million and $ 2.0 million for the years ended december 31 , 2015 and 2014 , respectively . the increase was due to the full year impact of cash dividends on the preferred stock issued in 2014 and additional preferred stock issued in 2015. story_separator_special_tag december 31 , 2014 . on a pro forma basis , other operating income from our construction segment for the year ended december 31 , 2015 increased $ 0.1 million to an expense of $ 0.3 million from an expense of $ 0.2 million for the year ended december 31 , 2014 . marine services segment presented below is a table that summarizes the results of operations of our marine services segment and compares the amount of the change between the year-end periods ( in thousands ) : replace_table_token_11_th 60 net revenue $ ( 128,267 ) cost of revenue ( 86,448 ) selling , general and administrative expenses ( 1,102 ) depreciation and amortization ( 13,821 ) other operating income ( expense ) ( 104 ) $ ( 3,779 ) net revenue : net revenue from our marine services segment for the year ended december 31 , 2016 increased $ 26.9 million to $ 161.9 million from $ 134.9 million for the year ended december 31 , 2015 .
| segment results of operations we have included below certain pro forma results of operations for the construction , marine services and energy operating segments for the year ended december 31 , 2014. these pro forma results give effect to the acquisitions of dbmg , gmsl and ang as if they had occurred on january 1 , 2013. the pro forma results of operations were derived from the unaudited historical financial statements of dbmg for the five months ended may 26 , 2014 ; of gmsl for the nine months ended september 30 , 2014 ; and of ang for the seven months ended july 31 , 2014. certain pro forma amounts for the years ended december 31 , 2014 were adjusted for the impact of purchase price accounting adjustments . management believes that presenting pro forma results is important to understanding the company 's financial performance , providing better analysis of trends in our underlying businesses as it allows for comparability to prior period results . the unaudited pro forma results of operations are not intended to represent or be indicative of the consolidated results of operations or financial condition of the company that would have been reported had the acquisitions been completed as of their respective dates , and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity . in the following tables , other operating ( income ) expense includes ( i ) ( gain ) loss on sale or disposal of assets , ( ii ) lease termination costs and ( iii ) asset impairment expense , which are presented as individual lines within consolidated statements of operations .
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in april 2017 , our first commercial product , tymlos ( abaloparatide ) injection , was approved by the u.s. food and drug administration ( “ fda ” ) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture , multiple risk factors for fracture , or patients who have failed or are intolerant to other available osteoporosis therapy . in may 2017 , we commenced u.s. commercial sales of tymlos and as of january 1 , 2020 , tymlos was available and covered for approximately 290 million u.s. insured lives , representing approximately 99 % of u.s. commercial and 79 % of medicare part d insured lives . in july 2017 , we entered into a license and development agreement with teijin limited ( “ teijin ” ) for abaloparatide for subcutaneous injection ( “ abaloparatide-sc ” ) in japan . under this agreement , we received an upfront payment and are entitled to receive milestone payments upon the achievement of certain regulatory and sales milestones , and a fixed low double-digit royalty based on net sales of abaloparatide-sc in japan during the royalty term . in march 2018 , we initiated a clinical trial in men with osteoporosis which , if successful , will form the basis of a supplemental nda seeking to expand the use of tymlos to treat men with osteoporosis at high risk for fracture . we expect to report top-line data from the study in the second half of 2021. in july 2018 , we initiated a bone histomorphometry study to evaluate the early effects of tymlos on tissue-based bone remodeling and structural indices in postmenopausal women . study enrollment is now complete , and we expect to present data from this study in the second half of 2020. in october 2018 , the fda approved a labeling supplement for tymlos to reflect that after 24 months of open-label alendronate therapy , the vertebral fracture risk reduction achieved with tymlos therapy was maintained . we are developing an abaloparatide transdermal patch ( “ abaloparatide-patch ” ) , for potential use in the treatment of postmenopausal women with osteoporosis . in may 2019 , we received a special protocol assessment agreement from the fda for our phase 3 study of abaloparatide-patch . we initiated our phase 3 wearable study of abaloparatide-patch in august 2019 and expect to report top-line data from the study in the second half of 2021. the wearable study is a single , pivotal , randomized , open label , active-controlled , bone mineral density ( “ bmd ” ) non-inferiority bridging study with a planned enrollment of approximately 470 patients with postmenopausal osteoporosis at high risk of fracture , which , if successful , will support an nda submission . the primary endpoint of the study is percentage change in lumbar spine bmd at 12 months . non-inferiority of abaloparatide-patch to abaloparatide-sc will be concluded if the lower bound of the 2-sided 95 % confidence interval for the estimated treatment difference ( abaloparatide-patch minus abaloparatide-sc ) in the percentage change from baseline in lumbar spine bmd at 12 months is above -2.0 % . in february 2018 , we entered into a scale-up and commercial supply agreement ( the “ supply agreement ” ) with 3m company and 3m innovative properties company ( collectively with 3m company , “ 3m ” ) pursuant to which 3m agreed to exclusively manufacture phase 3 and global commercial supplies of abaloparatide-patch . in partnership with 3m , we selected patheon n.v. , now known as thermo fisher scientific , ( “ thermo fisher ” ) to conduct the abaloparatide-patch coating process and packaging operations . we have successfully completed development activities associated with the scale up of manufacturing to supply our ongoing abaloparatide-patch phase 3 wearable study . we have also made significant progress scaling up for potential commercial batches , if our phase 3 trial is successful and abaloparatide-patch is approved . in october 2018 , we committed to fund 3m 's purchase of capital equipment totaling approximately $ 9.6 million in preparation for manufacturing phase 3 and potential commercial supplies of abaloparatide-patch . milestone payments for the equipment commenced in the fourth quarter of 2018 and are expected to be paid in full in the second quarter of 2021. in addition , there are cancellable purchase commitments in place to fund the facility build out and future purchases of capital equipment . the completion of the engineering equipment designs for critical equipment to produce the abaloparatide-patch at the commercial site is on target , and critical equipment has started to arrive and is being installed . in december 2019 , we aligned with the fda on requirements for an nda filing . in connection with our strategic plan to focus on bone health and targeted endocrine diseases , we are exploring all strategic options for our oncology programs , including elacestrant ( rad1901 ) and rad140 . our investigational product candidate , elacestrant ( rad1901 ) , a selective estrogen receptor degrader ( “ serd ” ) , is being developed for potential use in the treatment of hormone receptor-positive breast cancer . we initiated our phase 3 emerald study of elacestrant in late november 2018 and expect to complete enrollment in the third quarter of 2020. the phase 3 study is a single , randomized , open label , active-controlled phase 3 trial of elacestrant as a second or third-line monotherapy in approximately 460 patients with estrogen receptor-positive ( “ er+ ” ) and human epidermal growth factor receptor 2-negative ( “ her2- ” ) advanced or 60 metastatic breast cancer who have received prior treatment with one or two endocrine therapies , including a cyclin-dependent kinase ( “ cdk ” ) 4/6 inhibitor . patients in the study will be randomized to receive either elacestrant or the investigator 's choice of an approved hormonal agent . story_separator_special_tag the study includes specialized high-resolution imaging to examine the effect of abaloparatide on bone structure , such as the hip , in a subset of the study participants . in june 2018 , the fda approved a labeling supplement for tymlos to revise the needle length in the instructions for use from 8 mm to 5 mm . we believe health care providers , specialty pharmacies , and patients may prefer a shorter needle size for injectable products like tymlos . in july 2018 , we initiated a bone histomorphometry study to evaluate the early effects of tymlos on tissue-based bone remodeling and structural indices in postmenopausal women . study enrollment is now complete and we expect to report data from this study in the second half of 2020. abaloparatide-patch we are also developing abaloparatide-patch , based on 3m 's patented microstructured transdermal system technology , for potential use as a short wear-time transdermal patch . we hold worldwide commercialization rights to the abaloparatide-patch technology and are developing abaloparatide-patch toward future global regulatory submissions to build upon the potential success of tymlos . our development strategy for abaloparatide-patch is to bridge to the established efficacy and safety of our approved abaloparatide-sc formulation . we commenced a human replicative clinical evaluation of the optimized abaloparatide-patch in december 2015 , with the goal of achieving comparability to abaloparatide-sc . in september 2016 , we presented results from this evaluation of the first and second abaloparatide-patch prototypes , demonstrating that formulation technology can modify the pharmacokinetic profile of abaloparatide , including tmax , half-life ( “ t1/2 ” ) , and area under the curve ( “ auc ” ) . in march 2018 , we announced that through further optimization we had achieved comparability to the abaloparatide-sc profile with a third prototype ( the “ current abaloparatide-patch ” ) . the current abaloparatide-patch optimized the drug-device combination through process improvements , a finalized formulation , selection of a dose ( 300 µg ) , and the introduction of a new clinical applicator , which were designed to improve the ease of use and patient experience . in the second half of 2018 , we completed further evaluation confirming that a five minute application of the current abaloparatide-patch to the thigh resulted in a pharmacokinetic exposure highly similar ( auc > 90 % ) to abaloparatide-sc . in may 2019 , we received a special protocol assessment agreement from the fda for our phase 3 ( wearable ) study of abaloparatide-patch , which means the fda considers the study design to be adequate and well-controlled to support marketing approval provided the study endpoints are achieved . we initiated our phase 3 wearable study of abaloparatide-patch in august 2019 and expect to report top-line data from the study in the second half of 2021. the wearable study is a single , pivotal , randomized , open label , active-controlled , bmd non-inferiority bridging study with a planned enrollment of approximately 470 patients with postmenopausal osteoporosis at high risk of fracture , which if successful , will support an nda submission . the primary endpoint of the study is percentage change in lumbar spine bmd at 12 months . non-inferiority of abaloparatide-patch to abaloparatide-sc will be concluded if the lower bound of the 2-sided 95 % confidence interval for the estimated treatment difference ( abaloparatide-patch minus abaloparatide-sc ) in the percentage change from baseline in lumbar spine bmd at 12 months is above -2.0 % . we are implementing a revised enrollment plan for the wearable study that includes additional measures and resources intended to improve site recruitment efforts , as well as the addition of clinical trial sites outside the u.s. in july 2019 , we obtained reported results from a patient assessment study which evaluated self-administration of abaloparatide-patch over 29 days in 22 post-menopausal women with low bone density . study patients were observed at a study site on the first , 15th and 29th day of the study . top-line results showed that study patients were able to follow the instructions for use ( “ ifu ” ) and applied the patches accurately on 99.7 % of all applications . the safety data from this study showed that most of the study patients had mild , transient redness at the application site . the mean subject acceptability score on a 5-point scale was 4.5 , 4.6 and 4.5 on day 1 , 15 and 29 , respectively . the laboratory data from this study included an exploratory assessment of pinp , a biomarker that indicates bone formation . at baseline the median pinp level in this study was 50.5 ng/ml , increasing to a median value of 100.1 ng/ml at day 29 , while , by comparison , the median pinp values observed with abaloparatide-sc in the active study were 50.6 ng/ml at baseline and 100.5 ng/ml at one month . in february 2018 , we entered into the supply agreement pursuant to which 3m agreed to exclusively manufacture phase 3 and global commercial supplies of abaloparatide-patch . in partnership with 3m , we selected thermo fisher to conduct the abaloparatide-patch coating process and packaging operations . in december 2019 , 3m announced that it entered into an agreement to sell its drug delivery business , which manufactures clinical trial supplies of abaloparatide-patch , to an affiliate of altaris capital partners , llc ( “ altaris ” ) . the transaction with altaris , which is subject to closing conditions and regulatory 62 approvals , is expected to close in the first half of 2020. in connection with the transaction , we anticipate that the scale-up and commercial supply agreement with 3m will transfer to altaris following the completion of certain transition arrangements between 3m and altaris . in october 2018 , we committed to fund 3m 's purchase of capital equipment totaling approximately $ 9.6 million in preparation for manufacturing phase 3 and commercial supplies of abaloparatide-patch , if approved .
| results of operations the following discussion summarizes the key factors our management team believes are necessary for an understanding of our consolidated financial statements . years ended december 31 , 2019 and december 31 , 2018 70 replace_table_token_4_th product revenue —we began commercial sales of tymlos within the united states in may 2017 , following receipt of fda marketing approval on april 28 , 2017. for the year ended december 31 , 2019 we recorded approximately $ 173.3 million of net product revenue compared to $ 99.2 million for the year end december 31 , 2018 . the increase in product revenue was primarily driven by an increase in sales volume as a result of greater market penetration . cost of sales —for the year ended december 31 , 2019 , cost of sales was $ 16.1 million compared to $ 8.4 million for the year end december 31 , 2018 . the increase in cost of sales was primarily driven by the increase in product revenue . research and development expenses —for the year ended december 31 , 2019 , research and development expense was $ 116.8 million , as compared to $ 99.9 million for the year ended december 31 , 2018 , an increase of $ 16.8 million , or 17 % . this increase was primarily a result of an increase of $ 16.1 million in program spending for the abaloparatide-patch program , a $ 9.8 million increase in program spending for elacestrant research , a $ 1.7 million increase in professional services , and $ 0.6 million increase in program spending for the abaloparatide-sc program . these increases were partially offset by a $ 1.9 million decrease in program spending for rad-140 program , a $ 0.3 million decrease in r & d support costs as well as an $ 9.2 million decrease in compensation related costs .
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for consumers , we make high performance , dependable and easy-to-use home networking , storage and digital media products to connect people with the internet and their content and devices . for businesses , we provide networking , storage and security solutions without the cost and complexity of big it . we also supply leading service providers with retail , whole home networking solutions for their customers . our products are built on a variety of proven technologies such as wireless , ethernet and powerline , with a focus on reliability and ease-of-use . our product line consists of wired and wireless devices that enable networking , broadband access , network connectivity , network storage and security appliances . these products are available in multiple configurations to address the needs of our end-users in each geographic region in which our products are sold . we sell our networking products through multiple sales channels worldwide , including traditional retailers , online retailers , wholesale distributors , direct market resellers ( dmrs ) , value-added resellers ( vars ) , and broadband service providers . our retail channel includes traditional retail locations domestically and internationally , such as best buy , fry 's electronics , radio shack , staples , wal-mart , argos ( u.k. ) , dixons ( u.k. ) , pc world ( u.k. ) , mediamarkt ( germany , austria ) , dick smith ( australia ) , jb hifi ( australia ) and elkjop ( norway ) . online retailers include amazon.com , dell , newegg.com and buy.com . our dmrs include cdw corporation , insight corporation and pc connection in domestic markets and misco throughout europe . in addition , we also sell our products through broadband service providers , such as multiple system operators ( msos ) , dsl , and other broadband technology operators domestically and internationally . some of these retailers and broadband service providers purchase directly from us , while others are fulfilled through wholesale distributors around the world . a substantial portion of our net revenue to date has been derived from a limited number of wholesale distributors and retailers , including ingram micro and best buy . we expect that these wholesale distributors and retailers will continue to contribute a significant percentage of our net revenue for the foreseeable future . our service provider business has grown substantially and it is difficult to ascertain a seasonal pattern given that the business is less predictable than our other core businesses . in the second fiscal quarter of 2011 , we made organizational changes that resulted in changes to the way in which the codm manages and evaluates the business . our business is now managed in three specific business units : retail , commercial , and service provider . the retail business unit consists of high performance , dependable and easy-to-use home networking , storage and digital media products to connect people with the internet and their content and devices . the commercial business unit consists of business networking , storage and security solutions without the cost and complexity of big it . the service provider business unit consists of made-to-order and retail proven , whole home networking solutions sold to service provider for sale to their customers . each business unit is managed by a senior vice president/general manager . there is no change in the codm before and after the reorganization of the segments . we believe this new structure enables us to better focus our efforts on our core customer segments and allows us to be more nimble and opportunistic as a company overall . additionally , in the first fiscal quarter of 2011 , we combined our north american , central american and south american sales forces to form the americas territory . previously , north america was its own geographic region and the central american and south american territories were categorized within the asia pacific ( apac ) geographic region . following this change , we are now organized into the following three geographic territories : americas , europe , middle-east 38 and africa ( emea ) and apac . for further detail , refer to note 12 , segment information , operations by geographic area and customer concentration , in item 8 part ii of this annual report on form 10-k. our net revenue increased 30.9 % during the year ended december 31 , 2011. the increase in net revenue was principally attributable to higher sales in several of our product categories in the americas , europe , middle-east and africa ( emea ) and asia pacific ( apac ) . these include wireless-n products sold to retailers and existing service provider customers , powerline products , readynas products , and switch products . our gross margin decreased to 31.3 % for the year ended december 31 , 2011 from 33.2 % for the year ended december 31 , 2010. the decrease in gross margin was primarily attributable to a higher percentage of our total revenue derived from sales to service providers , which generally carry lower gross margins . operating expenses for the year ended december 31 , 2011 were $ 244.6 million , or 20.7 % of net revenue , compared to $ 207.9 million , or 23.1 % of net revenue , for the year ended december 31 , 2010. this increase was primarily attributable to increases of $ 24.0 million in salary and other employee related expenses due to headcount growth , and $ 6.1 million in outside service costs related to increased investments in research and development projects and increased call center costs driven by greater sales volume . in addition , the increase was also attributable to a $ 2.2 million increase in restructuring and other charges primarily due to employee severance resulting from the reorganization into three specific business units . story_separator_special_tag upon shipment of the product , we reduce revenue for an estimate of potential future stock rotation returns related to the current period product revenue . we analyze historical returns , channel inventory levels , current economic trends and changes in customer demand for our products when evaluating the adequacy of the allowance for sales returns , namely stock rotation returns . our estimated allowances for returns due to stock rotation 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 . we accrue for sales incentives as a marketing expense if we receive an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received ; otherwise , it is recorded as a reduction of revenues . our estimated provisions for sales incentives can vary from actual results and we may have to record additional expenses or additional revenue reductions dependent on the classification of the sales incentive . we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we regularly perform credit evaluations of our customers ' financial condition and consider factors such as historical experience , credit quality , age of the accounts receivable balances , and geographic or country-specific risks and economic conditions that may affect a customer 's ability to pay . the allowance for doubtful accounts is reviewed quarterly and adjusted if necessary based on our 40 assessments of our customers ' ability to pay . if the financial condition of our customers should deteriorate or if actual defaults are higher than our historical experience , additional allowances may be required , which could have an adverse impact on operating expenses . valuation of inventory we value our inventory at the lower of cost or market , cost being determined using the first-in , first-out method . we continually assess the value of our inventory and will periodically write down its value for estimated excess and obsolete inventory based upon assumptions about future demand and market conditions . on a quarterly basis , we review inventory quantities on hand and on order under non-cancelable purchase commitments , including consignment inventory , in comparison to our estimated forecast of product demand for the next nine months to determine what inventory , if any , are not saleable . our analysis is based on the demand forecast but takes into account market conditions , product development plans , product life expectancy and other factors . based on this analysis , we write down the affected inventory value for estimated excess and obsolescence charges . at the point of loss recognition , a new , lower cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . as demonstrated during prior years , demand for our products can fluctuate significantly . if actual demand is lower than our forecasted demand and we fail to reduce our manufacturing accordingly , we could be required to write down additional inventory , which would have a negative effect on our gross profit . goodwill and intangibles we apply the authoritative guidance for intangibles and perform an annual goodwill impairment test . should certain events or indicators of impairment occur between annual impairment tests , we will perform the impairment test as those events or indicators occur . refer to note 1 , the company and summary of significant accounting policies , of the notes to consolidated financial statements of this annual report on form 10-k for a complete discussion of our goodwill policies . in september 2011 , the fasb issued asu 2011-08 , intangibles goodwill and other ( topic 350 ) : testing goodwill for impairment. asu 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount as a basis for determining if performing the two-step goodwill impairment test is necessary . asu 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 ; however , early adoption is permitted . we elected to adopt the updated standard for the purpose of our goodwill impairment testing in the fourth fiscal quarter of 2011. in the fourth fiscal quarter of 2011 , we completed the annual impairment test of goodwill . we assessed whether it was more likely than not ( that is , a likelihood of more than 50 % ) that each reporting unit 's fair value was less than its carrying amount including goodwill by considering the following factors : macroeconomic conditions , industry and market considerations , cost factors , overall company financial performance , events affecting the reporting units , and changes in our share price . based on these factors and the recent impairment testing in the second fiscal quarter of 2011 , we determined that it is not more likely than not that each reporting unit 's fair value was less than its carrying amount , and therefore performing the first step of the two-step impairment test for each reporting unit was unnecessary . no goodwill impairment was recognized in the years ended december 31 , 2011 , 2010 or 2009. we do not believe it is likely that there will be a material change in the estimates or assumptions we use to test for impairment losses on goodwill . however , if the actual results are not consistent with our estimates or assumptions , we may be exposed to an impairment charge that could be material . purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets , which range from less than one year to ten years . purchased intangible assets determined to have indefinite useful lives are not amortized .
| results of operations the following table sets forth the consolidated statements of operations and the percentage change from the preceding year for the periods indicated : replace_table_token_8_th * * percentage change not meaningful . the following table sets forth the consolidated statements of operations , expressed as a percentage of net revenue , for the periods presented : replace_table_token_9_th 43 net revenue replace_table_token_10_th our net revenue consists of gross product shipments , less allowances for estimated returns for stock rotation and warranty , price protection , end-user customer rebates and other sales incentives deemed to be a reduction of net revenue and net changes in deferred revenue . 2011 net revenue compared to 2010 net revenue net revenue increased $ 278.9 million , or 30.9 % , to $ 1.2 billion for the year ended december 31 , 2011 , from $ 902.1 million for the year ended december 31 , 2010. the increase in net revenue was due to strong growth in our retail and commercial product lines , and exceptional growth in service provider revenue . refer to the discussion of segment information for additional discussion of net revenue by business unit . in the first quarter of 2011 , in order to achieve operational efficiencies , we combined our north american , central american and south american sales forces to form the americas territory . previously north america was its own geographic region and the central american and south american territories were categorized within the asia pacific geographic region . following this change , we are organized into the following three geographic territories : americas , emea and asia pacific . we have reclassified the disclosure of net revenue by geography for prior periods to conform to the current period 's presentation . the change did not result in material differences from what was previously reported . net revenue by geography comprises gross revenue less such items as marketing incentives paid to customers , sales returns and price protection .
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shift away from the power generation markets in recent years , our businesses serving the power generation markets have experienced significant declines in revenue and profitability associated with weak demand and increased competition within the global power generation markets . based on a review of our post-spin portfolio and the belief that recovery within the power generation markets was unlikely for the foreseeable future , we decided that our strategic focus would be on our ( i ) scalable growth businesses that serve the hvac and detection and measurement markets and ( ii ) power transformer and process cooling systems businesses . as a result , we have been reducing our exposure to the power generation markets as indicated by the disposals summarized below : dry cooling business : on november 20 , 2015 , we entered into an agreement for the sale of our dry cooling business , a business that provides dry cooling products to the global power generation markets , to paharpur cooling towers limited ( “ paharpur ” ) . on march 30 , 2016 , we completed the sale for cash proceeds of $ 47.6 ( net of cash transferred with the business of $ 3.0 ) . in connection with the sale , we recorded a pre-tax gain of $ 18.4. the gain includes a reclassification from “ equity ” of other comprehensive income of $ 40.4 related to foreign currency translation . balcke dürr : on november 22 , 2016 , we entered into an agreement for the sale of balcke dürr , a business that provides heat exchangers and other related components primarily to the european and asian power generation markets , to a subsidiary of mutares ag ( the “ buyer ” ) . on december 30 , 2016 , we completed the sale for cash proceeds of less than $ 0.1. we left $ 21.1 of cash in balcke dürr at the time of sale and provided the buyer a non-interest bearing loan of $ 9.1 , payable in installments at the end of 2018 and 2019. the related agreement provides that existing parent company guarantees of approximately 79.0 and bank and surety bonds of approximately 79.0 will remain in place through each instrument 's expiration date , with such expiration dates ranging from 2017 to 2022. balcke dürr , the buyer , and the buyer 's parent company have provided certain indemnifications in the event that any of these guarantees or bonds are called . see notes 2 , 4 and 15 to our consolidated financial statements for additional details on the guarantees , bonds , and related indemnifications . the results of balcke dürr are presented as a discontinued operation for all periods presented . see notes 1 and 4 to our consolidated financial statements for additional details . 24 in connection with the sale , we recorded a net loss of $ 78.6 to “ gain ( loss ) on disposition of discontinued operations , net of tax ” within our consolidated statement of operations for 2016. the net loss includes a charge of $ 5.1 associated with the estimated fair value of the parent company guarantees and the bank and surety bonds , after consideration of the indemnifications provided in the event any of these guarantees or bonds are called . change to the name of our power reportable segment in recognition of these dispositions and the resulting shift away from the power generation markets , we changed the name of our power reportable segment to “ engineered solutions , ” effective in the fourth quarter of 2016. summary of operating results revenues for 2016 decreased $ 86.7 ( or 5.6 % ) , compared to 2015 , primarily as a result of the impact of the sale of the dry cooling business , a decline in organic revenue , and , to a lesser extent , a stronger u.s. dollar in 2016. these decreases were offset partially by the impact of a reduction in revenues of $ 57.2 during the third quarter of 2015 resulting from a revision to the expected revenues and profits on our large power projects in south africa . the decline in organic revenues was due primarily to lower sales by our power generation businesses . see “ results of reportable segments ” for additional details . during 2016 , we generated operating income of $ 55.0 , compared to an operating loss of $ 122.2 in 2015 . operating income ( loss ) for 2016 and 2015 was impacted by the following : 2016 : the aforementioned gain of $ 18.4 on the sale of the dry cooling business . impairment charges of $ 30.1 associated with the intangible assets of our heat transfer business . see note 8 to our consolidated financial statements for additional details . 2015 : a reduction in operating income of $ 95.0 associated with a third quarter 2015 revision to our estimates of expected revenues and profits on our large power projects in south africa . a significant amount of general and administrative costs associated with corporate employees and other corporate support that transferred to spx flow at the time of the spin-off . in addition , operating results for 2016 and 2015 were impacted by net charges of $ 15.4 and $ 18.6 , respectively , associated with our pension and postretirement plans , with the largest portion of the charges resulting from actuarial losses recorded during each of the years . see note 9 to our consolidated financial statements for additional details . operating cash flows from continuing operations totaled $ 53.4 in 2016 , compared to cash flows used in continuing operations during 2015 of $ 76.0 . the increase in operating cash flows was primarily due to the fact that cash flows used in operating activities for 2015 included disbursements for general corporate overhead costs related to a corporate structure that supported the spx business prior to the spin-off . story_separator_special_tag for 2015 , the decrease in sg & a expense , compared to 2014 , was due primarily to a decline in pension and postretirement expense of $ 85.6 ( an overall decrease in pension and postretirement expense of $ 86.3 , with $ 0.7 included in “ cost of products sold ” ) and , to a lesser extent , a decline in corporate expense of $ 30.5 , a decrease in incentive compensation , and the impact of currency translation . the decrease in pension and postretirement expense in 2015 was due to a decrease in actuarial losses during the year . see “ results of reportable segments ” for additional details on corporate expense and pension and postretirement expenses . the decrease in incentive compensation was due to lower profitability in 2015. intangible amortization — for 2016 , the decline in intangible amortization , compared to 2015 , was primarily the result of ( i ) discontinuing amortization on the long-term assets of our dry cooling business in connection with classifying the business 's assets and liabilities as “ held for sale , ” effective december 31 , 2015 , and ( ii ) the impact of the $ 23.9 impairment charge recorded in the fourth quarter of 2016 associated with our heat transfer business 's definite-lived intangible assets . see note 8 to our consolidated financial statements for additional details on the impairment charge recorded for the definite-lived intangible assets of our heat transfer business . for 2015 , the decrease in intangible amortization , compared to 2014 , was due to the impact of foreign currency translation resulting from a stronger u.s. dollar during 2015. impairment of intangible and other long-term assets — during 2016 , we recorded impairment charges of $ 30.1 related to the intangible assets of our heat transfer business , which included $ 23.9 for definite-lived intangible assets and $ 6.2 for indefinite-lived intangible assets . during 2014 , we recorded an impairment charge of $ 10.9 related to the indefinite-lived intangible assets of our heat transfer business . in addition , we recorded an impairment charge of $ 18.0 related to our dry cooling business 's investment in a joint venture with shanghai electric group co. , ltd. see note 8 to our consolidated financial statements for further discussion of impairment charges . special charges , net — special charges , net , related primarily to restructuring initiatives to consolidate manufacturing , distribution , sales and administrative facilities , reduce workforce , and rationalize certain product lines . see note 6 to our consolidated financial statements for the details of actions taken in 2016 , 2015 and 2014. the components of special charges , net , were as follows : replace_table_token_6_th 27 gain on sale of dry cooling business — on march 30 , 2016 , we completed the sale of our dry cooling business resulting in a gain of $ 18.4. see notes 1 and 4 to our consolidated financial statements for additional details . other income ( expense ) , net — other expense , net , for 2016 was composed primarily of charges of $ 4.2 associated with asbestos product liability matters , losses on foreign currency forward contracts ( “ fx forward contracts ” ) of $ 5.1 , and losses on currency forward embedded derivatives ( “ fx embedded derivatives ” ) of $ 1.2. these amounts were offset partially by foreign currency transaction gains of $ 3.9 , income from company-owned life insurance policies of $ 2.8 , equity earnings in joint ventures of $ 1.5 , income associated with transition services provided in connection with the sale of the dry cooling business of $ 0.9 , and gains on asset sales of $ 0.9. other expense , net , for 2015 was composed primarily of charges of $ 8.0 associated with asbestos product liability matters , foreign currency transaction losses of $ 7.4 , losses on foreign currency forward contracts of $ 7.7 , partially offset by gains of $ 6.5 on currency forward embedded derivatives , a gain of $ 3.8 related to death benefits on life insurance contracts , and equity earnings in joint ventures of $ 1.5. other income , net , for 2014 was composed primarily of the gain on sale of our interest in egs of $ 491.2 and , to a much lesser extent , investment earnings of $ 2.7 , gains on fx embedded derivatives of $ 3.1 , equity earnings in joint ventures of $ 1.6 , and foreign currency transaction gains of $ 0.1 , partially offset by losses on fx forward contracts of $ 5.8. interest expense , net — interest expense , net , includes both interest expense and interest income . the decrease in interest expense , net , during 2016 , compared to 2015 , was primarily the result of a decline in interest expense due to lower average debt balances during 2016 . the increase in interest expense , net , during 2015 , compared to 2014 , was primarily a result of a decrease in interest income during 2015 due to the lower average cash balances during the year , partially offset by the impact of refinancing our senior credit facilities during the third quarter of 2015 in preparation for the spin-off , which resulted in a decrease in our outstanding term loan and our average outstanding borrowings on our revolving credit facilities . loss on early extinguishment of debt — during the third quarter of 2016 , we reduced the issuance capacity under our foreign credit facilities by $ 200.0. in connection with such reduction , we recorded a charge of $ 1.3 associated with the write-off of the unamortized deferred financing fees related to the $ 200.0 of previously available issuance capacity . in the third quarter of 2015 , we refinanced our senior credit facilities in connection with the spin-off .
| results of discontinued operations sale of balcke dürr business as indicated in note 1 to our consolidated financial statements , we completed the sale of balcke dürr on december 30 , 2016 for cash proceeds of less than $ 0.1. in addition , we left $ 21.1 of cash in balcke dürr at the time of the sale and provided the buyer with a non-interest bearing loan of $ 9.1 , payable in installments due at the end of 2018 and 2019. in connection with the sale , we recorded a net loss of $ 78.6 to “ gain ( loss ) on disposition of discontinued operations , net of tax ” within our consolidated statement of operations for 2016. the results of balcke dürr are presented as a discontinued operation for all periods presented . major classes of line items constituting pre-tax income ( loss ) and after-tax income ( loss ) of balcke dürr for the years ended december 31 , 2016 , 2015 and 2014 are shown below : replace_table_token_7_th the assets and liabilities of balcke dürr have been reclassified to assets and liabilities of discontinued operations as of december 31 , 2015. the major classes of balcke dürr 's assets and liabilities as of december 31 , 2015 are shown below : 29 replace_table_token_8_th the following table presents selected financial information for balcke dürr that is included within discontinued operations in the consolidated statements of cash flows : replace_table_token_9_th spin-off of spx flow as indicated in note 1 to our consolidated financial statements , we completed the spin-off of spx flow on september 26 , 2015. the results of spx flow are reflected as a discontinued operation within our consolidated financial statements for all periods presented .
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the event-based milestone and other contingent payments represent variable consideration , and we use the most likely amount method to estimate this variable consideration . given the high degree of uncertainty around the occurrence of these events , we determine story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in “ special note regarding forward-looking statements and industry data ” and “ risk factors. ” overview we are a clinical-stage biotechnology company focused on developing immune modulators and precision therapies to improve the lives of patients with solid tumor cancers . our primary focus is on developing immuno-oncology and targeted cancer therapies . each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are needed . in addition , we use companion diagnostics where appropriate to allow us to select patients most likely to benefit from treatment with our product candidates . the most advanced product candidates that we or our partners are developing are identified below . bemarituzumab ( fpa144 ) is an antibody that inhibits fibroblast growth factor receptor 2b , or fgfr2b , and that induces antibody-dependent cellular cytotoxicity that we are studying in a clinical trial in combination with 5-fluorouracil ( 5-fu ) , leucovorin and oxaliplatin , a standard-of-care chemotherapy regimen known as mfolfox6 , as front-line treatment of patients with gastric ( stomach ) or gastroesophageal junction , or gej , cancer that overexpresses fgfr2b . in december 2017 , we granted zai lab ( shanghai ) co. , ltd. , or zai lab , an exclusive license to develop and commercialize bemarituzumab in china , hong kong , macau and taiwan . fpa150 is an antibody that targets b7-h4 that we are studying in a clinical trial to treat patients with cancers that overexpress b7-h4 . fpt155 is a soluble cd80 fusion protein that enhances co-stimulation of t cells through cd28 that we are studying in a clinical trial in multiple cancers . bms-986258 is an anti-t cell immunoglobulin and mucin domain-3 , or tim-3 , antibody that our partner , bms , is studying in a clinical trial in combination with opdivo in patients with advanced malignant tumors . our product candidates are typically only-in-class , first-in-class or meaningfully differentiated from other in-class therapeutics . we generally look for single-agent activity or clear activity in , for example , tumor types that are rarely sensitive to checkpoint inhibitors . historically , we leveraged our differentiated discovery capabilities and protein therapeutic generation and engineering capabilities to identify and validate targets that we believed could be useful in oncology , and we generated and preclinically tested therapeutic proteins , including antibodies and fusion proteins , directed to or containing the targets we identified and validated . in october 2019 , we began a corporate restructuring , pursuant to which we are eliminating most of our in-house target discovery and validation and protein therapeutic generation and engineering capabilities by the first quarter of 2020. we currently have three late-stage research programs that arose from our work with our discovery capabilities . we plan to advance lead therapeutic antibodies for one of these programs into ind-enabling studies in the second quarter of 2020. due to our significantly reduced scope of in-house research and preclinical capabilities following our october 2019 restructuring , we expect to advance each of our late-stage research programs through preclinical development relying mostly on out-sourced and contracted capabilities . in addition , as part of our corporate restructuring , we shifted our focus from in-house discovery and research to supplementing our development pipeline by looking to selectively acquire or license , on an exclusive basis , rights to product candidates from biotechnology and pharmaceutical companies . 63 we have no products approved for commercial sale and have not generated any revenue from product sales to date . we continue to incur significant research and development and other expenses related to our ongoing operations and we expect that our expenses will increase as we advance our product candidates into later stages of clinical development and increase the number of product candidates in clinical development . we have incurred losses in each period since our inception in 2002 , with the exception of the fiscal year ended december 31 , 2015 , due primarily to the $ 350.0 million upfront payment we received from bms from our license and collaboration agreement for cabiralizumab , and the fiscal year ended december 31 , 2011 , due primarily to the $ 50.0 million upfront payment we received from gsk from our license and collaboration agreement for fp-1039 . for the years ending december 31 , 2019 and 2018 , we reported net loss of $ 137.2 million and net loss of $ 140.4 million , respectively . critical accounting policies and estimates we based our management 's discussion and analysis of financial condition and results of operations upon our condensed financial statements , which we 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 , liabilities , revenues and expenses . we evaluate our critical accounting policies and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , and these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results under different assumptions and conditions may differ from these estimates . story_separator_special_tag 107 and 110 , which permits entities to calculate the expected term as the midpoint of the contractual term of the options and the ordinary vesting period ; the expected volatility of the underlying common stock , which we estimate for options based on the historical volatility of the price of our common stock since we became publicly traded ; the assumed dividend yield , which is based on our expectation of not paying dividends for the foreseeable future ; and the fair value of our common stock , which is determined on the date of grant , as described below . we estimated the fair value of each stock option using the black-scholes option-pricing model based on the date of grant of such stock option with the following assumptions : replace_table_token_4_th 65 income taxes we account for income taxes using the liability method , under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . on december 22 , 2017 , the tax cuts and jobs act of 2017 , or the tax act , was signed into law . the tax act reduces the corporate tax rate from a top marginal rate of 35 % to a flat rate of 21 % . although the tax act generally became effective on january 1 , 2018 , gaap requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date of december 22 , 2017. because of the impacts of the tax act , the sec issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act , which allows us to record provisional amounts for those impacts , provided that the accounting is completed in a period not to exceed one year from the date of enactment . as a result , as of december 31 , 2017 , we performed a provisional estimate of the effect of the tax act on the financial statements . in the fourth quarter of 2018 , we completed our analysis to determine the effect of the tax act . no material adjustments were noted from the completion of the analysis as of december 31 , 2018. the primary impact of the tax act resulted from the re-measurement of deferred tax assets and liabilities due to the change in the corporate tax rate , reducing our deferred tax assets by $ 27.1 million with a corresponding reduction in our valuation allowance , which had no effect on our effective tax rate . as of december 31 , 2019 , our total net deferred tax assets , net of gross deferred tax liabilities , were $ 168.7 million . due to our lack of earnings history , the net deferred tax assets have been fully offset by a valuation allowance . in assessing the realizability of deferred tax assets , we considered whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible . due to our history of losses and lack of other positive evidence , we determined that it is more likely than not that its net deferred tax assets will not be realized , and therefore , the net deferred tax assets are fully offset by a valuation allowance . new accounting standards for a discussion of new accounting standards , please see note 2 to our financial statements . financial overview collaboration and license revenue we have not generated any revenue from product sales . we have derived our revenue to date from upfront payments , research and development funding and milestone payments under collaboration and license agreements with our collaboration partners and licensees . we currently have an active collaboration and license agreement with zai lab for bemarituzumab , or the china collaboration agreement . for additional information on this collaboration , please see the section titled “ business – collaborations and license agreements – collaborations ” elsewhere in this report and the description of this agreement set forth in this section below . in addition , we have a license and collaboration agreement with bms for cabiralizumab , or the cabiralizumab collaboration agreement , pursuant to which bms conducted sponsored development of cabiralizumab , including in combination with opdivo , prior to february 2020. we completed the research terms of our immuno-oncology research collaboration with bms in march 2019 , our research collaboration in respiratory diseases with gsk in july 2016 , and our fibrosis and cns research collaboration with ucb pharma s.a. , or ucb , in march 2016. for additional information on these collaborations , please see the descriptions of these agreements set forth in this section below . 66 summary revenue by collaboration and license agreements the following is a comparison of collaboration and license revenue for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_5_th we expect that the level of revenue we generate will fluctuate from period to period as a result of the timing and amount of milestone , reimbursable expense and other payments we receive during the course of our existing collaborations and licenses and as a result of the deferred revenue that we recognize , including due to revisions to estimates related to reimbursable activities or to estimates of actual or estimated costs as a percentage of total budgeted costs , or as a result of entry into any new collaborations and license agreements .
| results of operations comparison for the years ended december 31 , 2019 and 2018 : replace_table_token_7_th 74 collaboration and license revenue collaboration and license revenue decreased by $ 35 million , or 70 % , to $ 14.9 million for the year ended december 31 , 2019 , from $ 49.9 million for the year ended december 31 , 2018. this decrease was primarily due to a $ 25.0 million decrease in revenue recognized as compared to the year ended december 31 , 2018 related to our cabiralizumab collaboration agreement with bms for the achievement of the developmental milestone for the dosing of the first patient in bms 's phase 2 clinical trial of cabiralizumab in combination with opdivo , with and without chemotherapy , as a treatment for patients with second-line pancreatic cancer , a $ 2.1 million decrease from progress made towards our performance obligation under our original collaboration agreement with bms , a $ 4.7 million decrease as we completed the research term of our immuno-oncology research collaboration with bms in march 2019 , a $ 2.2 million decrease in research and development funding from our original collaboration agreement with bms as our phase 1a/1b combination trial completed enrollment in 2018 , a $ 0.7 million decrease in collaboration and license revenue from our collaboration with zai lab and a $ 0.3 million decrease in target evaluation and selection fees from our fibrosis and cns collaboration with ucb .
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actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the cautionary note regarding “ forward-looking statements ” contained elsewhere in this form 10-k. additionally , you should read the “ risk factors ” section of this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview sorrento therapeutics , inc. ( nasdaq : srne ) , together with its subsidiaries ( collectively , the “ company ” , “ we ” , “ us ” and “ our ” ) is a clinical stage and commercial biopharma company focused on delivering innovative and clinically meaningful therapies to patients and their families , globally , to address unmet medical needs . we primarily focus on therapeutics areas in immune-oncology and non-opioid pain management . we also have programs assessing the use of our technologies and products in autoimmune , inflammatory and neurodegenerative diseases . at our core , we are an antibody-centric company and leverage our proprietary g-mab library and targeted delivery modalities to generate the next generation of cancer therapeutics . our fully human antibodies include pd-1 , pd-l1 , cd38 , cd123 , cd47 , c-met , vegfr2 , ccr2 and cd137 among others . our vision is to leverage these antibodies in conjunction with proprietary targeted delivery modalities to generate the next generation of cancer therapeutics . these modalities include proprietary chimeric antigen receptor t-cell therapy ( “ car-t ” ) , dimeric antigen receptor t-cell therapy ( “ dar-t ” ) , antibody drug conjugates ( “ adcs ” ) as well as bispecific antibody approaches . additionally , we acquired sofusa® , a revolutionary drug delivery system , in july 2018 , which delivers biologics directly into the lymphatic system to potentially achieve improved efficacy and fewer adverse effects than standard parenteral immunotherapy . with each of our clinical and pre-clinical programs , we aim to tailor our therapies to treat specific stages in the evolution of cancer , from elimination , to equilibrium and escape . in addition , our objective is to focus on tumors that are resistant to current treatments and where we can design focused trials based on a genetic signature or biomarker to ensure patients have the best chance of a durable and significant response . we have several immuno-oncology programs that are in or near to entering the clinic . these include cellular therapies , an oncolytic virus and a palliative care program targeted to treat intractable cancer pain . our cellular therapy programs focus on car-t for adoptive cellular immunotherapy to treat both solid and liquid tumors . we have reported early data from phase i trials of our carcinoembryonic antigen ( “ cea ” ) -directed car-t program . we have treated five patients with stage 4 , unresectable adenocarcinoma ( four with pancreatic and one with colorectal cancer ) and cea-positive liver metastases with anti-cea car-t and are currently expanding this study . we successfully submitted an investigational new drug application ( `` ind '' ) for anti-cd38 car-t for the treatment of refractory or relapsed multiple myeloma ( `` rrmm '' ) and obtained approval from the u.s. food and drug administration ( the `` fda '' ) to commence a human 57 clinical trial for this indication in early 2018. we have dosed two patients and are continuing the enrollment of additional patients . broadly speaking , we are one of the world 's leading car-t companies today due to our investments in technology and infrastructure , which have enabled significant progress in developing our next-generation non-viral , “ off-the-shelf ” allogeneic car-t solutions . with “ off-the-shelf ” solutions , car-t therapy can truly become a drug product rather than a treatment procedure . one of the approaches we have taken to develop the “ off-the-shelf ” allogeneic car-t solutions is through celularity , our joint venture with celgene , united therapeutics and others . celularity focuses on developing cell therapies with placenta-derived and cord blood t cells , which have natural allogeneic “ off-the-shelf ” characteristics . we are the single largest shareholder of celularity with a stake of approximately 25 % . outside of immune-oncology programs , as part of our global aim to provide a wide range of therapeutic products to meet underserved markets , we have made investments in non-opioid pain management . these include resiniferatoxin ( “ rtx ” ) , which is a non-opioid-based neurotoxin that specifically ablates nerves that conduct pain signals while leaving other nerve functions intact and is being studied for chronic pain treatment . rtx has been granted orphan drug status for the treatment of intractable pain with end-stage cancer and a phase i trial with the national institutes of health ( “ nih ” ) is concluding . a phase ib trial studying tolerance and efficacy of rtx for the control of osteoarthritis knee pain was initiated in late 2018 and preliminary results have shown strong efficacy with no significant adverse effects . other applications of rtx are expected to start phase ib trials in 2019. also in the area of non-opioid pain management , we have acquired proprietary technologies to responsibly develop next generation , branded pharmaceutical products to better manage patients ' medical conditions and maximize the quality of life of patients and healthcare providers . the flagship product of our majority-owned subsidiary , scilex pharmaceuticals inc. ( “ scilex ” ) , ztlido® ( lidocaine topical system 1.8 % ) , is a next-generation lidocaine delivery system which was approved by the fda for the treatment of postherpetic neuralgia , a severe neuropathic pain condition , in february 2018 , and was commercially launched in late october 2018. scilex now has built a full commercial organization , which includes sales , marketing , market access , and medical affairs . story_separator_special_tag if actual cumulative net sales of ztlido® ( lidocaine topical system 1.8 % ) from october 1 , 2022 through september 30 , 2023 are less than 60 % of a predetermined target sales threshold for such period , then scilex will be obligated to pay an additional installment of principal of the scilex notes each quarter in an amount equal to an amount to be determined by reference to the amount of such deficiency . the aggregate principal amount due under the scilex notes shall be increased by $ 28,000,000 on february 15 , 2022 if actual cumulative net sales of ztlido® ( lidocaine topical system 1.8 % ) from the issue date of the scilex notes through december 31 , 2021 do not equal or exceed 95 % of a predetermined target sales threshold for such period . if actual cumulative net sales of ztlido® ( lidocaine topical system 1.8 % ) for the period from october 1 , 2022 through september 30 , 2023 do not equal or exceed 80 % of a predetermined target sales threshold for such period , the aggregate principal amount shall also be increased on november 15 , 2023 by an amount equal to an amount to be determined by reference to the amount of such deficiency . the final maturity date of the scilex notes will be august 15 , 2026. the scilex notes may be redeemed in whole at any time upon 30 days ' written notice at scilex 's option prior to august 15 , 2026 at a redemption price equal to 100 % of the then-outstanding principal amount of the scilex notes . in addition , upon a change of control of scilex ( as defined in the indenture ) , each holder of a scilex note shall have the right to require scilex to repurchase all or any part of such holder 's scilex note at a repurchase price in cash equal to 101 % of the then-outstanding principal amount thereof . oaktree term loan agreement on november 7 , 2018 , we and certain of our domestic subsidiaries ( the “ guarantors ” ) entered into a term loan agreement ( the “ loan agreement ” ) with certain funds and accounts managed by oaktree capital management , l.p. ( collectively , the “ lenders ” ) and oaktree fund administration , llc , as administrative and collateral agent , for an initial term loan of $ 100.0 million ( the “ initial loan ” ) and a second tranche of $ 50.0 million , subject to the achievement of certain commercial and financial milestones between august 7 , 2019 and november 7 , 2019 , and the satisfaction of certain customary conditions ( the “ conditional loan ” ) . the initial loan was funded on november 7 , 2018. the net proceeds of the initial loan were approximately $ 91.3 million , after deducting estimated loan costs , commissions , fees and expenses , and will be used for general corporate purposes . in connection with the loan agreement , on november 7 , 2018 , we issued to the lenders warrants to purchase 6,288,985 shares of our common stock ( the “ initial warrants ” ) . the initial warrants have an exercise price per share of $ 3.28 , subject to adjustment for stock splits , reverse stock splits , stock dividends and similar transactions , will be exercisable from may 7 , 2019 through may 7 , 2029 and will be exercisable on a cash basis , unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the initial warrants ( the “ initial warrant shares ” ) , in which case the initial warrants shall also be exercisable on a cashless exercise basis . if the conditional loan is 59 funded , we will issue to the lenders additional warrants to purchase such number of shares of our common stock as is equal to 2 % of our fully-diluted shares on the date the conditional loan is funded , subject to adjustment in certain circumstances ( the “ conditional warrants ” ) . the conditional warrants will have an exercise price per share equal to the average volume-weighted average price of one share of our common stock for the ten trading days immediately preceding the date the conditional loan is funded , will be exercisable from the date that is six months following the date of issuance through the ten year anniversary of the date of issuance and will be exercisable on a cash basis , unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the conditional warrants ( the “ conditional warrant shares ” ) , in which case the conditional warrants shall also be exercisable on a cashless exercise basis . in connection with the loan agreement , on november 7 , 2018 , we and the lenders entered into a registration rights agreement ( the “ registration rights agreement ” ) pursuant to which , among other things , we agreed to file one or more registration statements with the securities and exchange commission ( the “ sec ” ) for the purpose of registering for resale the initial warrant shares and the shares of common stock issuable upon exercise of the conditional warrants . under the registration rights agreement , we agreed to file a registration statement with the sec registering all of the initial warrant shares and the shares of common stock issuable upon exercise of the conditional warrants for resale by no later than the 45th day following the issuance of the initial warrants and the conditional warrants , respectively .
| results of operations the following discussion of our operating results explains material changes in our results of operations for the years ended december 31 , 2018 , 2017 and 2016. the discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this form 10-k. 60 comparison of the years ended december 31 , 2018 and 2017 revenues . revenues were $ 21.2 million for the year ended december 31 , 2018 , as compared to $ 151.9 million for the year ended december 31 , 2017 . the net decrease of $ 130.7 million is primarily due to higher royalty and licensing activities in the prior year . royalties and license revenues decreased $ 139.9 million for the year ended december 31 , 2018 as compared to the same period of 2017 primarily due to higher licensing revenue associated with collaboration arrangements in the prior year including from the intangibles transferred to celularity of approximately $ 116.2 million as a result of closing the contribution agreement in 2017 as well as the cancellation of the servier agreement , which resulted in revenue of approximately $ 16.7 million . sales and service revenues increased by $ 9.1 million as a result of the product launch of ztlido® ( lidocaine topical system 1.8 % ) , which accounted for $ 2.6 million of the increase , as well as increased revenue generated from contract manufacturing services due to increased volume . we expect that any revenue we generate will fluctuate from year to year as a result of the unpredictability of the demand for products and services offered as well as the timing and amount of grant awards , research and development reimbursements and other payments received under any strategic collaborations . cost of revenues . cost of revenues for the years ended december 31 , 2018 and 2017 were $ 7.1 million and $ 3.9 million , respectively .
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at december 31 , 2014 , the borrowing base was $ 1,253.4 million based on the amount of eligible inventory and accounts receivable balances as of november 30 , 2014. the company could have borrowed up to an additional $ 935.6 million under the revolving loan at december 31 , 2014 . the ability to borrow under the revolving loan also remains limited by a minimum liquidity condition which provides that , if excess cash availability is less than the lesser of story_separator_special_tag unless otherwise indicated or the context otherwise requires , as used in this “ management 's discussion and analysis of financial condition and results of operations , ” the terms “ we , ” “ us , ” “ the company , ” “ our , ” “ cdw ” and similar terms refer to cdw corporation and its subsidiaries . “ management 's discussion and analysis of financial condition and results of operations ” should be read in conjunction with the audited consolidated financial statements and the related notes included elsewhere in this report . this discussion contains forward-looking statements that are subject to numerous risks and uncertainties . actual results may differ materially from those contained in any forward-looking statements . see “ forward-looking statements ” above . overview cdw is a fortune 500 company and a leading provider of integrated information technology ( “ it ” ) solutions in the u.s. and canada . we help our customer base of approximately 250,000 small , medium and large business , government , education and healthcare customers by delivering critical solutions to their increasingly complex it needs . our broad array of offerings ranges from discrete hardware and software products to integrated it solutions such as mobility , security , data center optimization , cloud computing , virtualization and collaboration . we are technology `` agnostic , '' with a product portfolio that includes more than 100,000 products from more than 1,000 brands . we provide our products and solutions through sales force and service delivery teams consisting of nearly 4,600 coworkers , including more than 1,800 field sellers , highly-skilled technology specialists and advanced service delivery engineers . we are a leading u.s. sales channel partner for many original equipment manufacturers ( “ oems ” ) and software publishers ( collectively , our “ vendor partners ” ) , whose products we sell or include in the solutions we offer . we believe we are an important extension of our vendor partners ' sales and marketing capabilities , providing them with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage and extensive customer access . we have two reportable segments : corporate , which is comprised primarily of private sector business customers , and public , which is comprised of government agencies and education and healthcare institutions . our corporate segment is divided into a medium/large business customer channel , primarily serving customers with more than 100 employees , and a small business customer channel , primarily serving customers with up to 100 employees . we also have three other operating segments , cdw advanced services , canada and kelway topco limited ( `` kelway '' ) , which do not meet the reportable segment quantitative thresholds and , accordingly , are combined together as “ other. ” in november 2014 , we acquired a 35 % non-controlling equity interest in kelway . see note 15 to the accompanying audited consolidated financial statements included elsewhere in this report for additional details . the cdw advanced services business consists primarily of customized engineering services delivered by technology specialists and engineers , and managed services that include infrastructure as a service ( “ iaas ” ) offerings . revenues from the sale of hardware , software , custom configuration and third-party provided services are recorded within our corporate and public segments . we may sell all or only select products that our vendor partners offer . each vendor partner agreement provides for specific terms and conditions , which may include one or more of the following : product return privileges , price protection policies , purchase discounts and vendor incentive programs , such as purchase or sales rebates and cooperative advertising reimbursements . we also resell software for major software publishers . our agreements with software publishers allow the end-user customer to acquire software or licensed products and services . in addition to helping our customers determine the best software solutions for their needs , we help them manage their software agreements , including warranties and renewals . a significant portion of our advertising and marketing expenses is reimbursed through cooperative advertising reimbursement programs with our vendor partners . these programs are at the discretion of our vendor partners and are typically tied to sales or purchasing volumes or other commitments to be met by us within a specified period of time . trends and key factors affecting our financial performance we believe the following trends may have an important impact on our financial performance : our public segment sales are impacted by government spending policies , budget priorities and revenue levels . an adverse change in any of these factors could cause our public segment customers to reduce their purchases or to terminate or not renew contracts with us , which could adversely affect our business , results of operations or cash flows . although our sales to the federal government are diversified across multiple 33 agencies and departments , they collectively accounted for approximately 7 % , 7 % and 10 % of our net sales for the years ended december 31 , 2014 , 2013 and 2012 , respectively . in 2013 , and through the second quarter of 2014 , public segment results were impacted by the combined and residual negative effects of sequestration , the partial shutdown of the federal government in 2013 and federal government budget uncertainty . however , with the finalization of federal budget allocations in early 2014 , we began to see improvement in federal sales in the second quarter of 2014. story_separator_special_tag total operating margin percentage increased 90 basis points to 5.6 % in 2014 , from 4.7 % in 2013 . operating margin percentage benefited from the decrease in selling and administrative expenses as a percentage of net sales , which was driven by the absence of $ 74.3 million in costs related to our ipo in 2013 , and was partially offset by a decrease in gross profit margin . corporate segment income from operations was $ 439.8 million in 2014 , an increase of $ 76.5 million , or 21.1 % , compared to $ 363.3 million in 2013 . this increase was primarily driven by higher net sales and gross profit . corporate segment operating margin percentage increased 70 basis points to 6.8 % in 2014 , from 6.1 % in 2013 . operating margin percentage benefited from the decrease in selling and administrative expenses as a percentage of net sales , which was driven by the absence of costs related to our ipo in 2013 , and was partially offset by a decrease in gross profit margin . public segment income from operations was $ 313.2 million in 2014 , an increase of $ 66.7 million , or 27.1 % , compared to $ 246.5 million in 2013 . this increase was primarily driven by higher net sales and gross profit . public segment operating margin percentage increased 50 basis points to 6.4 % in 2014 , from 5.9 % in 2013 . operating margin percentage benefited from the decrease in selling and administrative expenses as a percentage of net sales , which was driven by the absence of costs related to our ipo in 2013 , and was partially offset by a decrease in gross profit margin . interest expense , net at december 31 , 2014 , our outstanding long-term debt totaled $ 3,190.0 million , compared to $ 3,251.2 million at december 31 , 2013 . we reduced our long-term debt during 2014 through refinancing activities to redeem our higher interest debt . net interest expense in 2014 was $ 197.3 million , a decrease of $ 52.8 million compared to $ 250.1 million in 2013 . this decrease was primarily due to lower debt balances and effective interest rates for 2014 compared to 2013 as a result of debt repayments and refinancing activities completed during 2014 and 2013 . see `` liquidity and capital resources '' below for a description of the significant debt refinancings in 2014. net loss on extinguishments of long-term debt during 2014 , we recorded a net loss on extinguishments of long-term debt of $ 90.7 million compared to $ 64.0 million in 2013. in december 2014 , we redeemed $ 541.4 million aggregate principal amount of the 2019 senior notes . we recorded a loss on extinguishment of debt of $ 36.9 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs and unamortized premium . 38 in september 2014 , we redeemed $ 234.7 million aggregate principal amount of the 2019 senior notes . we recorded a loss on extinguishment of debt of $ 22.1 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs and unamortized premium . in august 2014 , we redeemed all of the remaining $ 325.0 million aggregate principal amount of the 8.0 % senior secured notes due 2018 ( `` senior secured notes '' ) . we recorded a loss on extinguishment of debt of $ 23.7 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for the remaining unamortized deferred financing costs . in june 2014 , we entered into the senior secured asset-based revolving credit facility ( `` revolving loan '' ) , a new five-year $ 1,250.0 million senior secured asset-based revolving credit facility . the revolving loan replaces our previous revolving loan credit facility that was to mature on june 24 , 2016. in connection with the termination of the previous facility , we recorded a loss on extinguishment of long-term debt of $ 0.4 million , representing a write-off of a portion of unamortized deferred financing costs . in may 2014 , we redeemed all of the remaining $ 42.5 million aggregate principal amount of the 12.535 % senior subordinated exchange notes due 2017 ( `` senior subordinated notes '' ) . we recorded a loss on extinguishment of long-term debt of $ 2.2 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for the remaining unamortized deferred financing costs . in march 2014 , we repurchased $ 25.0 million aggregate principal amount of the 2019 senior notes . we recorded a loss on extinguishment of long-term debt of $ 2.7 million , representing the difference between the repurchase price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in january and february 2014 , we redeemed $ 50.0 million aggregate principal amounts of the senior subordinated notes . we recorded a loss on extinguishment of long-term debt of $ 2.7 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in october 2013 , we redeemed $ 155.0 million aggregate principal amount of the senior subordinated notes . in connection with this redemption , we recorded a loss on extinguishment of long-term debt of $ 8.5 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in august 2013 , we redeemed $ 324.0 million aggregate principal amount of the senior subordinated notes .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 the following table presents our results of operations , in dollars and as a percentage of net sales , for the years ended december 31 , 2014 and 2013 : replace_table_token_10_th 35 net sales the following table presents our net sales by segment , in dollars and as a percentage of total net sales , and the year-over-year dollar and percentage change in net sales for the years ended december 31 , 2014 and 2013 : replace_table_token_11_th ( 1 ) there were 254 selling days in both the years ended december 31 , 2014 and 2013 . the following table presents our net sales by customer channel for our corporate and public segments and the year-over-year dollar and percentage change in net sales for the years ended december 31 , 2014 and 2013 . net sales of $ 150.1 million for the year ended december 31 , 2013 have been reclassified from the small business customer channel to the medium/large customer channel to conform to the current period presentation . replace_table_token_12_th total net sales in 2014 increased $ 1,305.9 million , or 12.1 % , to $ 12,074.5 million , compared to $ 10,768.6 million in 2013 . there were 254 selling days for both the years ended december 31 , 2014 and 2013 . the increase in total net sales was primarily the result of continued growth in transactional products driven by notebooks/mobile devices and desktop computers as customers across all channels refreshed their client devices and k-12 customers continued to prepare for digital testing requirements , and the addition of more than 140 customer-facing coworkers , the majority in pre- and post-sale technical positions such as technical specialists and service delivery roles . growth in solutions-focused products , including netcomm and software , also contributed to the increase in net sales during 2014 .
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residential real estate term - the overall health of the economy , including unemployment rates and housing prices , has an impact on the credit quality of this segment . residential real estate construction - the overall health of the economy , including unemployment rates and housing prices , has story_separator_special_tag the first bancorp , inc. ( the `` company '' or `` the first bancorp '' ) was incorporated in the state of maine on january 15 , 1985 , and is the parent holding company of first national bank ( the `` bank '' ) . on january 28 , 2016 , the board of directors voted to change the bank 's name to first national bank from the first , n.a . the company generates almost all of its revenues from the bank , which was chartered as a national bank under the laws of the united states on may 30 , 1864. the bank , which has sixteen offices along coastal and eastern maine , emphasizes personal service to the communities it serves , concentrating primarily on small businesses and individuals . the bank offers a wide variety of traditional banking services and derives the majority of its revenues from net interest income – the spread between what it earns on loans and investments and what it pays for deposits and borrowed funds . while net interest income typically increases as earning assets grow , the spread can vary up or down depending on the level and direction of movements in interest rates . management believes the bank has modest exposure to changes in interest rates , as discussed in `` interest rate risk management '' elsewhere in management 's discussion . the banking business in the bank 's market area historically has been seasonal with lower deposits in the winter and spring and higher deposits in the summer and fall . this seasonal swing is fairly predictable and has not had a materially adverse effect on the bank . non-interest income is the bank 's secondary source of revenue and includes fees and service charges on deposit accounts and services , income from the sale and servicing of mortgage loans , and income from investment management and private banking services through first national wealth management ( previously first advisors ) , a division of the bank . forward-looking statements this report contains statements that are `` forward-looking statements . '' we may also make forward-looking statements in other documents we file with the sec , in our annual reports to shareholders , in press releases and other written materials , and in oral statements made by our officers , directors or employees . you can identify forward-looking statements by the use of the words `` believe '' , `` expect '' , `` anticipate '' , `` intend '' , `` estimate '' , `` assume '' , `` outlook '' , `` will '' , `` should '' , `` may '' , `` might , `` could '' , and other expressions that predict or indicate future events or trends and which do not relate to historical matters . you should not rely on forward-looking statements , because they involve known and unknown risks , uncertainties and other factors , some of which are beyond the control of the company . these risks , uncertainties and other factors may cause the actual results , performance or achievements of the company to be materially different from the anticipated future results , performance or achievements expressed or implied by the forward-looking statements . some of the factors that might cause these differences include the following : changes in general national , regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets , adverse economic developments in or affecting the geographic areas on which the bank operates , volatility and disruption in national and international financial markets , government intervention in the u.s. financial system , reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits , reductions in the market value of wealth management assets under administration , changes in the value of securities and other assets , reductions in loan demand , changes in loan collectibility , default and charge-off rates , changes in the size and nature of the company 's competition , changes in legislation or regulation and accounting principles , policies and guidelines , and changes in the assumptions used in making such forward-looking statements . in addition , the factors described under `` risk factors '' in item 1a of this annual report on form 10-k may result in these differences . you should carefully review all of these factors , and you should be aware that there may be other factors that could cause these differences . these forward-looking statements were based on information , plans and estimates at the date of this annual report , and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors , new information , future events or other changes . although the company believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from the results discussed in these forward-looking statements . readers are also urged to carefully review and consider the various disclosures made by the company , which attempt to advise interested parties of the factors that affect the company 's business . critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . story_separator_special_tag the company also assesses , both at the hedge 's inception and on an ongoing basis , whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items . changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in other comprehensive income ( loss ) and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings . changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective . those derivatives that are classified as trading instruments are recorded at fair value with changes in fair value recorded in earnings . the company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item , that it is unlikely that the forecasted transaction will occur , or that the designation of the derivative as a hedging instrument is no longer appropriate . the first bancorp - 2018 form 10-k - page 23 use of non-gaap financial measures certain information in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . management uses these `` non-gaap '' measures in its analysis of the company 's performance and believes that these non-gaap financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period . the company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance . management believes that investors may use these non-gaap financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the company 's underlying performance . these disclosures should not be viewed as a substitute for operating results determined in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . in several places in this report , net interest income is presented on a fully taxable equivalent basis . specifically included in interest income was tax-exempt interest income from certain investment securities and loans . an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total , which adjustments increased net interest income accordingly . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a federal income tax rate of 21.0 % was used in 2018 and a 35.0 % federal income tax rate was used in 2017 and 2016. replace_table_token_3_th the company presents its efficiency ratio using non-gaap information which is most commonly used by financial institutions . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_4_th the first bancorp - 2018 form 10-k - page 24 the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions . the following table provides a reconciliation of tangible average shareholders ' equity to the company 's consolidated financial statements , which have been prepared in accordance with gaap : replace_table_token_5_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > to $ 52.4 million for the year ended december 31 , 2018 from the $ 51.2 million reported for the year ended december 31 , 2017 , with growth in earning assets responsible for the increase . the company 's net interest margin was 2.91 % in 2018 , compared to 3.04 % in 2017 . total interest income on a tax-equivalent basis in 2018 was $ 72.7 million , an increase of $ 7.9 million or 12.2 % from the $ 64.8 million posted by the company in 2017 .
| executive summary this was the best annual performance in the first bancorp , inc. 's history in terms of total revenue and net income , surpassing our previous best year in 2017. the company 's 2018 performance was driven by increased net interest income , the result of continued strong growth in earning assets . this growth led directly to increased net interest income . the company also increased the quarterly dividend by five cents in the second quarter to 29 cents per share . net income for the year ended december 31 , 2018 was $ 23.5 million , up $ 3.9 million or 20.2 % from the $ 19.6 million posted for the year ended december 31 , 2017 . earnings per common share on a fully diluted basis were $ 2.17 for the year ended december 31 , 2018 , up $ 0.36 or 19.9 % from the $ 1.81 posted for the year ended december 31 , 2017 . net interest income on a tax-equivalent basis increased $ 1.1 million or 2.2 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , with growth in earning assets responsible for the increase . the company 's net interest margin was 2.91 % in 2018 , compared to 3.04 % in 2017 . non-interest income in 2018 was $ 12.6 million , an increase of $ 52,000 or 0.4 % from the $ 12.5 million reported in 2017 . this was due to an increase in revenue from first national wealth management , the company 's wealth and investment management division , as well as an increase in other operating income and deposit-based charges , offsetting a decline in mortgage banking income and net securities gains .
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in evaluating our business , you should carefully consider the information set forth under the heading “ risk factors ” and elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements . story_separator_special_tag on june 24 , 2010 , one of our vies , business opportunity online , together with three other individuals , who were not affiliated with the company , formed a new company , shenzhen city mingshan network technology co. , ltd. ( “ shenzhen mingshan ” ) . shenzhen mingshan is 51 % owned by business opportunity online and 49 % owned collectively by the other three individuals . shenzhen mingshan is primarily engaged in developing and designing internet based software , online games and the related operating websites and providing related internet and information technology services necessary to operate such games and websites . on january 6 , 2011 , as approved by the shareholders of shenzhen mingshan , an unaffiliated third party invested rmb15,000,000 ( approximately us $ 2,374,883 ) into shenzhen mingshan in exchange for a 60 % equity interest in shenzhen mingshan . as a result of this transaction , our share of the equity interest in shenzhen mingshan decreased from 51 % to 20.4 % and we ceased to have a controlling financial interest in shenzhen mingshan , but still retained an investment in , and significant influence over , shenzhen mingshan . on december 19 , 2012 , as approved by the shareholders of shenzhen mingshan , shenzhen mingshan reduced its registered and paid-in capital from rmb25,000,000 ( approximately us $ 3,958,139 ) to rmb22,000,000 ( approximately us $ 3,483,162 ) , resulted from a decrease of paid-in capital from three other noncontrolling shareholders , except business opportunity online . as a result , our share of the equity interest in shenzhen mingshan increased from 20.4 % to 23.18 % and we continued to retain significant influence over shenzhen mingshan . therefore , as of december 31 , 2012 , shenzhen mingshan was an equity investment affiliate of ours . on december 6 , 2010 , through our wholly-owned subsidiary , rise king wfoe , we entered into a series of exclusive contractual arrangements , which were similar to the contractual agreements discussed above , with rise king ( shanghai ) advertisement media co. , ltd. ( “ shanghai jing yang ” ) , a company incorporated under prc laws in december 2009. the contractual arrangements that we entered into with shanghai jing yang allow us , through rise king wfoe , to , among other things , secure significant rights to influence shanghai jing yang 's business operations , policies and management , approve all matters requiring shareholder approval , and receive 100 % of the income earned by shanghai jing yang . from the date of incorporation until december 6 , 2010 , shanghai jing yang did not conduct 45 any business activities . therefore , shanghai jing yang 's accounts were included in our consolidated financial statements with no goodwill recognized in accordance with asc topic 810 “ consolidation ” . on december 8 , 2010 , shanghai jing yang acquired a 49 % equity interest in a newly established company , beijing yang guang media investment co. , ltd. ( “ beijing yang guang ” ) . in august 2011 , shanghai jing yang sold back its 49 % equity interest in beijing yang guang to the majority shareholder of beijing yang guang . we , through one of our vies , beijing cnet online , acquired a 100 % equity interest in quanzhou zhi yuan marketing planning co. , ltd. ( “ quanzhou zhi yuan ” ) and a 51 % equity interest in quanzhou tian xi shun he advertisement co. , ltd. ( “ quanzhou tian xi shun he ” ) on january 4 , 2011 and february 23 , 2011 , respectively . quanzhou zhi yuan and quanzhou tian xi shun he are both independent advertising companies based in fujian province of the prc , which provide comprehensive branding and marketing services to over fifty smes focused primarily in the sportswear and clothing industry . in june 2011 , beijing cnet online acquired the remaining 49 % equity interest in quanzhou tian xi shun he . quanzhou tian xi shun he became a wholly owned subsidiary of beijing cnet online . on january 28 , 2011 , one of our vies , business opportunity online , formed a new wholly owned subsidiary , business opportunity online ( hubei ) network technology co. , ltd. ( “ business opportunity online hubei ” ) . business opportunity online hubei is primarily engaged in internet advertisement design , production and promulgation . on march 1 , 2011 , one of our vies , business opportunity online , together with an individual , who was not affiliated with us , formed a new company , beijing chuang fu tian xia network technology co. , ltd. ( “ beijing chuang fu tian xia ” ) . business opportunity online and the co-founding individual owned 51 % and 49 % of the equity interests of beijing chuang fu tian xia , respectively . in addition to capital investment , the co-founding individual is required to provide the controlled domain names , www.liansuo.com and www.chuangye.com to be registered under the established company . beijing chuang fu tian xia is primarily engaged in providing and operating internet advertising , marketing and communication services to smes through the websites associated the above mentioned domain names . on april 18 , 2011 , business opportunity online hubei formed a new wholly owned company , hubei cnet advertising media co. , ltd. ( “ hubei cnet ” ) . hubei cnet is primarily engaged in advertisement design , production , promulgation and providing the related advertising and marketing consultancy services . on april 18 , 2011 , business opportunity online hubei , together with an individual , who was not affiliated with us , formed a new company , zhao shang ke network technology ( hubei ) co. , ltd. ( “ zhao shang ke hubei ” ) . story_separator_special_tag 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 . we consider the policies discussed below to be critical to an understanding of our financial statements . foreign currency translation our functional currency is united states dollars ( “ us $ ” ) , and the functional currency of china net hk is hong kong dollars ( “ hk $ ” ) . the functional currency of our prc operating subsidiary and vies is renminbi ( “ rmb ' ) , and prc is the primary economic environment in which we operate . 47 for financial reporting purposes , the financial statements of our prc operating subsidiary and vies , which are prepared using the rmb , are translated into our reporting currency , the united states dollar ( “ u.s . dollar ” ) . assets and liabilities are translated using the exchange rate at each balance sheet date . revenue and expenses are translated using average rates prevailing during each reporting period , and stockholders ' equity is translated at historical exchange rates . adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in stockholders ' equity . transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions . the resulting exchange differences are included in the determination of net income of the consolidated financial statements for the respective periods . the exchange rates used to translate amounts in rmb into us $ for the purposes of preparing the consolidated financial statements are as follows : replace_table_token_3_th replace_table_token_4_th no representation is made that the rmb amounts could have been , or could be converted into us $ at the above rates . investment in equity investment affiliates investee companies that are not consolidated , but over which we exercise significant influence , are accounted for under the equity method of accounting in accordance with asc topic 323 “ equity method and joint ventures ” . whether or not we exercise significant influence with respect to an investee depends on an evaluation of several factors including , among others , representation on the investee companies ' board of directors and ownership level , which is generally a 20 % to 50 % interest in the voting securities of the investee companies . under the equity method of accounting , an investee company 's accounts are not reflected within our consolidated balance sheets and statements of income and comprehensive income ; however , our share of the earnings or losses of the investee company is reflected in the caption “ share of earnings ( losses ) in equity investment affiliates ” in the consolidated statements of income and comprehensive income . our carrying value ( including advance to the investees ) in equity method investee companies is reflected in the caption “ investment in and advance to equity investment affiliates ” in our consolidated balance sheets . when our carrying value in an equity method investee company is reduced to zero , no further losses are recorded in our consolidated financial statements unless we guaranteed obligations of the investee company or have committed additional funding . when the investee company subsequently reports income , we will not record its share of such income until it equals the amount of its share of losses not previously recognized . goodwill goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of acquisitions of interests in our subsidiaries . goodwill is not depreciated or amortized but is tested for impairment at the reporting unit level at least on an annual basis , and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired . the test consists of two steps . first , identify potential impairment by comparing the fair value of the reporting unit to its carrying amount , including goodwill . if the fair value of the reporting unit is greater than its carrying amount , goodwill is not considered impaired . second , if there is impairment identified in the first step , an 48 impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation , in accordance with asc topic 805 , “ business combinations. ” application of a goodwill impairment test requires significant management judgment , including the identification of reporting units , assigning assets and liabilities to reporting units , assigning goodwill to reporting units , and determining the fair value of each reporting unit . the judgment in estimating the fair value of reporting units includes estimating future cash flows , determining appropriate discount rates and making other assumptions . changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit . deconsolidation we accounted for deconsolidation of subsidiaries in accordance with asc topic 810 “ consolidation ” . in accordance with asc topic 810-10-40-5 , the parent shall account for the deconsolidation of a subsidiary by recognizing a gain or loss in net income attributable to the parent , measured as the difference between : a. the aggregate of all of the following : 1. the fair value of any consideration received ; 2. the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated ; 3. the carrying amount of any noncontrolling interest in the former subsidiary ( including any accumulated other comprehensive income attributable to the noncontrolling interest ) at the date the subsidiary is deconsolidated . b. the carrying amount of the former subsidiary 's assets and liabilities .
| overview our company ( formerly known as emazing interactive , inc. ) was incorporated in the state of texas in april 2006 and re-domiciled to become a nevada corporation in october 2006. from the date of our company 's incorporation until june 26 , 2009 , when our company consummated the share exchange ( as defined below ) , our company 's activities were primarily concentrated in web server access and company branding in hosting web based e-games . on june 26 , 2009 , our company entered into a share exchange agreement ( the “ exchange agreement ” ) , with ( i ) china net online media group limited , a company organized under the laws of british virgin islands ( “ china net bvi ” ) , ( ii ) china net bvi 's shareholders , allglad limited , a british virgin islands company ( “ allglad ” ) , growgain limited , a british virgin islands company ( “ growgain ” ) , rise king investments limited , a british virgin islands company ( “ rise king bvi ” ) , star ( china ) holdings limited , a british virgin islands company ( “ star ” ) , surplus elegant investment limited , a british virgin islands company ( “ surplus ” ) , clear jolly holdings limited , a british virgin islands company ( “ clear ” and together with allglad , growgain , rise king bvi , star and surplus , the “ china net bvi shareholders ” ) , who together owned shares constituting 100 % of the issued and outstanding ordinary shares of china net bvi ( the “ china net bvi shares ” ) and ( iii ) g. edward hancock , our principal stockholder at such time . pursuant to the terms of the exchange agreement , the china net bvi shareholders transferred to us all of the china net bvi shares in exchange for the issuance of 13,790,800 shares ( the “ exchange shares ” ) in the aggregate of our common stock ( the “ share exchange ” ) .
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such forward-looking statements include , but are not limited to , our future revenue , sustained , increasing , continuing or strengthening , or decreasing or weakening , demand for our products , the continuing transition from gold to copper wire bonding , replacement demand , our research and development efforts , our ability to identify and realize new growth opportunities , our ability to control costs and our operational flexibility as a result of ( among other factors ) : projected growth rates in the overall semiconductor industry , the semiconductor assembly equipment market , and the market for semiconductor packaging materials ; and projected demand for ball , wedge bonder , advanced packaging and surface mount technology equipment and for expendable tools . generally , words such as “ may , ” “ will , ” “ should , ” “ could , ” “ anticipate , ” “ expect , ” “ intend , ” “ estimate , ” “ plan , ” “ continue , ” “ goal ” and “ believe , ” or the negative of or other variations on these and other similar expressions identify forward-looking statements . these forward-looking statements are made only as of the date of this filing . we do not undertake to update or revise the forward-looking statements , whether as a result of new information , future events or otherwise . forward-looking statements are based on current expectations and involve risks and uncertainties . our future results could differ significantly from those expressed or implied by our forward-looking statements . these risks and uncertainties include , without limitation , those described below and under the heading “ risk factors ” in this annual report on form 10-k for the fiscal year ended october 3 , 2015 ( the “ annual report ” ) and our other reports and registration statements filed from time to time with the securities and exchange commission . this discussion should be read in conjunction with the consolidated financial statements and notes included in this report , as well as our audited financial statements included in the annual report . we operate in a rapidly changing and competitive environment . new risks emerge from time to time and it is not possible for us to predict all risks that may affect us . future events and actual results , performance and achievements could differ materially from those set forth in , contemplated by or underlying the forward-looking statements , which speak only as of the date on which they were made . except as required by law , we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in , or additions to , the factors affecting such forward-looking statements . given those risks and uncertainties , investors should not place undue reliance on forward-looking statements as predictions of actual results . introduction kulicke and soffa industries , inc. ( the `` company '' or `` k & s '' ) designs , manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices , including integrated circuits ( “ ics ” ) , high and low powered discrete devices , light-emitting diodes ( “ leds ” ) , and power modules . we also service , maintain , repair and upgrade our equipment . our customers primarily consist of semiconductor device manufacturers , outsourced semiconductor assembly and test providers ( “ osats ” ) , other electronics manufacturers and automotive electronics suppliers . we operate two main business segments , equipment and expendable tools . our goal is to be the technology leader and the most competitive supplier in terms of cost and performance in each of our major product lines . accordingly , we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology . we also remain focused on our cost structure through continuous improvement and optimization of operations . cost reduction efforts remain an important part of our normal ongoing operations and are intended to generate savings without compromising overall product quality and service levels . business environment the semiconductor business environment is highly volatile , driven by internal dynamics , both cyclical and seasonal , in addition to macroeconomic forces . over the long term , semiconductor consumption has historically grown , and is forecast to continue to grow . this growth is driven , in part , by regular advances in device performance and by price declines that result from improvements in manufacturing technology . in order to exploit these trends , semiconductor manufacturers , both integrated device manufacturers ( “ idms ” ) and osats , periodically invest aggressively in latest generation capital equipment . this buying pattern often leads to periods of excess supply and reduced capital spending—the so-called semiconductor cycle . within this broad semiconductor cycle there are also , generally weaker , seasonal effects that are specifically tied to annual , end-consumer purchasing patterns . typically , 24 semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the september quarter . occasionally , this results in subsequent reductions in the december quarter . this annual seasonality can occasionally be overshadowed by effects of the broader semiconductor cycle . macroeconomic factors also affect the industry , primarily through their effect on business and consumer demand for electronic devices , as well as other products that have significant electronic content such as automobiles , white goods , and telecommunication equipment . our equipment segment is primarily affected by the industry 's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors that can positively and negatively affect our financial performance . the sales mix of idm and osat customers in any period also impacts financial performance , as changes in this mix can affect our products ' average selling prices and gross margins due to differences in volume purchases and machine configurations required by each customer type . our expendable tools segment is less volatile than our equipment segment . story_separator_special_tag the advanced interconnect capabilities of powerfusion ps improve the processing of high-density power packages , due to an expanded bondable area , wider leadframe capability , superior indexing accuracy and teach mode . we have also completed the design and development of our next generation hybrid wedge bonder , asterion , which was launched in march 2015. in all cases , we are making a concerted effort to develop commonality of subsystems and design practices , in order to improve performance and design efficiencies . we believe this will benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups . furthermore , we continually research adjacent market segments where our technologies could be used . many of these initiatives are in the early stages of development and some have yielded results . another example of our developing equipment for high-growth niche markets is our at premier plus . this machine utilizes a modified wire bonding process to mechanically place bumps on devices in a wafer format , for variants of the flip chip assembly process . typical applications include complementary metal-oxide semiconductor ( “ cmos ” ) image sensors , surface acoustical wave ( “ saw ” ) filters and high brightness leds . these applications are commonly used in most , if not all , smartphones available today in the market . we also have expanded the use of at premier plus for wafer level wire bonding for micro-electro-mechanical systems ( “ mems ” ) and other sensors . our technology leadership and bonding process know-how have enabled us to develop highly function-specific equipment with best-in-class throughput and accuracy . this forms the foundation for our advanced packaging equipment development . we established a dedicated team to develop and manufacture advanced packaging bonders for the emerging 2.5 dimensional integrated circuit ( “ 2.5d ic ” ) and 3 dimensional integrated circuit ( “ 3d ic ” ) markets . by reducing the interconnect dimensions , 2.5d ics and 3d ics are expected to provide form factor , performance and power efficiency enhancements over traditional flip-chip packages in production today . high-performance processing and memory applications , in addition to mobile devices such as smartphones and tablets , are anticipated to be earlier adopters of this new packaging technology . with the acquisition of assembléon , we broadened our advanced packaging solutions for mass reflow ( `` apmr '' ) to include flip chip , wafer level packaging ( `` wlp '' ) , fan-out wafer level packaging ( `` fowlp '' ) , advanced package-on-package , embedded die , and system-in-package ( `` sip '' ) . the acquisition has enabled us to diversify our business into the automotive , medical and industrial markets with advanced surface-mount technology ( `` smt '' ) pick and place solutions . we bring the same technology focus to our expendable tools business , driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used . for all our equipment products , expendable tools are an integral part of their process capability . we believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products ' technological differentiation . 26 products and services we supply a range of bonding equipment and expendable tools . the following tables reflect net revenue by business segment for fiscal 2015 , 2014 , and 2013 : replace_table_token_8_th see note 14 to our consolidated financial statements included in item 8 of this report for our financial results by business segment . equipment segment we manufacture and sell a line of ball bonders , wafer level bonders and heavy wire wedge bonders that are sold to semiconductor device manufacturers , osats , other electronics manufacturers and automotive electronics suppliers . ball bonders are used to connect very fine wires , typically made of gold or copper , between the bond pads of the semiconductor device , or die , and the leads on its package . wafer level bonders mechanically apply bumps to die , typically while still in the wafer format , for some variants of the flip chip assembly process . heavy wire wedge bonders use either aluminum wire or ribbon to perform the same function in packages that can not use gold or copper wire because of either high electrical current requirements or other package reliability issues . we believe our equipment offers competitive advantages by providing customers with high productivity/throughput , superior package quality/process control , and , as a result , a lower cost of ownership . 27 our principal equipment segment products include : business unit product name ( 1 ) typical served market ball bonders iconn ps plus advanced and ultra fine pitch applications iconn ps plus la large area substrate and matrix applications iconn ps plus ela extended large area substrate and matrix applications iconn ps procu high-end copper wire applications demanding advanced process capability and high productivity iconn ps procu plus high-end copper wire applications demanding advanced process capability and high productivity iconn ps procu la large area substrate and matrix applications for copper wire iconn ps procu plus la large area substrate and matrix applications for copper wire iconn ps procu plus ela extended large area substrate and matrix applications for copper wire connx ps plus high productivity bonder for low-to-medium pin count applications connx ps led led applications connx ps led plus led applications connx ps plus la cost performance large area substrate and matrix applications connx ps plus ela cost performance extended large area substrate and matrix applications at premier plus advanced wafer level bonding application wedge bonders 3600 plus power hybrid and automotive modules using either heavy aluminum wire or powerribbon® 3700 plus hybrid and automotive modules using thin aluminum wire 7200 plus power semiconductors using either aluminum wire or powerribbon® 7200hd smaller power packages using either aluminum wire or powerribbon® powerfusion ps tl power semiconductors using either aluminum wire or powerribbon® powerfusion ps hl smaller power packages using either aluminum wire or powerribbon® asterion
| results of operations results of operations for fiscal 2015 and 2014 the following table reflects our income from operations for fiscal 2015 and 2014 : replace_table_token_9_th bookings and backlog a booking is recorded when a customer order is reviewed and it is determined that all specifications can be met , production ( or service ) can be scheduled , a delivery date can be set , and the customer meets our credit requirements . we use bookings to evaluate the results of our operations , generate future operating plans and assess the performance of our company . while we believe that this non-gaap financial measure is useful in evaluating our business , this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with gaap . in addition , other companies , including companies in our industry , may calculate bookings differently or not at all , which reduces its usefulness as a comparative measure . reconciliation of bookings to net revenue is not practicable . our backlog consists of customer orders scheduled for shipment within the next twelve months . a majority of our orders are subject to cancellation or deferral by our customers with limited or no penalties . also , customer demand for our products can vary dramatically without prior notice . because of the volatility of customer demand , possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments , our backlog as of any particular date may not be indicative of net revenue for any succeeding period . the following tables reflect our bookings and backlog for fiscal 2015 and 2014 : replace_table_token_10_th our net revenues for fiscal 2015 have decreased as compared to our net revenues for fiscal 2014 due to reduced customer demand . the semiconductor industry is volatile and our operating results have fluctuated significantly in the past .
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these statements are based on our current expectations , assumptions , estimates and projections about our business and our industry and involve known and unknown risks , uncertainties and other factors that may cause our company 's or our industry 's results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied in , or contemplated by , the forward-looking statements . words such as “ believe , ” “ anticipate , ” “ expect , ” “ intend , ” “ plan , ” “ focus , ” “ assume , ” “ goal , ” “ objective , ” “ will , ” “ may ” “ would , ” “ could , ” “ estimate , ” “ predict , ” “ potential , ” “ continue , ” “ encouraging ” or the negative of such terms or other similar expressions identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed in “ item 1a . risk factors ” as well as those discussed elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this report . overview we are a biotechnology company committed to developing small molecule therapies for the treatment of cancer . our two most advanced assets , cometriq® ( cabozantinib ) , our wholly-owned inhibitor of multiple receptor tyrosine kinases , and cobimetinib ( gdc-0973/xl518 ) , a potent , highly selective inhibitor of mek , which we out-licensed to genentech , are currently the subject of six ongoing phase 3 pivotal trials . top-line results from four of these pivotal trials are expected in 2014. we are focusing our proprietary resources and development and commercialization efforts primarily on cometriq ( cabozantinib ) , which was approved on november 29 , 2012 , by the fda , for the treatment of progressive , metastatic medullary thyroid cancer , or mtc , in the united states , where it became commercially available in late january 2013. in december 2013 , the european committee for medicinal products for human use , or chmp , issued a positive opinion on the marketing authorization application , or maa , submitted to the european medicines agency , or ema , for cometriq for the proposed indication of metastatic mtc . the chmp 's positive opinion will be reviewed by the european commission , which has the authority to approve medicines for the european union . cabozantinib is being evaluated in a broad development program , including two ongoing phase 3 pivotal trials in metastatic castration-resistant prostate cancer , or crpc , an ongoing phase 3 pivotal trial in metastatic renal cell cancer , or rcc , and an ongoing phase 3 pivotal trial in advanced hepatocellular cancer , or hcc . we believe cabozantinib has the potential to be a high-quality , broadly-active and differentiated anti-cancer agent that can make a meaningful difference in the lives of patients . our objective is to develop cabozantinib into a major oncology franchise , and we believe that the approval of cometriq ( cabozantinib ) for the treatment of progressive , metastatic mtc provides us with the opportunity to establish a commercial presence in furtherance of this objective . we currently expect top-line data from our two phase 3 pivotal trials of cabozantinib in crpc and the overall survival analysis of our phase 3 pivotal trial of cabozantinib in progressive , metastatic mtc in 2014. cobimetinib is also being evaluated in a broad development program , including a multicenter , randomized , double-blind , placebo-controlled phase 3 clinical trial evaluating the combination of cobimetinib with vemurafenib versus vemurafenib in previously untreated brafv600 mutation positive patients with unresectable locally advanced or metastatic melanoma that was initiated on november 1 , 2012. roche and genentech have provided guidance that they expect top-line data from this trial in 2014. under the terms of our co-development agreement with genentech for cobimetinib , we are entitled to an initial equal share of u.s. profits and losses for cobimetinib , which will decrease as sales increase , and will share equally in the u.s. marketing and commercialization costs . the profit share has multiple tiers—we are entitled to 50 % of profits from the first $ 200 million of u.s. actual sales , decreasing to 30 % of profits from u.s. actual sales in excess of $ 400 million . we are entitled to low double-digit royalties on ex-u.s. net sales . in november 2013 , we exercised an option under the co-development agreement to co-promote in the united states . we will provide up to 25 % of the total sales force for cobimetinib in the united states if commercialized , and will call on customers and otherwise engage in promotional activities using that sales force , consistent with the terms of the co-development agreement and a co-promotion agreement to be entered into by the parties . our strategy we believe that the available clinical data demonstrate that cabozantinib has the potential to be a broadly active anti-cancer agent , and our objective is to build cabozantinib into a major oncology franchise . the initial regulatory approval of 39 cometriq ( cabozantinib ) to treat progressive , metastatic mtc provides a niche market opportunity that allows us to gain commercialization experience while providing a solid foundation for potential expansion into larger cancer indications . we are focusing our internal efforts on cancers for which we believe cabozantinib has significant therapeutic and commercial potential in the near term , while utilizing our crada with nci-ctep and ists , to generate additional data to allow us to prioritize future late stage trials in a cost-effective fashion . story_separator_special_tag our minimum liquidity needs are also determined by financial covenants in our loan and security agreement with silicon valley bank as well as other factors , which are described under “ – liquidity and capital resources – cash requirements. ” our ability to raise additional funds may be severely impaired if cabozantinib fails to show adequate safety or efficacy in clinical testing . convertible senior subordinated notes in august 2012 , we issued and sold $ 287.5 million aggregate principal amount of the 2019 notes , for net proceeds of $ 277.7 million . the 2019 notes mature on august 15 , 2019 , unless earlier converted , redeemed or repurchased , and bear interest at a rate of 4.25 % per annum , payable semi-annually in arrears on february 15 and august 15 of each year , beginning february 15 , 2013 . subject to certain terms and conditions , at any time on or after august 15 , 2016 , we may redeem for cash all or a portion of the 2019 notes . the redemption price will equal 100 % of the principal amount of the 2019 notes to be redeemed plus accrued and unpaid interest , if any , to , but excluding , the redemption date . upon the occurrence of certain circumstances , holders may convert their 2019 notes prior to the close of business on the business day immediately preceding may 15 , 2019 . on or after may 15 , 2019 , until the close of business on the second trading day immediately preceding august 15 , 2019 , holders may surrender their 2019 notes for conversion at any time . upon conversion , we will pay or deliver , as the case may be , cash , shares of our common stock or a combination of cash and shares of our common stock , at our election . the initial conversion rate of 188.2353 shares of common stock per $ 1,000 principal amount of the 2019 notes is equivalent to a conversion price of approximately $ 5.31 per share of common stock and is subject to adjustment in connection with certain events . if a “ fundamental change ” ( as defined in the indenture governing the 2019 notes ) occurs , holders of the 2019 notes may require us to purchase for cash all or any portion of their 2019 notes at a purchase price equal to 100 % of the principal amount of the notes to be purchased plus accrued and unpaid interest , if any , to , but excluding , the fundamental change purchase date . in addition , if certain bankruptcy and insolvency-related events of defaults occur , the principal of , and accrued and unpaid interest on , all of the then outstanding notes shall automatically become due and payable . if an event of default other than certain bankruptcy and insolvency-related events of defaults occurs and is continuing , the trustee by notice to us or the holders of at least 25 % in principal amount of the outstanding 2019 notes by notice to us and the trustee , may declare the principal of , and accrued and unpaid interest on , all of the then outstanding 2019 notes to be due and payable . in connection with the offering of the 2019 notes , $ 36.5 million of the proceeds were deposited into an escrow account which contains an amount of permitted securities sufficient to fund , when due , the total aggregate amount of the first six scheduled semi-annual interest payments on the 2019 notes . as of december 31 , 2013 , we have used $ 12.3 million of the amounts held in the escrow account to pay the required semi-annual interest payments . the short- and long-term amounts held in the escrow account as of december 31 , 2013 were $ 12.2 million and $ 16.9 million , respectively , and are included in short- and long-term restricted cash and investments . we have pledged our interest in the escrow account to the trustee as security for our obligations under the 2019 notes . 41 deerfield facility in june 2010 , we entered into a note purchase agreement with deerfield private design fund , l.p. and deerfield private design international , l.p. , or the original deerfield purchasers , pursuant to which , on july 1 , 2010 , we sold to the original deerfield purchasers an aggregate of $ 124.0 million initial principal amount our secured convertible notes due july 1 , 2015 , which we refer as the deerfield notes , for an aggregate purchase price of $ 80.0 million , less closing fees and expenses of approximately $ 2.0 million . as of december 31 , 2013 and 2012 , the remaining outstanding principal balance on the deerfield notes was $ 114.0 million and $ 124.0 million , respectively . we refer to the original deerfield purchasers and the new deerfield purchasers ( identified below ) collectively as deerfield . the outstanding principal amount of the deerfield notes bears interest in the annual amount of $ 6.0 million , payable quarterly in arrears . during the years ended december 31 , 2013 , 2012 , and 2011 , total interest expense for the deerfield notes was $ 16.1 million , $ 15.9 million , and $ 14.3 million , respectively , including the stated coupon rate and the amortization of the debt discount and debt issuance costs . the non-cash expense relating to the amortization of the debt discount and debt issuance costs was $ 10.1 million , $ 9.9 million , and $ 8.3 million , respectively , during those periods . the balance of unamortized fees and costs was $ 1.4 million and $ 2.3 million as of december 31 , 2013 and 2012 , respectively , which is recorded in the accompanying consolidated balance sheet as other assets . on august 6 , 2012 , the parties amended the note purchase agreement to permit the issuance of the 2019 notes and modify certain optional prepayment rights .
| fiscal year convention exelixis has adopted a 52- or 53-week fiscal year that generally ends on the friday closest to december 31st . fiscal year 2011 , a 52-week year , ended on december 30 , 2011 , fiscal year 2012 , a 52-week year , ended on december 28 , 2012 , fiscal year 2013 , a 52-week year , ended on december 27 , 2013 , and fiscal year 2014 , a 53-week year , will end on january 2 , 2015. for convenience , references in this report as of and for the fiscal years ended december 30 , 2011 , december 28 , 2012 and december 27 , 2013 , are indicated on a calendar year basis , ended december 31 , 2011 , 2012 and 2013 , respectively . 47 results of operations – comparison of years ended december 31 , 2013 , 2012 and 2011 revenues total revenues by category were as follows ( dollars in thousands ) : replace_table_token_5_th ( 1 ) includes amortization of upfront payments . ( 2 ) includes contingent and milestone payments . total revenues by customer were as follows ( dollars in thousands ) : replace_table_token_6_th revenues for the year ended december 31 , 2013 included net product revenues of $ 15.0 million from the sale of cometriq , which became commercially available in late january 2013 . the decrease in revenues from 2012 to 2013 was due to a decrease in contract and license revenues as a result of having fully recognized all revenues from our collaboration agreements with bristol-myers squibb , $ 10.7 million in license revenue recognized in 2012 resulting from the completion of the technology transfer under our december 2011 license agreement with merck for our pi3k-delta program , and a $ 5.5 million milestone payment received in august 2012 under our collaboration agreement with daiichi sankyo for xl550 .
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the currently remaining earnings in mexico are permanently reinvested ; therefore , no withholding tax liability has been recognized as of june 29 , 2019. if , in the future , repatriations from mexico are expected , the company could be required to recognize a withholding tax as a deferred tax liability at that time . similar to china , story_separator_special_tag overview keytronicems is a leader in electronic manufacturing services and solutions to original equipment manufacturers of a broad range of products . we provide engineering services , worldwide procurement and distribution , materials management , world-class manufacturing and assembly services , in-house testing , and unparalleled customer service . our international production capability provides our customers with benefits of improved supply-chain management , reduced inventories , lower transportation costs , and reduced product fulfillment time . we continue to make investments in all of our operating facilities to give us the production capacity , capabilities and logistical advantages to continue to win new business . the following information should be read in conjunction with the consolidated financial statements included herein and with item 1a , risk factors included as part of this filing . our mission is to provide our customers with superior manufacturing and engineering services at the lowest total cost for the highest quality products , and create long-term mutually beneficial business relationships by employing our “ trust , commitment , results ” philosophy . executive summary during the fourth quarter of fiscal year 2019 , we continued to win significant new business from ems competitors and from existing customers , including new programs involving smart security , architectural led lighting , power meters and smart grid , and wireless power solutions . we also continue to invest in new equipment and processes to be more productive in our mexico and vietnam facilities , and we 're expanding and enhancing our us facilities . we 're optimistic about our opportunities for growth in fiscal 2020 and beyond . net sales of $ 464.0 million for fiscal year 2019 increased by 4.0 percent as compared to net sales of $ 446.3 million in fiscal year 2018 . the increase in net sales was primarily driven by an increase in net sales from new program wins , an increase in revenue recognized related to the adoption of accounting standards update 2014-09 revenue from contracts with customers ( topic 606 ) , as well as an increase in demand from current customers . despite the many unexpected challenges during the second half of fiscal year 2019 , we managed to grow our business for the year and ramp up most of our new programs . in the fourth quarter of fiscal year 2019 , we saw a disruption in deliveries of a critical component from a supplier in china ; delays in the ramp of a new program due to customer-driven design changes ; and temporary reductions in customer demand due to concerns over tariffs and trade tension between the us and mexico . moving into the first quarter of fiscal 2020 , these issues have been largely resolved and we expect revenue to increase significantly . for the first quarter of fiscal year 2020 , the company expects to report revenue in the range of $ 115 million to $ 120 million . future results will depend on actual levels of customers ' orders , the timing of the start-up of production of new product programs , impact of the new revenue recognition accounting policy and the potential impact of the geopolitical uncertainty . we believe that we are well positioned in the ems industry to continue expansion of our customer base and continue long-term growth . we continue to diversify our customer base by adding additional programs and customers . our current customer relationships involve a variety of products , including consumer electronics , electronic storage devices , plastics , household products , gaming devices , specialty printers , telecommunications , industrial equipment , military supplies , computer accessories , medical , educational , irrigation , automotive , transportation management , robotics , rfid , power supply , off-road vehicle equipment , fitness equipment , hvac controls , consumer products , home building products , material handling systems , lighting equipment , consumer security products , smart security , architectural led lighting , power meters and smart grid , and wireless power solutions . gross profit as a percent of net sales was 7.5 percent in fiscal year 2019 compared to 7.7 percent for the prior fiscal year . the decrease in gross profit as a percentage of net sales was primarily related to an increase in certain overhead costs and by an increase in material related costs . the level of gross margin is impacted by product mix , timing of the startup of new programs , facility utilization , and pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter and year to year . operating loss as a percentage of net sales for fiscal year 2019 was ( 1.3 ) percent compared to operating income of 0.2 percent for fiscal year 2018 . the decrease in operating income as a percentage of net sales was primarily driven by the one-time impairment of goodwill and intangible assets during fiscal year 2019 . 20 net loss for fiscal year 2019 was $ ( 8.0 ) million or $ ( 0.74 ) per share , as compared to net loss of $ ( 1.3 ) million or $ ( 0.12 ) per share for fiscal year 2018 . the decrease in net loss for fiscal year 2019 as compared to fiscal year 2018 was primarily driven by the one-time impairment of approximately $ 12.4 million related to the impairment of goodwill and intangible assets and $ 1.1 million in severance expense due to improvements in operating efficiencies during fiscal year 2019. we maintain a strong balance sheet with a current ratio of 2.1 and a debt to equity ratio of 0.32 . story_separator_special_tag this 0.4 percentage point decrease in sg & a as a percentage of net sales is primarily related to a decrease in legal fees and a decrease in amortization expense related to intangibles assets that were impaired during fiscal year 2019. impairment of goodwill and intangibles during fiscal year 2019 , the company assessed other finite-lived intangible assets including the company 's customer relationships and favorable lease agreements due to an indicator of possible impairment being present , as discussed in footnote 14 of the “ notes to consolidated financial statements. ” as a result of the analysis performed , the company determined that the carrying value of the customer relationships intangible asset was not recoverable and recorded an impairment for the entire carrying amount during the third quarter of fiscal year 2019. during fiscal year 2019 , a goodwill impairment of $ 10.0 million and other intangible assets impairment of $ 2.5 million was recognized . the company 's analysis did not indicate that any of its other long-lived assets were impaired . loss on settlement of arbitration we were awarded $ 6.7 million following the conclusion of a previously disclosed arbitration proceeding , which began in the second quarter of fiscal year 2017. this award resolved a dispute with a former customer involving approximately $ 9.3 million in inventory purchased and approximately $ 1.9 million in outstanding accounts receivables and other related fees and costs that we believed to be reimbursable . this event , including all related disposal fees , resulted in an approximately $ 4.5 million before tax one-time loss to fiscal year 2018. the adverse impact net of taxes on net loss was $ 3.4 million . interest expense we had net interest expense of $ 2.8 million and $ 2.6 million in fiscal years 2019 and 2018 , respectively . the increase in interest expense is primarily related to an increase in the average balance outstanding on our line of credit . income tax benefit we had an income tax benefit of approximately $ ( 0.8 ) million during fiscal year 2019 and $ ( 0.1 ) million during fiscal year 2018 . the income tax benefit recognized during fiscal years 2019 and 2018 was primarily a function of u.s. , and foreign taxes recognized at statutory rates and the net benefit associated with federal research and development tax credits , offset by the tax impact of the nondeductible goodwill write-off in fiscal year 2019 and the impacts of u.s. tax reform in fiscal year 2018. we continually review our requirements for liquidity domestically to fund current operations , revenue growth and to look for potential future acquisitions . we anticipate repatriating a portion of our unremitted foreign earnings . the estimated taxes associated with these expected repatriations are included in the income tax calculation . for further information on taxes please review footnote 6 of the “ notes to consolidated financial statements. ” 23 international subsidiaries we offer customers a complete global manufacturing solution . our facilities provide our customers the opportunity to have their products manufactured in the facility that best serves specific cost , product manufacturing and distribution needs . the locations of active foreign subsidiaries are as follows : key tronic juarez , sa de cv owns five facilities and leases two facilities in juarez , mexico . these facilities include an smt facility , an assembly and molding facility , a sheet metal fabrication facility , and assembly and warehouse facilities . this subsidiary is primarily used to support our u.s. operations . key tronic computer peripherals ( shanghai ) co. , ltd. leases two facilities with smt , assembly , global purchasing and warehouse capabilities in shanghai , china , which began operations in 1999. its primary function is to provide ems services for export . key tronic vietnam leases one facility in da nang , vietnam . this facility includes smt , assembly , and warehouse capabilities . its primary function is to provide ems services for export . foreign sales ( based on shipping instructions ) from our worldwide operations , including domestic exports , were $ 106.7 million and $ 117.1 million in fiscal years 2019 and 2018 , respectively . products and manufacturing services provided by our subsidiary operations are often shipped to customers directly by the parent company . story_separator_special_tag note 4 , “ long-term debt. ” as of june 29 , 2019 , we were in compliance with our loan covenants . ( 3 ) we maintain vertically integrated manufacturing operations in the united states , mexico , china and vietnam . we lease some of our administrative and manufacturing facilities and equipment . a complete discussion of properties can be found in part 1 , item 2 at “ properties. ” leases have proven to be an acceptable method for us to acquire new or replacement equipment and to maintain facilities with a minimum impact on our short term cash flows for operations . in addition , such operations are heavily dependent upon technically superior manufacturing equipment including molding machines in various tonnages , surface mount technology ( smt ) lines , sheet metal fabrication and stamping machines , clean rooms , and automated insertion , and test equipment for the various products we are capable of producing . ( 4 ) as of june 29 , 2019 , we had open purchase order commitments for materials and other supplies of approximately $ 31.8 million . included in the open purchase orders are various blanket orders for annual requirements . actual needs under these blanket purchase orders fluctuate with our manufacturing levels and as such can not be broken out between fiscal years . in addition , we have contracts with many of our customers that minimize our exposure to losses for material purchased within lead-times necessary to meet customer forecasts . purchase orders generally can be cancelled without penalty within specified ranges that are determined in negotiations with our suppliers .
| results of operations comparison of the fiscal year ended june 30 , 2018 with the fiscal year ended july 1 , 2017 to review the results of operations comparison of the fiscal year ended june 30 , 2018 with the fiscal year ended july 1 , 2017 , please refer to our form 10-k filed september 10 , 2018 with the securities and exchange commission or follow the link below . https : //www.sec.gov/archives/edgar/data/719733/000071973318000054/ktcc-06302018x10k.htm 24 capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2019 was $ 0.9 million compared to net cash provided by operating activities of $ 3.1 million and $ 2.3 million in fiscal years 2018 and 2017 , respectively . the decrease in cash provided by operating activities is a result of the net loss and the impairment of the goodwill and intangible assets . upon adoption of asu 2016-15 , classification of certain cash receipts and cash payments , the company recorded $ 6.5 million of cash receipts on the deferred purchase price from receivables factored by the company during fiscal year 2019 , in cash flows from investing activities that under the previous guidance would have been classified as cash flows from operating activities . further , the company reclassified $ 8.3 million and $ 7.1 million of similar cash receipts related to fiscal year 2018 and 2017 , respectively , from cash flows from operating activities to cash flows from investing activities .
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see “ special note regarding forward‑looking statements ” in this annual report . overview we are a medical aesthetics company uniquely centered on becoming the leader of transformative treatments and technologies focused on progressing the art of plastic surgery . we were founded to provide greater choices to board-certified plastic surgeons and patients in need of medical aesthetics products . we have developed a broad portfolio of products with technologically differentiated characteristics , supported by independent laboratory testing and strong clinical trial outcomes . we sell our breast implants in the us . for augmentation procedures exclusively to board-certified and board-admissible plastic surgeons and tailor our customer service offerings to their specific needs , which we believe helps secure their loyalty and confidence . in 2020 , we also began to sell our breast implants in japan through a distributor partner . we sell our breast tissue expanders for reconstruction procedures predominantly to hospitals and surgery centers , and our biocorneum scar management products to plastic surgeons , dermatologists and other specialties . on june 11 , 2017 , we entered into a merger agreement with miradry ( formerly miramar labs ) pursuant to which we commenced a tender offer to purchase all of the outstanding shares of miradry 's common stock . pursuant to the transaction , which closed on july 25 , 2017 we added the miradry system , the only fda-cleared device to reduce underarm sweat , odor and hair of all colors to our aesthetics portfolio . following our acquisition of miradry in july 2017 , we began selling the miradry system , consisting of a console and a handheld device , and consumable single-use biotips . as a result of the miradry acquisition , we determined that we will conduct our business in two operating segments : breast products and miradry . the breast products segment focuses on sales of our breast implants , tissue expanders and scar management products . the miradry segment focuses on sales of biotips . we sell both our breast products and miradry products in the u.s. through a direct sales organization , which as of december 31 , 2020 , consisted of 67 employees , including 8 sales managers . additionally , we also sell our miradry products in several international markets where we leverage distributor relationships supported by 6 sales representatives . recent developments covid-19 pandemic the rapid , global spread of covid-19 has resulted in significant economic uncertainty , significant declines in business and consumer confidence and global demand in the non-essential healthcare industry ( among others ) , a global economic slowdown , and could lead to a global recession . we are subject to risks and uncertainties as a result of the covid-19 pandemic . the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition , including sales , expenses , reserves and allowances , manufacturing , and employee-related amounts , will depend on future developments that are highly uncertain . we continue to monitor and assess new information related to the covid-19 pandemic , the actions taken to contain or treat covid-19 , as well as the economic impact on local , regional , national and international customers and markets . 69 as an aesthetics company , surgical procedures involving our breast and miradry products are susceptible to local and national government restrictions , such as social distancing , “ shelter in place ” orders and business closures , due to the economic and logistical impacts these measures have on consumer demand as well as the practitioners ' ability to administer such procedures . the inability or limited ability to perform such non-emergency procedures significantly harmed our revenues during the second quarter of 2020 and continued to harm our revenues during the third and fourth quarter of 2020. while some states have lifted certain restrictions on non-emergency procedures , we will likely continue to experience future harm to our revenues while existing or new restrictions remain in place . further , the spread of covid-19 has caused us to modify our workforce practices , and we may take further actions that we determine are in the best interests of our employees or as required by governments . in addition , capital markets and economies worldwide have also been negatively impacted by the covid-19 pandemic , and it is possible that this can lead to a local and or global economic recession , which may result in further harm to the aesthetics market . such economic disruption could adversely affect our business . the continued spread of covid-19 , or another infectious disease , could also result in delays or disruptions in our supply chain or adversely affect our manufacturing facilities and personnel . further , trade and or national security protection policies may be adjusted as a result of the covid-19 pandemic , such as actions by governments that limit , restrict or prevent the movement of certain goods into a country and or region , and current u.s./china trade relations may be further exacerbated by the pandemic . the estimates used for , but not limited to , determining the collectability of accounts receivable , fair value of long-lived assets and goodwill , and sales returns liability required could be impacted by the pandemic . while the full impact of covid-19 is unknown at this time , we have made appropriate estimates based on the facts and circumstances available as of the reporting date . these estimates may change as new events occur and additional information is obtained . change in miradry business strategy in april 2020 , in part as a result of the impact of covid-19 , we re-focused our miradry business to drive biotip utilization to our existing installed base . we expect that the net sales we generate from our biotips will account for substantially all of our miradry segment 's net sales for the next several years . story_separator_special_tag with this acquisition , we obtained full control of the class 3 breast implant manufacturing operation previously owned and operated by vesta , which we believe allow s us to gain access to implement manufacturing efficiencies and improve our demand planning to ultimately reduce our manufacturing costs in the future . in addition , we offer biocorneum , an advanced silicone scar treatment , directly to physicians and the allox2 , and dermaspan lines of breast tissue expanders , as well as the softspan line of general tissue expanders . we sell our breast implants for augmentation procedures exclusively to plastic surgeons , who are thought leaders in the medical aesthetics industry . our tissue expanders which are used in breast reconstruction procedures are predominantly sold to hospitals and surgery centers who determine the admission privileges of surgeons performing breast reconstruction procedures . we address the specific needs of plastic surgeons through continued product innovation , expansion of our product portfolio and enhanced customer service offerings and a twenty year limited warranty that provides patients with cash reimbursement for certain out of pocket costs related to revision surgeries in a covered event , a lifetime no charge implant replacement program for covered ruptures , and the industry 's first policy of no charge replacement implants to patients who experience covered capsular contracture , double capsule and late-forming seroma events within twenty years of the initial implant procedure . miradry segment in july 2017 , we completed our acquisition of miradry , following which we began selling the miradry system , the only fda cleared device to reduce underarm sweat , odor and hair of all colors through the precise and non-surgical delivery of microwave energy to the region where sweat glands reside . the energy generates heat at the dermal-fat interface which results in destruction of the sweat glands . at the same time , a continuous hydro-ceramic cooling system protects the superficial dermis and keeps the heat focused at the dermal-fat interface where the sweat glands reside . because sweat glands do not regenerate after the procedure , we believe the results are lasting . microwaves are the ideal technology as the energy can be focused directly at the dermal-fat interface where the glands reside . the miradry system has been cleared by the fda as indicated for use in the treatment of primary axillary hyperhidrosis , or a condition characterized by abnormal sweating in excess of that required for regulation of body temperature , plus unwanted underarm hair removal , and permanent reduction of underarm hair of all colors for fitzpatrick skin types i – iv . permanent hair reduction is defined as long-term , stable reduction in the number of hairs regrowing when measured at 6 , 9 and 12 months after the completion of a treatment regime . when used for the treatment of primary axillary hyperhidrosis , the miradry system may reduce underarm odor . in addition , the miradry system received ce mark approval for the treatment of primary axillary hyperhidrosis and approval in several other countries . the miradry system provides patients with a non-surgical and durable procedure to selectively destroy underarm sweat glands for both severely hyperhidrotic patients and those that are bothered by their underarm sweat . the miradry system is clinically proven to reduce sweat in one or more procedures of approximately 60-minutes , allowing most patients to achieve immediately noticeable and durable results without the pain , expense , downtime , or repeat visits associated with alternative treatment options . the sweat glands in the treated area are destroyed 72 through targeted heating of the tissue , and because the body does not regenerate sweat glands , we believe the results will be lasting , although some patients may need to repeat the miradry procedure to achieve the ir desired results . the miradry system consists of a console and a handheld device which uses consumable single-use biotips . the miradry procedure is not technique-dependent , does not require significant training or skill for the treatment provider , and the user-interface guides the provider through each step of the procedure for each treatment . we sell our miradry system and consumable single-use biotips only to physicians , consisting of dermatologists , plastic surgeons , aesthetic specialists and physicians specializing in the treatment of hyperhidrosis . aesthetic specialists are physicians who elect to offer aesthetic procedures as a significant part of their practices but are generally not board-certified dermatologists or plastic surgeons . physicians can market the miradry procedure as a premium , highly-differentiated , non-surgical sweat reduction procedure . we are approved to sell the miradry system in over 40 international markets outside of north america , including countries in asia , europe , the middle east and south america . change in miradry business strategy in april 2020 , in part as a result of the impact of covid-19 , we re-focused our miradry business to drive biotip utilization to our existing installed base . we expect that the net sales we generate from our biotips will account for substantially all of the miradry segment 's net sales for the next several years . on december 31 , 2020 , we eliminated our separate miradry u.s. sales force and transitioned miradry sales responsibility into the breast products enhance practice development team . components of operating results net sales our breast products segment net sales include sales of silicone gel breast implants , tissue expanders and biocorneum . we recognize revenue on breast implants and tissue expanders , net of sales discounts and estimated returns , as the customer has a standard six-month window to return purchased breast implants and tissue expanders . we defer the value of our service warranty revenue and recognize it once all performance obligations have been met . our miradry segment net sales include sales of the miradry system and consumable biotips along with service warranties . we recognize revenue on miradry systems and biotips on delivery to the customer .
| results of operations in this section , we discuss the results of our operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. for a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , please refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2019. the following table sets forth our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_8_th net sales net sales decreased $ 12.5 million , or 14.9 % , to $ 71.2 million for the year ended december 31 , 2020 , as compared to $ 83.7 million for the year ended december 31 , 2019. net sales of our breast products segment increased $ 8.6 million to $ 55.0 million for the year ended december 31 , 2020 , as compared to $ 46.4 million for the year ended december 31 , 2019. the increase was driven primarily by an increase in the volume of sales of gel implants . net sales of our miradry segment decreased $ 21.1 million to $ 16.2 million for the year ended december 31 , 2020 , as compared to $ 37.3 million for the year ended december 31 , 2019 , driven primarily by an overall decrease in the volume of sales of miradry systems and consumable biotips due to the effects of the covid-19 pandemic and the change in miradry business strategy .
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information contained in the following discussion of our results of operations and financial condition contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , section 21e of the exchange act of 1934 , as amended , and the private securities litigation reform act of 1995 , and , as such , is based on current expectations and is subject to certain risks and uncertainties . the reader should not place undue reliance on these forward-looking statements for many reasons , including those risks discussed under item 1a , “ risk factors , ” and elsewhere in this document . see “ disclosure regarding forward-looking statements ” that precedes part i of this report . we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information , future events or otherwise . references in this item to “ we , ” “ our , ” or “ us ” are to the company and its subsidiaries on a consolidated basis unless the context otherwise requires . the term “ usd ” refers to us dollars , the term “ cad ” refers to canadian dollars , the term “ pln ” refers to polish zloty and the term “ gbp ” refers to british pounds . certain terms used in this item 7 without definition are defined in item 1 , “ business ” of this report . amounts presented in this item 7 are rounded . as such , there may be rounding differences in period over period changes and percentages reported throughout this item 7 . executive overview overview since our inception in 1992 , we have been primarily engaged in developing and operating gaming establishments and related lodging , restaurant and entertainment facilities . our primary source of revenue is from the net proceeds of our gaming machines and tables , with ancillary revenue generated from hotel , restaurant , horse racing ( including off-track betting ) , bowling and entertainment facilities that are in most instances a part of the casinos . we view each market in which we operate as a separate operating segment and each casino within those markets as a reporting unit . we aggregate all operating segments into three reportable segments based on the geographical locations in which our casinos operate : united states , canada and poland . we have additional business activities including concession agreements , management agreements , consulting agreements and certain other corporate and management operations that we report as corporate and other . the table below provides information about the aggregation of our operating segments and reporting units into reportable segments . the reporting units except for century downs racetrack and casino and casinos poland are owned , operated and manage d through wholly-owned subsidiaries . our ownership and operation of century downs racetrack and casino and casinos poland are discussed below . reportable segment operating segment reporting unit united states colorado century casino & hotel - central city century casino & hotel - cripple creek west virginia mountaineer casino , racetrack & resort missouri century casino cape girardeau century casino caruthersville canada edmonton century casino & hotel - edmonton century casino st. albert century mile racetrack and casino calgary century casino calgary century downs racetrack and casino century bets ! inc. poland poland casinos poland corporate and other corporate and other cruise ships & other century casino bath corporate other 40 century bets ! , inc. ( “ cbs ” or “ century bets ” ) operates the pari-mutuel off-track betting network in s outhern alberta , canada . prior to august 2019 , we had a 75 % controlling financial interest in cbs through crm . in august 2019 , we purchased the remaining 25 % non-controlling financial interest from rocky mountain turf club for cad 0.2 million ( $ 0.2 million based on the exchange rate in effect on august 5 , 2019 ) , resulting in cbs becoming a wholly-owned subsidiary . we have controlling financial interests through our subsidiary crm in the following reporting units : · we have a 66.6 % ownership interest in cpl and we consolidate cpl as a majority-owned subsidiary for which we have a controlling financial interest . polish airports owns the remaining 33.3 % of cpl . we account for and report the 33.3 % polish airports ownership interest as a non-controlling financial interest . cpl has been in operation since 1989 and , as of december 31 , 2019 , owned and operated eight casinos throughout poland . · we have a 75 % ownership interest in cdr and we consolidate cdr as a majority-owned subsidiary for which we have a controlling financial interest . we account for and report the remaining 25 % ownership interest in cdr as a non-controlling financial interest . cdr operates century downs racetrack and casino , a rec in balzac , a north metropolitan area of calgary , alberta , canada . cdr is the only horse racetrack in the calgary area and is located less than one-mile north of the city limits of calgary and 4.5 miles from the calgary international airport . the following agreements make up the reporting unit cruise ships & other in the corporate and other reportable segment : · as of december 31 , 2019 , we operated five ship-based casinos through concession agreements with tui cruises . our concession agreements to operate the ship-based casinos onboard the wind spirit and star pride ended in january 2019 and march 2019 , respectively . the concession agreements to operate the ship-based casinos onboard the wind surf and star breeze ended in april 2019 , and the concession agreement to operate the ship-based casino onboard the star legend ended in may 2019 . in june 2019 , we evaluated our agreement with diamond cruises related to the operation of the ship-based casino onboard the glory sea . story_separator_special_tag see “ our financial condition and results of operations may be adversely affected by the occurrence of severe weather , natural or man-made disasters and other catastrophic events , including war , terrorism and other acts of violence , and disease , such as the current coronavirus pandemic ” in item 1a , “ risk factors. ” 42 story_separator_special_tag inline ; color : # 000000 ; '' > december 31 , 2018 compared to the year ended december 31 , 2017 , respectively . following is a breakout of net operating revenue by segment for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . · united states increased by $ 16.5 million , or 49.3 % , and by $ 1.3 million , or 4.1 % . · canada increased by $ 19.3 million , or 31.4 % , and by $ 3.6 million , or 6.3 % . · poland increased by $ 13.7 million , or 20.1 % , and by $ 8.4 million , or 14.1 % . · corporate other decreased by ( $ 0.2 ) million , or ( 3.4 % ) , and increased by $ 1.5 million , or 34.1 % . operating costs and expenses increased by $ 63.9 million , or 40.1 % , and by $ 20.0 million , or 14.4 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , respectively . following is a breakout of operating costs and expenses by segment for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . · united states increased by $ 12.9 million , or 46.8 % , and by $ 1.0 million , or 3.9 % . · canada increased by $ 17.8 million , or 38.1 % , and by $ 3.6 million , or 8.4 % . · poland increased by $ 7.9 million , or 11.6 % , and by $ 10.9 million , or 19.0 % . · corporate other increased by $ 25.3 million , or 147.9 % , and by $ 4.5 million , or 36.2 % . earnings from operations decreased by ( $ 14.7 ) million , or ( 155.2 % ) , and by ( $ 5.2 ) million , or ( 35.3 % ) , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , respectively . following is a breakout of earnings from operations by segment for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . · united states increased by $ 3.6 million , or 61.1 % , and by $ 0.3 million , or 5.1 % . · canada increased by $ 1.5 million , or 10.1 % , and remained constant . · poland increased by $ 5.8 million , or 3979.3 % , and decreased by ( $ 2.4 ) million , or ( 94.4 % ) . · corporate other decreased by ( $ 25.5 ) million , or ( 227.9 % ) , and by ( $ 3.0 ) million , or ( 36.9 % ) . 44 net earnings decreased by ( $ 22.5 ) million , or ( 664.4 % ) , and by ( $ 2.9 ) million , or ( 45.8 % ) , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 and for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , respectively . items deducted from or added to earnings from operations to arrive at net earnings include interest income , interest expense , gains ( losses ) on foreign currency transactions and other , income tax expense and non-controlling interests . for a discussion of these items , see “ non-operating income ( expense ) ” and “ taxes ” below in this item 7 . reportable segments the following discussion provides further detail of consolidated results by reportable segment . replace_table_token_14_th ( 1 ) see note 9 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this report for a discussion of the impact of the adoption of asu 2014-09 on the presentation of promotional allowances . we acquired mtr in west virginia and ccg and ccv in missouri in the acquisition in december 2019 . we continue to see growth at our colorado properties and anticipate slow growth in these markets in the coming years . years ended december 31 , 2019 and 2018 the following discussion highlights results for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . revenue highlights · in colorado , net operating revenue increased by $ 0 . 5 million , or 1.4 % , primarily due to increased gaming revenue at both properties . · in west virginia , net operating revenue was $ 8.7 million . · in missouri , net operating revenue was $ 7.4 million . operating expense highlights · in colorado , oper ating expenses increased by $ 0.5 million , or 1.7 % , primarily due to increased gaming-related expenses and increased payroll costs . · in west virginia , operating expenses were $ 7 . 5 million .
| discussion of results years ended december 31 , 2019 , 2018 and 2017 century casinos , inc. and subsidiaries replace_table_token_13_th ( 1 ) see note 9 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this report for a discussion of the impact of the adoption of asu 2014-09 on the presentation of promotional allowances . ( 2 ) for a discussion of adjusted ebitda and reconciliation of adjusted ebitda to net earnings ( loss ) attributable to century casinos , inc. shareholders , see item 6 , “ selected financial data ” of this report . factors impacting year-over-year comparability of the results include the following : united states · we acquired the operations at mtr , ccg and ccv in the acquisition in december 2019. mtr is reported in the west virginia operating segment and ccg and cc v are reported in the missouri operating segment . · west virginia contributed a total of $ 8.7 million in net operating revenue and $ 0 . 4 million in net earnings for the year ended december 31 , 2019 . · missouri contributed a total of $ 7.4 million in net operating revenue and $ 1.0 million in net earnings for the year ended december 31 , 2019 . canada · in edmonton , w e began operating cmr in april 2019. cmr contributed a total of $ 18.9 million in net operating revenue and ( $ 2.4 ) million in net losses for the year ended december 31 , 2019 , ( $ 1.1 ) million in net losses for the year ended december 31 , 2018 and less than ( $ 0.1 ) million in net losses for the year ended december 31 , 2017 before the rec began operating .
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” see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. fiscal 2018—a review of this past year in fiscal 2018 , we continued to see strong sales results and have now seen positive comparable sales for ten consecutive quarters driven by key brands and fashion trends in the market , as well as our unique brand experience . our focus remains centered on the customer ; including launching over 100 new brands during fiscal 2018 and each of the preceding 5 years . consistently providing our customers with new choices and uniqueness in our product offering is essential to our success and provides us with growth drivers for the future . the full year comparable sales for fiscal 2018 increased 5.6 % on top of comparable sales growth of 5.9 % in fiscal 2017. total net sales growth was 5.5 % , despite the benefit of the 53 rd week in the prior year . operating margins increased from the prior year due primarily to leverage of our occupancy costs , reduction in inventory shrinkage and product margin improvements . we added 5 new stores in north america in fiscal 2018 , which was down from 12 new stores added in fiscal 2017 , as we get closer to our target store count . during fiscal 2018 we also added 7 new blue tomato stores in europe and 1 new fast times store in australia and continue to have meaningful expansion opportunities in these areas . as a leading lifestyle retailer , we continue to differentiate ourselves through our distinctive brand offering and diverse product selection , as well as the unique customer experience across all of our platforms . we have made investments over several years to integrate the digital and physical channels creating a seamless shopping experience for our customer , which we believe is critical for our long-term financial performance . we are continuing to deliver our online orders in north america from our stores , which has provided significant improvements in the speed of delivery to our customers and the overall experience . in-store fulfillment is a key part of strategy that we believe will drive long term market share by leveraging the strengths of our store sales team , providing better and faster service to customers , improving product margins , providing additional selling opportunities , and utilizing one cost structure to serve the customer . the following table shows net sales , operating profit , operating margin and diluted earnings per share for fiscal 2018 compared to fiscal 2017. fiscal 2018 diluted earnings per share results include $ 8.7 million in benefit from the impact of u.s. federal tax legislation or $ 0.35 per share . fiscal 2017 results include $ 10.3 million of net sales related to the additional week in the 53-week period , $ 3.8 million in net sales related to the recognition of deferred revenue due to changes in our stash loyalty program estimated redemption rate , and $ 3.4 million in our provision for income taxes due to a valuation allowance against our deferred tax assets in austria . replace_table_token_7_th ( 1 ) fiscal 2018 was a 52-week period and fiscal 2017 was a 53-week period . the increase in net sales was driven primarily by a 5.6 % comparable sales increase and the net addition of 9 stores ( 13 new stores offset by 4 store closures ) . the increase in comparable sales was driven by an increase in transactions and an increase in dollars per transaction . dollars per transaction increased due to an increase in average unit retail , partially offset by a decrease in units per transaction . operating margin increased in fiscal 2018 compared to fiscal 2017 primarily as a result of gross margin improvements . 27 fiscal 2019—a look at the upcoming year we are entering 2019 with ten consecutive quarters of positive comparable sales growth behind us and strong brand and fashion trends in the business . in 2019 , our focus will be on continued execution of our core culture and brand strategies as well as strategic investments centered on long-term quality growth . these investments will be largely focused on enhancing the customer experience and creating operational efficiencies to drive operating margin expansion . as we reach our targeted number of stores in north america , we expect that total store count growth in fiscal 2019 in the region will continue to moderate . in europe and australia , however , we continue to believe we have growth opportunities and we are planning 8 new stores in fiscal 2019 , consistent with fiscal 2018. in fiscal 2019 , we expect our cost structure will grow at a slower rate than 2018 , primarily tied to the leveraging of our store costs and expense initiatives across the organization . we anticipate inventory levels per square foot will grow roughly in-line with sales growth . excluding any possible share buy-backs , we expect cash , short-term investments and working capital to increase , and do not anticipate any new long-term borrowings during the year . long-term , we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing on the changing consumer environment while managing our cost structure . general net sales constitute gross sales , net of actual and estimated returns and deductions for promotions , and shipping revenue . net sales include our store sales and our ecommerce sales . we record the sale of gift cards as a current liability and recognize revenue when a customer redeems a gift card . additionally , the portion of gift cards that will not be redeemed ( “ gift card breakage ” ) is recognized based on our historical redemption rate in proportion to the pattern of rights exercised by the customer . story_separator_special_tag the increase was primarily driven by an 80 basis point impact due to leveraging of our store occupancy costs , 30 basis points related to the recognition of deferred revenue due to changes in our stash loyalty program estimated redemption rate and 20 basis points on product margin . these were partially offset by 60 basis points in higher inventory shrinkage and 10 basis points due to higher annual incentive compensation . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses were $ 261.1 million for fiscal 2017 compared to $ 235.3 million for fiscal 2016 , an increase of $ 25.9 million , or 11.0 % . sg & a expenses as a percent of net sales increased by 10 basis points in fiscal 2017 to 28.2 % . the increase was primarily driven by 60 basis points from higher annual incentive compensation partially offset by 50 basis points due to the leverage of store costs . net income net income for fiscal 2017 was $ 26.8 million , or $ 1.08 per diluted share , compared with net income of $ 25.9 million , or $ 1.04 per diluted share , for fiscal 2016. our effective income tax rate for fiscal 2017 was 44.6 % compared to 35.6 % for fiscal 2016. the increase in the effective tax rate for fiscal 2017 compared to fiscal 2016 was primarily related to $ 3.4 million or 7.0 % from the valuation allowance against our deferred tax assets in austria . seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . 31 the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information sho uld be read in conjunction with our audited consolidated financial statements and the notes thereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_9_th replace_table_token_10_th liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . additionally , we may use cash for the repurchase of our common stock . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors . at february 2 , 2019 and february 3 , 2018 , cash , cash equivalents and current marketable securities were $ 165.3 million and $ 121.9 million . working capital , the excess of current assets over current liabilities , was $ 234.1 million at the end of fiscal 2018 , an increase of 30.1 % from $ 179.9 million at the end of fiscal 2017. the increase in cash , cash equivalents and current marketable securities in fiscal 2018 was due primarily to cash provided by operating activities of $ 65.3 million , partially offset by $ 21.0 million of capital expenditures primarily related to the opening of 9 new stores and 23 remodels and relocations . 32 the following table summarizes our cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_11_th operating activities net cash provided by operating activities decreased by $ 0.2 million in fiscal 2018 to $ 65.3 million from $ 65.5 million in fiscal 2017. net cash provided by operating activities increased by $ 17.0 million in fiscal 2017 to $ 65.5 million from $ 48.5 million in fiscal 2016. our operating cash flows result primarily from cash received from our customers , offset by cash payments we make for inventory , employee compensation , store occupancy expenses and other operational expenditures . cash received from our customers generally corresponds to our net sales . because our customers primarily use credit cards or cash to buy from us , our receivables from customers settle quickly . changes to our operating cash flows have historically been driven primarily by changes in operating income , which is impacted by changes to non-cash items such as depreciation , amortization and accretion , deferred taxes , and changes to the components of working capital .
| results of operations the following table presents selected items on the consolidated statements of income as a percent of net sales : replace_table_token_8_th fiscal 2018 results compared with fiscal 2017 net sales fiscal 2018 was a 52-week period and fiscal 2017 was a 53-week period . net sales for fiscal 2017 include an additional week of sales , whereas comparable sales are calculated using the comparable sales for the comparable 52-week period . 29 net sales were $ 978 .6 million for fiscal 2018 compared to $ 927.4 million for fiscal 2017 , an increase of $ 51.2 million or 5.5 % . the increase reflected a $ 50.4 million increase due to comparable sales and a $ 12.3 million increase due to the net addition of 9 stores ( made up of 5 new stores in north america , 7 new stores in europe , and 1 new store in australia offset by 4 store closures ) , partially offset by a decrease of $ 9.1 million related to the additional week in the 53-week period and calendar shift in fiscal 2017. by r egion , north america sales increased $ 41.6 million or 5.0 % and other international sales increased $ 9.6 million or 9.7 % during fiscal 2018 compared to fiscal 2017. the 5.6 % increase in comparable sales was primarily driven by an increase in comparable transactions and an increase in dollars per transaction . dollars per transaction increased due to an increase in average unit retail , partially offset by a decrease in units per transaction . comparable sales were primarily driven by an increase in men 's apparel followed by footwear , women 's apparel , and accessories partially offset by a decrease in hardgoods . for information as to how we define comparable sales , see “ general ” above .
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similarly , statements that describe our future plans , objectives , or goals also are forward-looking statements . future events and actual results could differ materially from the results reflected in these forward-looking statements , as a result of certain of the factors set forth below and elsewhere in this analysis and in this annual report on form 10-k for the year ended december 31 , 2017 in item 1.a. , risk factors. executive summary we are a leading provider of multichannel demand generation and global comprehensive customer engagement services . we provide differentiated full lifecycle customer engagement solutions and services to global 2000 companies and their end customers primarily in the communications , financial services , technology , transportation and leisure , healthcare , retail and other industries . our differentiated full lifecycle management services platform effectively engages customers at every touchpoint within the customer journey , including digital marketing and acquisition , sales expertise , customer service , technical support and retention . we serve our clients through two geographic operating regions : the americas ( united states , canada , latin america , australia and the asia pacific rim ) and emea ( europe , the middle east and africa ) . our americas and emea regions primarily provide customer engagement solutions and services with an emphasis on inbound multichannel demand generation , customer service and technical support to our clients ' customers . these services , which represented 99.4 % , 99.2 % and 98.1 % of consolidated revenues in 2017 , 2016 and 2015 , respectively , are delivered through multiple communication channels including phone , e-mail , social media , text messaging , chat and digital self-service . we also provide various enterprise support services in the united states ( u.s. ) that include services for our clients ' internal support operations , from technical staffing services to outsourced corporate help desk services . in europe , we also provide fulfillment services , which includes order processing , payment processing , inventory control , product delivery and product returns handling . our complete service offering helps our clients acquire , retain and increase the lifetime value of their customer relationships . we have developed an extensive global reach with customer engagement centers across six continents , including north america , south america , europe , asia , australia and africa . we deliver cost-effective solutions that generate demand , enhance the customer service experience , promote stronger brand loyalty , and bring about high levels of performance and profitability . revenues from these services is recognized as the services are performed , which is based on either a per minute , per hour , per call , per transaction or per time and material basis , under a fully executed contractual agreement , and we record reductions to revenues for contractual penalties and holdbacks for a failure to meet specified minimum service levels and other performance based contingencies . revenue recognition is limited to the amount that is not contingent upon delivery of any future product or service or meeting other specified performance conditions . product sales , accounted for within our fulfillment services , are recognized upon shipment to the customer and satisfaction of all obligations . direct salaries and related costs include direct personnel compensation , severance , statutory and other benefits associated with such personnel and other direct costs associated with providing services to customers . general and administrative costs include administrative , sales and marketing , occupancy and other costs . depreciation , net represents depreciation on property and equipment , net of the amortization of deferred property grants . amortization of intangibles represents amortization of finite-lived intangible assets . impairment of long-lived assets , primarily leasehold improvements and equipment in the americas , was related to an effort to streamline excess capacity subsequent to the telecommunications asset acquisition . interest income primarily relates to interest earned on cash and cash equivalents . interest ( expense ) includes interest on outstanding borrowings , commitment fees charged on the unused portion of 25 our revolving credit facility and contingent consideration , as more fully described in this item 7 , under liquidity and capital resources. other income ( expense ) , net includes gains and losses on derivative instruments not designated as hedges , foreign currency transaction gains and losses , gains and losses on the liquidation of foreign subsidiaries and other miscellaneous income ( expense ) . our effective tax rate for the periods presented includes the effects of state income taxes , net of federal tax benefit , uncertain tax positions , tax holidays , valuation allowance changes , foreign rate differentials , foreign withholding and other taxes , and permanent differences . recent developments u.s. 2017 tax reform act on december 20 , 2017 , the tax cuts and jobs act ( the 2017 tax reform act ) was approved by congress and received presidential approval on december 22 , 2017. in general , the 2017 tax reform act reduces the u.s. corporate income tax rate from 35 % to 21 % , effective in 2018. the 2017 tax reform act moves from a worldwide business taxation approach to a participation exemption regime . the 2017 tax reform act also imposes base-erosion prevention measures on non-u.s. earnings of u.s. entities , as well as a one-time mandatory deemed repatriation tax on accumulated non-u.s. earnings . the 2017 tax reform act will have an impact on our consolidated financial results beginning with the fourth quarter of 2017 , the period of enactment . this impact , along with the transitional taxes discussed in note 20 , income taxes , of the accompanying notes to consolidated financial statements is reflected in the other segment . acquisitions on may 31 , 2017 , we completed the acquisition of certain assets of a global 2000 telecommunications service provider ( the telecommunications asset acquisition ) , to strengthen and create new partnerships and expand our geographic footprint in north america . the total purchase price of $ 7.5 million was funded through cash on hand . story_separator_special_tag million allocated to the americas , higher legal and professional fees of $ 0.9 million , higher severance costs of $ 0.8 million and higher charitable contributions of $ 0.6 million . 29 depreciation , amortization and impairment of long-lived assets replace_table_token_12_th the increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site expansions and infrastructure upgrades as well as the addition of depreciable fixed assets acquired in conjunction with the april 2016 clearlink acquisition , partially offset by certain fully depreciated fixed assets . the increase in amortization was primarily due to the addition of intangible assets acquired in conjunction with the april 2016 clearlink acquisition , partially offset by certain fully amortized intangible assets . see note 4 , fair value , of the notes to consolidated financial statements for further information regarding the impairment of long-lived assets . other income ( expense ) replace_table_token_13_th interest income remained consistent with the prior year . the increase in interest ( expense ) was primarily due to $ 216.0 million in borrowings used to acquire clearlink in april 2016 as well as an increase in weighted average interest rates on outstanding borrowings , partially offset by a decrease in the interest accretion on contingent consideration . the increase in other miscellaneous income ( expense ) was primarily due to the net investment income ( losses ) related to the investments held in rabbi trust . see note 11 , investments held in rabbi trust , of notes to consolidated financial statements for further information . 30 income taxes replace_table_token_14_th the increase in the effective tax rate in 2017 compared to 2016 is primarily due to a $ 32.7 million one-time mandatory deemed repatriation tax on undistributed non-u.s. earnings resulting from the 2017 tax reform act . this increase in the effective tax rate was partially offset by several other factors including the recognition of $ 2.0 million of previously unrecognized tax benefits , inclusive of penalties and interest , $ 1.2 million arising from the effective settlement of the canadian revenue agency audit and $ 0.8 million arising from other favorable audit settlements and statute of limitation expirations . additionally , we recognized a $ 0.8 million benefit related to the increase in anticipated tax credits and reductions in estimated non-deferred foreign income , as well as a $ 0.3 million benefit for the release of a valuation allowance where it is more likely than not that the benefit will be realized . we also recognized a $ 0.9 million benefit resulting from the adoption of asu 2016-09 on january 1 , 2017. the effective tax rate was also affected by shifts in earnings among the various jurisdictions in which we operate . several additional factors , none of which are individually material , also impacted the rate . 2016 compared to 2015 revenues replace_table_token_15_th consolidated revenues increased $ 173.7 million , or 13.5 % , in 2016 from 2015. the increase in americas ' revenues was primarily due to clearlink acquisition revenues of $ 123.3 million , higher volumes from existing clients of $ 92.9 million and new client sales of $ 8.5 million , partially offset by end-of-life client programs of $ 36.6 million and the negative foreign currency impact of $ 12.7 million . revenues from our offshore operations represented 41.2 % of americas ' revenues , compared to 44.5 % in 2015. the decrease in emea 's revenues was primarily due to end-of-life client programs of $ 8.2 million and the negative foreign currency impact of $ 8.1 million , partially offset by higher volumes from existing clients of $ 11.0 million and new client sales of $ 3.6 million . on a consolidated basis , we had 47,700 brick-and-mortar seats as of december 31 , 2016 , an increase of 6,600 seats from 2015. included in this seat count are 1,300 seats associated with clearlink . this increase in seats , net of clearlink additions , was primarily due to seat additions to support higher projected demand . the capacity utilization rate on a combined basis was 75 % in 2016 , compared to 79 % in 2015. this decrease was due to a significant increase in the seat count related to projected client demand . on a geographic segment basis , 41,200 seats were located in the americas , an increase of 6,100 seats from 2015 , and 6,500 seats were located in emea , an increase of 500 seats from 2015. the capacity utilization rate for the americas in 2016 was 74 % , compared to 79 % in 2015 , down primarily due to seat additions for higher projected demand . the capacity utilization rate for emea in 2016 was 80 % , compared to 85 % in 2015 , down primarily due to lower demand in certain existing clients , certain end-of-life client programs and the rationalization of seats in a highly utilized center due to a planned program expiration . we strive to attain a capacity utilization of 85 % at each of our locations . 31 excluding clearlink , we added 7,000 seats on a gross basis in 2016 , with total seat count on a net basis for the full year increasing by 5,300 in 2016 versus 2015. direct salaries and related costs replace_table_token_16_th the increase of $ 111.2 million in direct salaries and related costs included a positive foreign currency impact of $ 13.2 million in the americas and a positive foreign currency impact of $ 5.2 million in emea . the increase in americas ' direct salaries and related costs , as a percentage of revenues , was primarily attributable to higher customer-acquisition advertising costs of 2.3 % in connection with clearlink 's operations and higher recruiting costs of 0.2 % , partially offset by lower compensation costs of 1.3 % driven by clearlink 's operations which has lower direct labor costs relative to our mix of business in the prior period , lower communication costs of 0.4 % , lower auto tow claim costs of 0.3 % and lower other costs of 0.3 % .
| quarterly results the following information presents our unaudited quarterly operating results for 2017 and 2016. the data has been prepared on a basis consistent with the accompanying consolidated financial statements included elsewhere in this annual report on form 10-k , and includes all adjustments , consisting of normal recurring accruals , that we consider necessary for a fair presentation thereof . replace_table_token_21_th ( 1 ) the quarters ended december 31 , 2017 , september 30 , 2017 , june 30 , 2017 and march 31 , 2017 include $ 0.4 million , $ 0.3 million , $ 0.4 million and $ 0.1 million of acquisition-related costs , respectively , related to the telecommunications asset acquisition as well as another immaterial acquisition . the quarters ended december 31 , 2016 , september 30 , 2016 , june 30 , 2016 and march 31 , 2016 include less than $ 0.1 million , $ 0.2 million , $ 3.0 million and $ 1.4 million of clearlink acquisition-related costs , respectively . see note 2 , acquisitions , for further information . ( 2 ) the quarters ended september 30 , 2017 , june 30 , 2017 and march 31 , 2017 include ( gain ) loss on contingent consideration of $ 0.1 million , $ ( 0.3 ) million and $ ( 0.4 ) million , respectively . the quarters ended december 31 , 2016 and september 30 , 2016 include ( gain ) loss on contingent consideration of $ 0.5 million and $ ( 2.8 ) million , respectively . see note 4 , fair value , for further information . ( 3 ) the quarters ended december 31 , 2017 , september 30 , 2017 , june 30 , 2017 and march 31 , 2017 include $ 0.2 million , $ 0.1 million , $ 0.1 million and $ 0.1 million of net loss on disposal of property and equipment , respectively . the quarters ended december 31 , 2016 , september 30 , 2016 and june 30 , 2016 include $ 0.2 million , $ 0.1 million and $ 0.1 million of net loss on disposal of property and equipment , respectively .
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( filed herewith ) 26 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 27 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. patrick enright jr. patrick enright jr. president and chief executive officer september 14 , 2017 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . patrick enright jr. president and chief executive officer patrick enright jr. september 14 , 2017 david o'neil treasurer and principal financial officer david o'neil september 14 , 2017 katrina sparano assistant treasurer katrina sparano september 14 , 2017 howard pinsley chairman of the board howard pinsley september 14 , 2017 barry pinsley director barry pinsley september 14 , 2017 michael w. wool director michael w. wool september 14 , 2017 paul j. corr director paul j. corr september 14 , 2017 carl helmetag director carl helmetag september 14 , 2017 28 story_separator_special_tag business outlook management expects revenues in fiscal year 2018 to be higher than revenues during fiscal year 2017. this expectation is driven primarily by orders already in the company 's backlog that will be shipped in fiscal year 2018. the falling demand in the segment of the rail industry with which we have long conducted business did negatively impact sales and new orders from one long-term significant customer in fiscal year 2017 and is expected to continue declining in fiscal year 2018. however , this decrease will be offset , in part , by a new product for another customer in the military market where the design development and qualification testing has been successfully completed . full-rate production of this new product commenced during the fourth quarter of fiscal year 2017 and shipments are expected to begin in the first or second quarter of fiscal year 2018. during fiscal year 2017 the company received approximately $ 26.7 million in new orders . our total backlog at june 30 , 2017 was approximately $ 43.1 million , as compared to $ 39.1 million at june 30 , 2016. currently , we expect a minimum of $ 26.3 million of orders comprising the june 30 , 2017 backlog will be filled during the fiscal year ending june 30 , 2018. this $ 26.3 million will be supplemented by shipments which may be made against orders received during the fiscal year . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 59 million in the aggregate as of august 15 , 2017 , for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and industrial locomotive power supply procurement of a single customer . two significant customers including the one which advised us of the intent to reduce orders during fiscal year 2018 , represented 45 % of the company 's total sales in fiscal year 2017 and two significant customers represented 49 % of the company 's total sales in fiscal year 2016. these sales are in connection with multiyear programs in which the company is a significant contractor . the june 30 , 2017 backlog of $ 43.1 million includes orders from three customers that represent 23 % , 20 % , and 18 % , respectively , of the total backlog . the june 30 , 2016 backlog of $ 39.1 million includes orders from two customers that represent 35 % and 27 % , respectively , of the total backlog . although improvement has been made in customer concentrations , this high customer concentration level continues to present significant risk . a loss of one of these customers or programs related to these customers , or customer requested deferrals of product delivery could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . we continue to evaluate the company 's business development functions and the implementation of potential alternative courses of action in order to diversify the company 's customer base . the quotations for non-repeat programs referred to above include several new customers . as market factors impact revenues , management will continue to evaluate our story_separator_special_tag ( filed herewith ) 26 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 27 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. patrick enright jr. patrick enright jr. president and chief executive officer september 14 , 2017 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . patrick enright jr. president and chief executive officer patrick enright jr. september 14 , 2017 david o'neil treasurer and principal financial officer david o'neil september 14 , 2017 katrina sparano assistant treasurer katrina sparano september 14 , 2017 howard pinsley chairman of the board howard pinsley september 14 , 2017 barry pinsley director barry pinsley september 14 , 2017 michael w. wool director michael w. wool september 14 , 2017 paul j. corr director paul j. corr september 14 , 2017 carl helmetag director carl helmetag september 14 , 2017 28 story_separator_special_tag business outlook management expects revenues in fiscal year 2018 to be higher than revenues during fiscal year 2017. this expectation is driven primarily by orders already in the company 's backlog that will be shipped in fiscal year 2018. the falling demand in the segment of the rail industry with which we have long conducted business did negatively impact sales and new orders from one long-term significant customer in fiscal year 2017 and is expected to continue declining in fiscal year 2018. however , this decrease will be offset , in part , by a new product for another customer in the military market where the design development and qualification testing has been successfully completed . full-rate production of this new product commenced during the fourth quarter of fiscal year 2017 and shipments are expected to begin in the first or second quarter of fiscal year 2018. during fiscal year 2017 the company received approximately $ 26.7 million in new orders . our total backlog at june 30 , 2017 was approximately $ 43.1 million , as compared to $ 39.1 million at june 30 , 2016. currently , we expect a minimum of $ 26.3 million of orders comprising the june 30 , 2017 backlog will be filled during the fiscal year ending june 30 , 2018. this $ 26.3 million will be supplemented by shipments which may be made against orders received during the fiscal year . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 59 million in the aggregate as of august 15 , 2017 , for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and industrial locomotive power supply procurement of a single customer . two significant customers including the one which advised us of the intent to reduce orders during fiscal year 2018 , represented 45 % of the company 's total sales in fiscal year 2017 and two significant customers represented 49 % of the company 's total sales in fiscal year 2016. these sales are in connection with multiyear programs in which the company is a significant contractor . the june 30 , 2017 backlog of $ 43.1 million includes orders from three customers that represent 23 % , 20 % , and 18 % , respectively , of the total backlog . the june 30 , 2016 backlog of $ 39.1 million includes orders from two customers that represent 35 % and 27 % , respectively , of the total backlog . although improvement has been made in customer concentrations , this high customer concentration level continues to present significant risk . a loss of one of these customers or programs related to these customers , or customer requested deferrals of product delivery could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . we continue to evaluate the company 's business development functions and the implementation of potential alternative courses of action in order to diversify the company 's customer base . the quotations for non-repeat programs referred to above include several new customers . as market factors impact revenues , management will continue to evaluate our
| results of operations net sales for fiscal years ended june 30 , 2017 and 2016 , were $ 22,521,012 and $ 27,471,365 , respectively , an 18 % decrease . the decrease in sales can be attributed to the contract specific nature of the company 's business and the timing of deliveries on these contracts . specifically , the decrease in net sales is primarily due to a decrease in power supply sales resulting from the scaled-back procurement by a significant customer in the rail industry . additionally , sales declined from build to print/instrumentation control assembly shipments resulting from the timing and completion of customer contracts . 6 for the fiscal years ended june 30 , 2017 and 2016 gross profits were $ 4,714,568 and $ 7,371,682 , respectively . gross profit as a percentage of sales decreased to 20.9 % for fiscal year 2017 , down from 26.8 % in fiscal year 2016. the primary factors in determining the change in gross profit and net income are overall sales levels and product mix . the gross profits on mature products and build to print contracts are typically higher as compared to products which are still in the engineering development stage or in early stages of production . in the case of the latter , the company can incur what it refers to as “ loss contracts ” , meaning engineering design contracts in which the company invests with the objective of developing future product sales . in any given accounting period the mix of product shipments between higher margin programs and less mature programs , and expenditures associated with loss contracts , has a significant impact on gross profit and net income . the decrease in the gross profit percentage in fiscal year 2017 primarily relates to product mix , lower margins driven by competition and a significant investment being made to develop a new power supply .
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we record benefits for uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained based on their story_separator_special_tag note regarding forward-looking statements this report , including `` item 1 – business , '' `` item 1a – risk factors , '' and `` item 7 – management 's discussion and analysis of financial condition and results of operations , '' contains certain forward-looking statements that involve risks and uncertainties , including statements regarding our strategy , financial performance and revenue sources . we use words such as `` anticipate , '' `` believe , '' `` plan , '' `` expect , '' `` future , '' `` continue , '' `` intend '' and similar expressions to identify forward-looking statements . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under `` risk factors , '' beginning at page 13 and elsewhere in this form 10-k. although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . these forward-looking statements include , without limitation , statements regarding the following : the effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations ; the effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines ; our ability to moderate future average selling price declines ; the effect of product mix , capacity utilization , yields , fixed cost absorption , competition and economic conditions on gross margin ; the amount of , and changes in , demand for our products and those of our customers ; our expectation that in the future we will acquire additional businesses that we believe will complement our existing businesses ; the microsemi acquisition is expected to close in the june 2018 quarter ; that we currently expect to finance the purchase price of our pending microsemi acquisition using a combination of cash , our existing line of credit and new debt ; our expectation that in the future we will enter into joint development agreements or other business or strategic relationships with other companies ; the level of orders that will be received and shipped within a quarter ; our expectation that our june 2018 days of inventory levels will be down six days to up four days compared to the march 2018 levels . our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers ; the effect that distributor and customer inventory holding patterns will have on us ; our belief that customers recognize our products and brand name and use distributors as an effective supply channel ; anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products ; our belief that deferred cost of sales are recorded at their approximate carrying value and will have low risk of material impairment ; our belief that our direct sales personnel combined with our distributors provide an effective means of reaching our customer base ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; our ability to increase the proprietary portion of our analog and interface product lines and the effect of such an increase ; our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs ; the impact of any supply disruption we may experience ; our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs ; that we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions ; that our existing facilities will provide sufficient capacity to respond to increases in demand with modest incremental capital expenditures ; that manufacturing costs will be reduced by transition to advanced process technologies ; our ability to maintain manufacturing yields ; continuing our investments in new and enhanced products ; the cost effectiveness of using our own assembly and test operations ; our anticipated level of capital expenditures ; 33 continuation and amount of quarterly cash dividends ; that the atmel acquisition was structured in a manner that enabled us to utilize a substantial portion of the cash , cash equivalents , short-term investments and long-term investments held by certain of our foreign subsidiaries in a tax efficient manner and that our determinations with respect to the tax consequences of the acquisition are reasonable ; the sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements , and the effects that our contractual obligations are expected to have on them ; that our u.s. operations and capital requirements are funded primarily by cash generated from u.s. operating activities , which has been and is expected to be sufficient to meet our business needs in the u.s. for the foreseeable future ; the impact of seasonality on our business ; the accuracy of our estimates used in valuing employee equity awards ; that the resolution of legal actions will not have a material effect on our business , and the accuracy of our assessment of the probability of loss and range of potential loss ; the recoverability of our deferred tax assets ; the adequacy of our tax reserves to offset any potential tax liabilities , having the appropriate support for our income tax positions and the accuracy of our estimated tax rate ; that we intend to pay the one-time transition tax over a period of eight years ; our belief that our determinations story_separator_special_tag we license our superflash technology and other technologies to wafer foundries , integrated device manufacturers and design partners throughout the world for use in the manufacture of advanced microcontroller products , gate array , radio frequency ( rf ) and analog products that require embedded non-volatile memory . we sell our products to a broad base of domestic and international customers across a variety of industries . the principal markets that we serve include consumer , automotive , industrial , office communication , computing and aerospace . our business is subject to fluctuations based on economic conditions within these markets . our manufacturing operations include wafer fabrication , wafer probe and assembly and test . the ownership of a substantial portion of our manufacturing resources is an important component of our business strategy , enabling us to maintain a high level of manufacturing control resulting in us being one of the lowest cost producers in the embedded control industry . by owning wafer fabrication facilities and assembly and test operations , and by employing statistical process control techniques , we have been able to achieve and maintain high production yields . direct control over manufacturing resources allows us to shorten our design and production cycles . this control also allows us to capture a portion of the wafer manufacturing and the assembly and test profit margin . we do outsource a significant portion of our manufacturing requirements to third parties . we employ proprietary design and manufacturing processes in developing our embedded control products . we believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs . while many of our competitors develop and optimize separate processes for their logic and memory product lines , we use a common process technology for both microcontroller and non-volatile memory products . this allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly . our engineers utilize advanced computer-aided design ( cad ) tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . 35 we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory , analog and mixed-signal products , flash-ip systems , development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market and sell our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers . we believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base . our direct sales force focuses primarily on major strategic accounts in three geographical markets : the americas , europe and asia . we currently maintain sales and support centers in major metropolitan areas in north america , europe and asia . we believe that a strong technical service presence is essential to the continued development of the embedded control market . many of our client engagement managers ( cems ) , embedded system engineers ( eses ) , and sales management personnel have technical degrees and have been previously employed in an engineering environment . we believe that the technical knowledge of our sales force is a key competitive advantage in the sale of our products . the primary mission of our ese team is to provide technical assistance to strategic accounts and to conduct periodic training sessions for cems and distributor sales teams . eses also frequently conduct technical seminars for our customers in major cities around the world , and work closely with our distributors to provide technical assistance and end-user support . see `` our operating results are impacted by both seasonality and the wide fluctuation of supply and demand in the semiconductor industry , '' on page 17 for discussion of the impact of seasonality on our business . critical accounting policies and estimates general our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. we review the accounting policies we use in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , business combinations , share-based compensation , inventories , income taxes , senior and junior subordinated convertible debt and contingencies . 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 the carrying value of assets and liabilities that are not readily apparent from other sources . our results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions . we review these estimates and judgments on an ongoing basis . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements .
| results of discontinued operations discontinued operations represent the mobile touch operations that we acquired as part of our acquisition of atmel . on november 10 , 2016 , we completed the sale of the mobile touch assets to solomon systech ( limited ) international , a hong kong based semiconductor company . the transaction included the sale of certain semiconductor products , equipment , customer list , backlog , patents , and a license to certain other intellectual property and patents related to atmel 's mobile touch product line . we also agreed to provide certain transition services to solomon systech . for financial statement purposes , the results of operations for this discontinued business have been segregated from those of the continuing operations and are presented in our consolidated financial statements as discontinued operations . net loss from discontinued operations for the year ended march 31 , 2017 was $ 6.0 million , consisting of a pre-tax loss from operations of $ 8.2 million and a pre-tax gain on sale of $ 0.6 million . liquidity and capital resources we had $ 2,196.6 million in cash , cash equivalents and short-term investments at march 31 , 2018 , an increase of $ 786.3 million from the march 31 , 2017 balance of cash , cash equivalents , short-term investments , and long term investments . the increase in cash , cash equivalents and short-term investments over this time period is primarily attributable to cash generated from operations of $ 1,419.6 million , offset by dividend payments of $ 337.5 million , $ 206.8 million in capital payments and $ 73.4 million on the settlement of a portion of our convertible debt . net cash provided from operating activities was $ 1,419.6 million for fiscal 2018 , $ 1,059.5 million for fiscal 2017 and $ 744.4 million for fiscal 2016 .
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significant terms of all series of the preferred stock were as follows : dividends were cumulative and accrued on a daily basis at the rate 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 risk factors and elsewhere in this annual report on form 10-k. for further information regarding forward-looking statements , please refer to the special note regarding forward-looking statements and projections at the beginning of part i of this annual report on form 10-k. overview we are a biopharmaceutical company that specializes in the research , development and commercialization 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 most advanced product candidate is iluvien ® , which received a positive outcome from the decentralized procedure with the issuance of a final assessment report ( far ) from the united kingdom medicines and healthcare products regulatory agency ( mhra ) indicating that it is approvable for the treatment of vision impairment associated with diabetic macular edema ( dme ) considered insufficiently responsive to available therapies in seven european union ( eu ) countries in february 2012. dme is a disease of the retina that affects individuals with diabetes and can lead to severe vision loss and blindness . in september 2010 , we completed two phase 3 pivotal clinical trials ( collectively , our fame study ) on both a high and low dose of iluvien involving 956 patients in sites across the u.s. , canada , europe and india to assess the efficacy and safety of iluvien in the treatment of dme over a 36 month period . based on our analysis of the data through month 24 of the fame study in december 2009 , we submitted a new drug application ( nda ) in june 2010 for the low dose of iluvien in the u.s. with the u.s. food and drug administration ( fda ) , followed by registration filings in the united kingdom , austria , france , germany , italy , portugal and spain under the european union 's ( eu ) decentralized procedure in july 2010 with the united kingdom acting as the reference member state ( rms ) . the rms is responsible for coordinating the review and approval process between itself and the other involved countries , or concerned member states . in november 2010 , we received a preliminary assessment report ( par ) from the rms and in december 2010 , we received a complete response letter ( crl ) from the fda regarding our respective registration filings . the primary concerns expressed in both the par and the crl centered on the benefits of iluvien in treating dme patients versus the risk of its side effects . upon further analysis of our fame study data through its final readout at month 36 , we determined that a pre-planned subgroup of chronic dme patients demonstrated a greater benefit to risk profile than the full population dataset in our original filings . 54 we submitted our response to the crl to the fda in may 2011 , including additional safety and efficacy data through the final readout at month 36 of the fame study with an emphasis on the chronic dme subgroup . in july 2011 , we submitted a draft response to the par to the mhra , the regulatory body in the rms , which included a similar data package . in november 2011 , the fda issued a second crl to communicate that the nda could not be approved in its current form stating that the nda did not provide sufficient data to support that iluvien is safe and effective in the treatment of patients with dme . the fda stated that the risks of adverse reactions shown for iluvien in the fame study were significant and were not offset by the benefits demonstrated by iluvien in these clinical trials . the fda has indicated that we will need to conduct two additional clinical trials to demonstrate that the product is safe and effective for the proposed indication . we expect to meet with the fda in the second quarter of 2012 to discuss the crl and the regulatory status of iluvien . after meetings and discussions with the mhra , we finalized and submitted our response to the par to the mhra in november 2011. in february 2012 , we received a final assessment report ( far ) from the mhra indicating that the united kingdom , austria , france , germany , italy , portugal and spain had reached a consensus that iluvien was approvable and that the decentralized procedure was complete . upon receipt of the far , we entered the national phase with each of these seven countries . during the national phase labeling in each country 's local language is finalized . as part of the approval process in these countries , we have committed to conduct a five-year , post-authorization , open label registry study of iluvien in patients with chronic dme . iluvien is also being studied in three phase 2 clinical trials for the treatment of the dry form of age-related macular degeneration ( amd ) , the wet form of amd and retinal vein occlusion ( rvo ) . we commenced operations in june 2003. since our inception we have incurred significant losses . as of december 31 , 2011 , we have accumulated a deficit of $ 211.4 million . story_separator_special_tag further , our agreement with psivida permits psivida to grant to any other party the right to use its intellectual property ( i ) to treat dme through an incision smaller than that required for a 25-gauge needle , unless using a corticosteroid delivered to the back of the eye , ( ii ) to deliver any compound outside the back of the eye unless it is to treat dme through an incision required for a 25-gauge or larger needle , or ( iii ) to deliver non-corticosteroids to the back of the eye , unless it is to treat dme through an incision required for a 25-gauge or larger needle . under the february 2005 agreement , we and psivida agreed to collaborate on the development of iluvien for dme , and share financial responsibility for the development expenses equally . per the terms of the agreement , we each reported our monthly expenditures on a cash basis , and the party expending the lesser amount of cash during the period was required to make a cash payment to the party expending the greater amount to balance the cash expenditures . we retained primary responsibility for the development of the product , and therefore , were generally the party owed a balancing payment . between february 2006 and december 2006 , psivida failed to make payments to us for its share of development costs totaling $ 2.0 million . for each payment not made , psivida incurred a penalty of 50 % of the missed payment and interest began accruing at the rate of 20 % per annum on the missed payment and the penalty amount . in accordance with the terms of the agreement , psivida was able to remain in compliance with the terms of the february 2005 agreement as long as the total amount of development payments past due did not exceed $ 2.0 million , and psivida began making payments again in december 2006 in order to maintain compliance with the agreement . the february 2005 agreement provided that after commercialization of iluvien , profits , as defined in the agreement , would be shared equally . in march 2008 , we and psivida amended and restated the agreement to provide us with 80 % of the net profits and psivida with 20 % of the net profits . total consideration to psivida in connection with the execution of the march 2008 agreement was $ 33.8 million , which consisted of a cash payment of $ 12.0 million , the issuance of a $ 15.0 million note payable , and the forgiveness of $ 6.8 million in outstanding receivables . the $ 15.0 million promissory note was repaid pursuant to its terms with the proceeds from our ipo . we will owe psivida an additional milestone payment of $ 25.0 million if iluvien is approved by the fda . 56 our credit facility term loan agreement on october 14 , 2010 ( effective date ) , we entered into a loan and security agreement ( term loan agreement ) with silicon valley bank and midcap financial llp ( lenders ) . pursuant to the original terms of the term loan agreement , we were entitled to borrow up to $ 12.5 million , of which $ 6.25 million ( term loan a ) was advanced to us on the effective date . we were entitled to draw down the remaining $ 6.25 million under the term loan ( term loan b and together with term loan a , the term loan ) if the fda approved our nda for iluvien prior to or on july 31 , 2011. on may 16 , 2011 , the lenders and we amended the term loan agreement ( term loan modification ) to , among other things , extend until december 31 , 2011 the date by which the fda must have approved the nda in order for us to draw down term loan b and increase the amount of term loan b by $ 4.75 million to $ 11.0 million . in addition , the maturity date of the term loan was extended from october 31 , 2013 to april 30 , 2014 ( term loan maturity date ) . as a result of the issuance of the second crl by the fda in november 2011 , we did not drawn down term loan b by december 31 , 2011 and the availability to draw down term loan b expired . we were required to pay interest on term loan a at a rate of 11.5 % on a monthly basis through july 31 , 2011 , and since august 2011 , we have been required to repay the principal in 33 equal monthly installments plus interest at a rate of 11.5 % . if we repay term loan a prior to maturity , we must pay to the lenders a prepayment fee equal to 5.0 % of the total amount of principal then outstanding if the prepayment had occurred within one year after the funding date of term loan a ( term loan a funding date ) , 3.0 % of such amount if the prepayment occurs between one year and two years after the term loan a funding date and 1.0 % of such amount if the prepayment occurs thereafter ( subject to a 50 % reduction in the event that the prepayment occurs in connection with an acquisition of us ) . to secure the repayment of any amounts borrowed under the term loan agreement , we granted to the lenders a first priority security interest in all of our assets , including our intellectual property , however , the lien on our intellectual property will be released if we meet certain financial conditions . the occurrence of an event of default could result in the acceleration of our obligations under the term loan agreement and an increase to the applicable interest rate , and would permit the lenders to exercise remedies with respect to the collateral under the term loan agreement .
| results of operations the following discussion should be read in conjunction with our financial statements . replace_table_token_6_th 64 year ended december 31 , 2011 compared to the year ended december 31 , 2010 research and development expenses . research and development expenses decreased by approximately $ 5.5 million , or 44 % , to approximately $ 7.1 million for the year ended december 31 , 2011 compared to approximately $ 12.6 million for the year ended december 31 , 2010. the decrease was primarily attributable to decreases of $ 4.2 million in costs related to our fame study , $ 2.0 million in costs to file our nda in the u.s. and marketing applications for iluvien in the united kingdom , austria , france , germany , italy , portugal and spain , $ 1.1 million in technical transfer costs associated with establishing manufacturing capabilities with a third party manufacturer for iluvien , and $ 350,000 in costs associated with our ancillary studies , offset by increases of $ 1.2 million in costs related to the physician utilization study which is being conducted to assess the safety and utility of the commercial version of the inserter for iluvien , $ 540,000 in costs associated with contracting medical science liaisons to engage with retinal specialists in the study of iluvien , and $ 340,000 in personnel costs . the decrease in costs for our fame study was primarily due to decreases of $ 2.9 million for our cros , $ 960,000 for clinical trial site costs , and $ 370,000 for our third party reading center for the analysis of retinal images . general and administrative expenses .
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on november 3 , 2016 , we announced our plan to implement a new corporate structure that unified our sales , pricing , customer service , marketing , and capacity sourcing functions effective january 1 , 2017 , and allows us to operate as one logistics provider under the arcbest ® brand . our operations are conducted through three reportable operating segments : · asset-based , which consists of abf freight system , inc. and certain other subsidiaries ( “ abf freight ” ) ; · arcbest , our asset-light logistics operation ; and · fleetnet . the arcbest and fleetnet reportable segments combined represent our asset-light operations . see additional segment descriptions in part i , item 1 ( business ) and in note m to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. references to the company , including “ we , ” “ us , ” and “ our , ” in this annual report on form 10-k are primarily to the company and its subsidiaries on a consolidated basis . contract negotiations as further discussed within the asset-based operations section of results of operations , contract negotiations for the terms of abf freight 's union labor contract for the period subsequent to march 31 , 2018 , are in progress . the negotiation of terms of the collective bargaining agreement is a very complex process . as further discussed in part i , item 1a ( risk factors ) of this annual report on form 10-k , the inability to agree on acceptable terms for the next period prior to the expiration of the current collective bargaining agreement could result in a work stoppage , the loss of customers , or other events that could have a material adverse effect on the company 's competitive position , results of operations , cash flows , and financial position in 2018 and subsequent years . reclassifications during the third quarter of 2017 , we modified the presentation of segment expenses allocated from shared services . shared services represent costs incurred to support all segments , including sales , pricing , customer service , marketing , capacity sourcing functions , human resources , financial services , information technology , legal , and other company-wide services . certain overhead costs are not attributable to any segment and remain unallocated in “ other and eliminations. ” previously , expenses related to company-wide functions were allocated to segment expense line items by type of expense . allocated expenses are now presented on a single shared services line within our operating segment disclosures . reclassifications have been made to the prior period operating segment expenses to conform to the current year presentation . there was no impact on each segment 's total expenses as a result of the reclassifications . organization of information management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is provided to assist readers in understanding our financial performance during the periods presented and significant trends which may impact our future performance . this discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included in part ii , item 8 of this annual report on form 10-k. md & a includes forward-looking statements that are subject to risks and uncertainties . actual results may differ materially from the statements made in this section due to a number of factors that are discussed in part i ( forward-looking statements ) and part i , item 1a ( risk factors ) of this annual report on form 10-k. md & a is comprised of the following : · story_separator_special_tag termination date of december 31 , 2017. the plan has filed for a determination letter from the internal revenue service ( the “ irs ” ) regarding the qualification of the plan termination . following receipt of a favorable determination letter , benefit election forms will be provided to plan participants , and they will have an election window in which they can choose any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date . pension settlement charges related to the plan termination , including settlements for lump sum benefit distributions and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date , are likely to occur primarily in the second half of 2018. however , the timing of recognizing these settlements in our financial statements is highly dependent on when and if we receive the favorable determination letter from the irs . we expect to continue to recognize pre-tax pension settlement expense related to the nonunion defined benefit pension plan , the amount of which will fluctuate based on the amount of lump-sum benefit distributions paid to participants , actual returns on plan assets , and changes in the discount rate used to remeasure the projected benefit obligation of the plan upon settlement . total nonunion pension expense , including settlement , is estimated to be approximately $ 2.0 million to $ 2.5 million for the first quarter of 2018 ; however , settlement charges could be higher if eligible plan participants elect to 37 receive a lump sum distribution of their pension benefit ahead of the plan termination . we may be required to fund the plan prior to the final distribution of benefits to plan participants , the amount of which will be determined by the plan 's actuary . based on currently available information provided by the plan 's actuary , we estimate cash funding of approximately $ 10.0 million and noncash pension settlement charges of approximately $ 20.0 million in 2018 , although there can be no assurances in this regard . story_separator_special_tag asset-based operations asset-based segment overview the asset-based segment consists of abf freight system , inc. , a wholly-owned subsidiary of arcbest corporation , and certain other subsidiaries . our asset-based operations are affected by general economic conditions , as well as a number of other factors that are more fully described in item 1 ( business ) and in item 1a ( risk factors ) of part i of this annual report on form 10-k. the key indicators necessary to understand the operating results of our asset-based segment include : · overall customer demand for asset-based transportation services , including the impact of economic factors ; · volume of transportation services provided , primarily measured by average daily shipment weight ( “ tonnage ” ) , which influences operating leverage as tonnage levels vary ; · prices obtained for services , primarily measured by yield ( “ revenue per hundredweight ” ) , including fuel surcharges ; and · ability to manage cost structure , primarily in the area of salaries , wages , and benefits ( “ labor ” ) , with the total cost structure measured by the percent of operating expenses to revenue levels ( “ operating ratio ” ) . 39 as previously disclosed within the introduction to md & a , we have reclassed certain prior period segment operating expenses in this annual report on form 10-k to conform to the current year presentation of segment expenses allocated from shared services . see note m to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for a description of the asset-based segment and additional segment information , including revenues and operating income for the years ended december 31 , 2017 , 2016 , and 2015 , as well as explanation of the expense category reclassifications for shared services . the asset-based segment represented approximately 70 % of our 2017 total revenues before other revenues and intercompany eliminations . as part of our corporate restructuring , effective january 1 , 2017 , certain nonunion employees in the areas of sales , pricing , customer service , financial services , marketing , and capacity sourcing were transferred to our shared services ( reported in “ other and eliminations ” ) , which increased the percentage of union employees within the asset-based segment . as of december 2017 , approximately 83 % of asset-based employees were covered under a collective bargaining agreement , the abf national master freight agreement ( the “ abf nmfa ” ) , with the international brotherhood of teamsters ( the “ ibt ” ) , which extends through march 31 , 2018. the abf nmfa included a 7 % wage rate reduction effective on the november 3 , 2013 implementation date , followed by wage rate increases of 2 % on july 1 in each of the next three years , which began in 2014 , and a 2.5 % increase on july 1 , 2017 ; a one-week reduction in annual compensated vacation effective for employee anniversary dates on or after april 1 , 2013 ; the option to expand the use of purchased transportation ; and increased flexibility in labor work rules . the abf nmfa and the related supplemental agreements provide for continued contributions to various multiemployer health , welfare , and pension plans maintained for the benefit of asset-based employees who are members of the ibt . the estimated net effect of the november 3 , 2013 wage rate reduction and the benefit rate increase which was applied retroactively to august 1 , 2013 was an initial reduction of approximately 4 % to the combined total contractual wage and benefit rate under the abf nmfa . following the initial reduction , the combined contractual wage and benefit contribution rate under the abf nmfa increased approximately 2.5 % on a compounded annual basis throughout the contract period , which extends through march 31 , 2018. management can not make any assurances as to the contractual wage and benefit contribution rates beyond the current contract period . contract negotiations for the terms of the collective bargaining agreement with the ibt for the period subsequent to march 31 , 2018 began in january 2018 and are in progress . the negotiation of terms of the collective bargaining agreement is a very complex process . as further discussed in part i , item 1a ( risk factors ) of this annual report on form 10-k , the inability to agree on acceptable terms for the next period prior to the expiration of the current abf nmfa could result in a work stoppage , the loss of customers , or other events that could have a material adverse effect on the company 's competitive position , results of operations , cash flows , and financial position in 2018 and subsequent years . improving the asset-based operating ratio is dependent upon : managing the segment 's cost structure ( as discussed in labor costs within this section of the asset-based segment overview ) and securing price increases to cover contractual wage and benefit rate increases , costs of maintaining customer service levels , and other inflationary increases in cost elements . tonnage the level of tonnage managed by the asset-based segment is directly affected by industrial production and manufacturing , distribution , residential and commercial construction , consumer spending , primarily in the north american economy , and capacity in the trucking industry . operating results are affected by economic cycles , customers ' business cycles , and changes in customers ' business practices . the asset-based segment actively competes for freight business based primarily on price , service , and availability of flexible shipping options to customers . the asset-based segment seeks to offer value through identifying specific customer needs , then providing operational flexibility and seamless access to its services and those of our asset-light operations in order to respond with customized solutions . pricing the industry pricing environment , another key factor to our asset-based results , influences the ability to obtain appropriate margins and price increases on customer accounts .
| results of operations includes : · an overview of consolidated results with 2017 compared to 2016 and 2016 compared to 2015 , and a consolidated adjusted earnings before interest , taxes , depreciation , and amortization ( “ adjusted ebitda ” ) schedule ; · a financial summary and analysis of our asset-based segment results of 2017 compared to 2016 and 2016 compared to 2015 , including a discussion of key actions and events that impacted the results ; · a financial summary and analysis of the results of our asset-light operations for 2017 compared to 2016 and 2016 compared to 2015 , including a discussion of key actions and events that impacted the results ; and · a discussion of other matters impacting operating results , including seasonality , effects of inflation , environmental and legal matters , and information technology and cybersecurity . 35 · liquidity and capital resources provides an analysis of key elements of the cash flow statements , borrowing capacity , and contractual cash obligations , including a discussion of financing arrangements and financial commitments . · income taxes provides an analysis of the effective tax rates and deferred tax balances , including deferred tax asset valuation allowances . · critical accounting policies discusses those accounting policies that are important to understanding certain material judgments and assumptions incorporated in the reported financial results . · recent accounting pronouncements discusses accounting standards that are not yet effective for our financial statements but are expected to have a material effect on our future results of operations or financial condition .
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for a discussion of the results of operations and financial condition of api group for the year ended december 31 , 2018 and year-to-year comparisons between 2019 and 2018 , please refer to “ item 7 – management 's discussion and analysis of financial condition and results of operations in our form s-4 , effective as of may 1 , 2020 , which item is incorporated herein by reference . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” and “ cautionary note regarding forward looking statements ” sections 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 . overview apg is a market-leading business services provider of safety , specialty and industrial services in over 200 locations , primarily in north america and with an expanding platform in europe . apg provides statutorily mandated and other contracted services to a strong base of long-standing customers across industries . we have a winning leadership culture driven by entrepreneurial business leaders to deliver innovative solutions for our customers . we focus on growing our recurring revenue and repeat business from our diversified long-standing customers across a variety of end markets , which provides us with stable cash flows and a platform for organic growth . maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years , with the majority having durations of less than six months , and are often recurring due to consistent renewal rates and long-standing customer relationships . we were incorporated on september 18 , 2017 with limited liability under the laws of the british virgin islands under the name j2 acquisition limited ( “ j2 ” ) . j2 was created for the purpose of acquiring a target company or business . on october 1 , 2019 , we completed our acquisition of api group ( the “ api acquisition ” ) and changed our name to api group corporation in connection with the api acquisition . our financial statement presentation for the api group financial information as of and for the periods presented prior to the api acquisition date are labeled “ predecessor ” . our financial statements , including api group from the api acquisition date , are labeled “ successor ” . certain factors and trends affecting apg 's results of operations summary of principal acquisitions during 2020 we completed multiple acquisitions for an aggregate cash purchase price of $ 319 million , net of cash acquired . these acquisitions were primarily in the safety services segment . the largest of these acquisitions was skg , a european market-leading provider of commercial safety services , with operations primarily in the netherlands , belgium , france , sweden , norway , and the united kingdom . see note 4 – “ business combinations ” for further details . economic , industry and market factors we closely monitor the effects of general changes in economic and market conditions on our customers . general economic and market conditions can negatively affect demand for our customers ' products and services , which can affect their planned capital and maintenance budgets in certain end markets . market , regulatory and industry factors could affect demand for our services , including : ( i ) changes to customers ' capital spending plans ; ( ii ) mergers and acquisitions among the customers we serve ; ( iii ) new or changing regulatory requirements or other governmental policy changes or uncertainty ; ( iv ) economic , market or political developments ; ( v ) changes in technology , tax and other incentives ; and ( vi ) access to capital for customers in the industries we serve . availability of transportation and transmission capacity and fluctuations in market prices for oil , gas and other fuel sources can also affect demand for our services for pipeline and power generation construction services . these fluctuations , as well as the highly competitive nature of our industries , can result , and has resulted , in lower proposals and lower profit on the services we provide . in the face of increased pricing pressure on key materials , such as steel , or other market developments , we strive to maintain our profit margins through 33 productivity improvements , cost reduction programs , pricing adjustments , and business streamlining efforts . while we actively monitor economic , industry and market factors that could affect our business , we can not predict the effect that changes in such factors may have on our future consolidated results of operations , liquidity and cash flows , and we may be unable to fully mitigate , or benefit from , such changes . we continue to monitor the short- and long-term impacts of covid-19 , a global pandemic that has caused a significant slowdown in the global economy beginning in march 2020. to date , the services we provide have been deemed to be essential in most instances . however , as the covid-19 situation has continued to evolve , we have seen various disruptions in our work due to the domino effects of the various local , state and national jurisdictional orders , including but not limited to , the impact on our efficiency to perform our work while adhering to physical distancing protocols demanded by covid-19 , customers deferring inspection and service projects , and temporary shutdowns of active projects as they work through covid-19 related matters . as a result , we are experiencing delays in certain projects and disruptions to the flow of our work to meet covid-19 working protocols . story_separator_special_tag general and administrative expenses consist primarily of compensation and associated costs for executive management , personnel , facility leases , administrative expenses associated with accounting , finance , legal , information systems , leadership development , human resources and risk management and overhead associated with these functions . general and administrative expenses also include outside professional fees and other corporate expenses . amortization of intangible assets amortization expense reflects the charges incurred to amortize our finite-lived identifiable intangible assets , such as customer relationships , and trade names which are amortized over their estimated useful lives . impairment of goodwill , intangibles and long-lived assets we do not amortize goodwill , rather , goodwill is tested for impairment annually , or more frequently as events and circumstances change . expenses for impairment charges related to the write-down of goodwill balances and identifiable intangible assets balances are recorded to the extent their carrying values exceed their estimated fair values . expenses for impairment charges related to the write-down of other long-lived assets ( which includes amortizable intangibles ) are recorded when triggering events indicate their carrying values may exceed their estimated fair values . results of operations the following is a discussion of apg 's financial condition and results of operations for the years ended december 31 , 2020 and 2019 . 35 the following financial information has been extracted from the audited consolidated financial statements of apg included in this annual report . replace_table_token_1_th year ended december 31 , 2020 versus year ended december 31 , 2019 apg 's results of operations for the year ended december 31 , 2019 includes the results of operations of api group from october 1 , 2019 ( the date of the api acquisition ) through december 31 , 2019. as a result , for the year ended december 31 , 2020 , the changes in our results of operations , including consolidated and segment operating results , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 in all cases were a result of the api acquisition and the comparison of a full year of operations versus three months of operations . activity prior to the api acquisition was the preparation for the acquisition of a target company . as a result , our activity prior to the api acquisition was limited to the evaluation of business combination candidates and we did not generate any operating revenues until the closing of the api acquisition . during the period from inception until the api acquisition , we generated investment income from investment of our cash on hand in treasury securities . net revenues net revenues for the year ended december 31 , 2020 were $ 3,587 million compared to $ 985 million for the 2019 successor period , and $ 3,107 million in the 2019 predecessor period . net revenues in 2020 were negatively impacted by the sale of two industrial services businesses that accounted for $ 91 million of revenue in 2020 compared to $ 60 million for the 2019 successor period and $ 230 for the 2019 predecessor period , the negative impacts of covid-19 resulting from access restrictions to buildings and project sites , and the delay or cancellation of projects by our customers due to the uncertainty and impact of covid-19 on their businesses . this was combined with focused project selection , which led to a decrease in the volume of projects . gross profit replace_table_token_2_th gross margin for the year ended december 31 , 2020 was 21.1 % compared to 20.1 % for the 2019 successor period , and 19.4 % in the 2019 predecessor period . changes in 2020 were the result of continued focus on project selection , targeted price improvements , increased efficiencies on our projects , better project management , jobsite conditions , and the mix of services provided . we also divested two lower margin businesses during 2020 in our industrial services segment which contributed to the increase . 36 operating expenses replace_table_token_3_th operating expenses of $ 922 million for the year ended december 31 , 2020 represented 25.7 % of net revenues for the year ended december 31 , 2020 compared to 36.4 % in the 2019 successor period , and 16.2 % in the 2019 predecessor period . the changes in operating expenses are attributable to various factors including impairment expense of $ 197 million in 2020 as a result of negative impacts from covid-19 on operations , including supplier , vendor , and customer base . other factors included increases in amortization expense due to the purchase accounting adjustments recorded in connection with the api acquisition and other acquisitions , and increases related to contingent consideration and compensation . these were partially offset by a decrease in share-based compensation expense as a one-time charge of $ 155 million was recognized in the 2019 successor period related to the fair value of the preferred stock annual dividend feature . in addition , the composition of selling , general , and administrative expenses has changed due to our transition to a public company . we have recognized increases in costs related to business process transformation , compensation , public company registration , listing and compliance , professional management fees , and insurance . these increases have been partially offset by elimination of prior ownership costs and reductions from our preemptive cost reduction plan enacted in response to covid-19 , which were largely temporary and designed to flex as our businesses are impacted by covid-19 . i nterest expense , net interest expense was $ 52 million for the year ended december 31 , 2020 compared to $ 15 million for the 2019 successor period and $ 20 million in the 2019 predecessor period . the increase in interest expense was primarily due to an increase in average outstanding borrowings and higher average borrowing costs reflecting the api acquisition in which api group 's previous debt was settled and replaced by borrowings under our credit agreement , and a full year of higher average outstanding borrowings .
| operating segment results replace_table_token_5_th 38 replace_table_token_6_th replace_table_token_7_th apg 's results of operations for the year ended december 31 , 2020 include a full year of operations compared to the year ended december 31 , 2019 which includes the results of operations of api group from october 1 , 2019 ( the date of the api acquisition ) through december 31 , 2019. as a result , for the year ended december 31 , 2020 , the changes in our segment operating results compared to prior year are primarily a result of the api acquisition and comparing three months of operations to a full year of operations . the following discussion breaks down the net revenues , operating income and ebitda by operating segment for the year ended december 31 , 2020 ( successor ) compared to the 2019 successor period ended december 31 , 2019 and the 2019 predecessor period . safety services safety services net revenues for the year ended december 31 , 2020 was $ 1,639 million compared to $ 435 million during the 2019 successor period and $ 1,342 million for the 2019 predecessor period . this change in net revenues is primarily due to the negative impacts of covid-19 in addition to the timing of larger contract revenues during the prior year periods . safety services operating margin for the year ended december 31 , 2020 was 0.5 % compared to 7.8 % during the 2019 successor period and 12.0 % for the 2019 predecessor period . the fluctuations were primarily driven by impairment charges of $ 83 million and intangible asset amortization expense of $ 113 million in the year ended december 31 , 2020. safety services ebitda as a percentage of net revenues for the year ended december 31 , 2020 was 8.5 % compared to 13.6 % during the 2019 successor period and 12.7 % for the 2019 predecessor period . the change was primarily driven by impairment charges .
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litigation reform act of 1995. such forward-looking statements may contain words related to future projections including , but not limited to , words such as “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” and variations of those words and similar words that are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those projected . factors that could cause or contribute to such differences include , but are not limited to , the following : ( 1 ) the duration of financial and economic volatility and decline and actions taken by the united states congress and governmental agencies , including the united states department of the treasury , to deal with challenges to the u.s. financial system ; ( 2 ) the risks presented by a continued economic recession , which could adversely affect credit quality , collateral values , including real estate collateral , investment values , liquidity and loan originations and loan portfolio delinquency rates ; ( 3 ) variances in the actual versus projected growth in assets and return on assets ; ( 4 ) potential continued or increasing loan and lease losses ; ( 5 ) potential increasing levels of expenses associated with resolving non-performing assets as well as regulatory changes ; ( 6 ) changes in the interest rate environment including interest rates charged on loans , earned on securities investments and paid on deposits and other borrowed funds ; ( 7 ) competitive effects ; ( 8 ) potential declines in fee and other noninterest income earned associated with economic factors as well as regulatory changes ; ( 9 ) general economic conditions nationally , regionally , and within our operating markets could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets ; ( 10 ) changes in the regulatory environment including government intervention in the u.s. financial system ; ( 11 ) changes in business conditions and inflation ; ( 12 ) changes in securities markets , public debt markets , and other capital markets ; ( 13 ) potential data processing and other operational systems failures or fraud ; ( 14 ) potential continued decline in real estate values in our operating markets ; ( 15 ) the effects of uncontrollable events such as terrorism , the threat of terrorism or the impact of the current military conflicts in afghanistan and iraq and the conduct of the war on terrorism by the united states and its allies , worsening financial and economic conditions , natural disasters , and disruption of power supplies and communications ; ( 16 ) changes in accounting standards , tax laws or regulations and interpretations of such standards , laws or regulations ; ( 17 ) projected business increases following any future strategic expansion could be lower than expected ; ( 18 ) the goodwill we have recorded in connection with acquisitions could become impaired , which may have an adverse impact on our earnings ; ( 19 ) the reputation of the financial services industry could experience further deterioration , which could adversely affect our ability to access markets for funding and to acquire and retain customers ; ( 20 ) the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized ; and ( 21 ) downgrades in the credit rating of the united states by credit rating agencies . the factors set forth under “ item 1a - risk factors ” in this report and other cautionary statements and information set forth in this report should be carefully considered and understood as being applicable to all related forward-looking statements contained in this report , when evaluating the business prospects of the company and its subsidiaries . forward-looking statements are not guarantees of performance . by their nature , they involve risks , uncertainties and assumptions . the future results and shareholder values may differ significantly from those expressed in these forward-looking statements . you are cautioned not to put undue reliance on any forward-looking statement . any such statement speaks only as of the date of this report , and in the case of any documents that may be incorporated by reference , as of the date of those documents . we do not undertake any obligation to update or release any revisions to any forward-looking statements , to report any new information , future event or other circumstances after the date of this report or to reflect the occurrence of unanticipated events , except as required by law . however , your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the securities and exchange commission ( the “ sec ” ) on forms 10-k , 10-q and 8-k. 34 critical accounting policies general the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the financial information contained within our statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . we use historical loss data and the economic environment as factors , among others , in determining the inherent loss that may be present in our loan and lease portfolio . actual losses could differ significantly from the factors that we use . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of our transactions would be the same , the timing of events that would impact our transactions could change . story_separator_special_tag tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination . the election has been made to record interest expense related to tax exposures in tax expense , if applicable , and the exposure for penalties related to tax exposures in tax expense , if applicable . overview the company recorded net income in 2011 of $ 2,504,000 , a 426.1 % increase from $ 476,000 in 2010. diluted earnings per share for 2011 were $ 0.25 , an increase of $ 0.20 from the $ 0.05 recorded in 2010. for 2011 , the company realized a return on average equity of 2.74 % and a return on average assets of 0.43 % , as compared to 0.53 % and 0.08 % for 2010. net income for 2010 was $ 1,110,000 ( 70.0 % ) lower than the $ 1,586,000 recorded in 2009. in 2009 , diluted earnings per share were $ 0.26 , return on average assets was 0.28 % and return on average equity was 2.44 % . table one below provides a summary of the components of net income for the years indicated ( dollars in thousands ) : table one : components of net income replace_table_token_4_th * fully taxable equivalent basis ( fte ) 36 under accounting principles generally accepted in the united states of america all share and per share data is adjusted for stock dividends and stock splits . there were no stock dividends or stock splits in 2011 , 2010 or 2009. during 2011 , total assets of the company increased $ 2,578,000 ( 0.4 % ) to a total of $ 581,518,000 at year-end . at december 31 , 2011 , net loans totaled $ 293,731,000 , down $ 44,802,000 ( 13.2 % ) from the ending balance on december 31 , 2010. deposits decreased $ 2,837,000 or 0.6 % during 2011 resulting in ending deposit balances of $ 462,285,000. shareholders ' equity increased 5.1 % during 2011 , increasing by $ 4,555,000 to end the year at $ 94,099,000. the company ended 2011 with a leverage capital ratio of 13.1 % and a total risk-based capital ratio of 22.8 % compared to leverage 1 capital ratio of 12.6 % and a total risk-based capital ratio of 20.3 % at the end of 2010. story_separator_special_tag cellspacing= '' 0 '' style= '' width : 100 % ; font : 10pt times new roman , times , serif '' > 38 table two : analysis of net interest margin on earning assets replace_table_token_5_th ( 1 ) loan and lease interest includes loan and lease fees of $ 95,000 , $ 56,000 and $ 46,000 in 2011 , 2010 and 2009 , respectively . ( 2 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2011 , 2010 and 2009 . ( 3 ) net interest margin is computed by dividing net interest income by total average earning assets . 39 table three : analysis of volume and rate changes on net interest income and expenses year ended december 31 , 2011 over 2010 ( dollars in thousands ) replace_table_token_6_th replace_table_token_7_th ( 1 ) the average balance of non-accruing loans and leases is immaterial as a percentage of total loans and leases and , as such , has been included in net loans and leases . ( 2 ) loan and lease fees of $ 95,000 , $ 66,000 and $ 46,000 for the years ended december 31 , 2011 , 2010 and 2009 , respectively , have been included in the interest income computation . ( 3 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2011 , 2010 and 2009 . ( 4 ) the rate/volume variance has been included in the rate variance . 40 provision for loan and lease losses the company provided $ 3,625,000 for loan and lease losses in 2011 as compared to $ 7,365,000 for 2010. net loan and lease losses for 2011 were $ 4,168,000 as compared to $ 7,689,000 in 2010. in 2011 , net loan and lease losses as a percentage of average loans outstanding were 1.29 % compared to 2.12 % in 2010. in 2009 , the company provided $ 8,530,000 for loan and lease losses and net charge-offs were $ 6,539,000. the company has continued to provide amounts to the allowance for loan and lease losses in 2011 because of a continued high level of nonperforming loans and leases . the high level of nonperforming loans and leases is due to the impact that the overall challenging economy in the company 's market areas and the united states , overall , has had on the company 's borrowers . for additional information see the “ allowance for loan and lease losses activity. ” service charges and fees and other income table four below provides a summary of the components of noninterest income for the periods indicated ( dollars in thousands ) : table four : components of noninterest income replace_table_token_8_th noninterest income was up $ 304,000 ( 16.9 % ) to $ 2,108,000 in 2011 from the 2010 level . the increase from 2010 to 2011 was primarily related to an increase in the gains on sales of investment securities .
| results of operations net interest income and net interest margin net interest income represents the excess of interest and fees earned on interest earning assets ( loans , securities , federal funds sold and interest-bearing deposits in other banks ) over the interest paid on deposits and borrowed funds . net interest margin is net interest income expressed as a percentage of average earning assets . the company 's fully taxable equivalent net interest margin was 4.36 % in 2011 , 4.49 % in 2010 , and 4.90 % in 2009. the fully taxable equivalent net interest income was down $ 635,000 ( 2.8 % ) in 2011 compared to 2010. the fully taxable equivalent net interest income was down $ 1,866,000 ( 7.7 % ) in 2010 compared to 2009. the fully taxable equivalent interest income component decreased from $ 25,915,000 in 2010 to $ 24,438,000 in 2011 , representing a 5.7 % decrease . the decrease in the fully taxable equivalent interest income for 2011 compared to the same period in 2010 is comprised of two components - rate ( down $ 72,000 ) and volume ( down $ 1,405,000 ) . the rate decrease can be attributed to the overall lower interest rate environment , forgone interest on nonaccrual loans , and lower average loan balances replaced with higher average investment securities . during 2011 , foregone interest income on nonaccrual loans was approximately $ 1,706,000 , compared to foregone interest of $ 1,736,000 during 2010. the average balance of earning assets decreased slightly from $ 500,882,000 in 2010 to $ 500,200,000 in 2011 ; however , there was a significant change in the average earning asset mix in 2011. there was an increase in investment securities , offset by a decrease in loan balances .
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usg : within the usg segment , approximately 75 % of revenues ( approximately 20 % of consolidated revenues ) are recognized at a point in time when products are shipped ( story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto and refers to the company 's results from continuing operations except where noted . in december 2019 , the company sold the businesses comprising its former technical packaging segment . the company received net proceeds from the sale of approximately $ 184 million and recorded a $ 76.5 million after-tax gain on the sale in 2020. the company used the proceeds from the sale to pay down debt and for other corporate purposes including the termination of the company 's defined benefit pension plan . the technical packaging segment is reflected as discontinued operations in the consolidated financial statements and related notes for all periods presented , in accordance with accounting principles generally accepted in the united states of america ( gaap ) . see note 2 to the consolidated financial statements for further discussion . selected financial information for each of the company 's business segments is provided in the discussion below and in note 14 to the company 's consolidated financial statements . this section 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 are contained in item 7 of the company 's form 10-k for 2019 filed with the securities and exchange commission on november 29 , 2019 and available through the sec 's website at https : //www.sec.gov/edgar/searchedgar/companysearch.html . 16 introduction esco technologies inc. and its wholly owned subsidiaries ( the company ) are organized into three reportable operating segments for financial reporting purposes : aerospace & defense ( formerly filtration/fluid flow ) , utility solutions group ( usg ) , rf shielding and test ( test ) . the company 's business segments are comprised of the following primary operating entities : ● aerospace & defense : pti technologies inc. ( pti ) ; vacco industries ( vacco ) ; crissair , inc. ( crissair ) ; westland technologies , inc. ( westland ) ; mayday manufacturing co. ( mayday ) , hi-tech metals , inc. ( hi-tech ) ; and globe composite solutions , llc ( globe ) . ● usg : doble engineering company and morgan schaffer ( together , doble ) ; and nrg systems , inc. ( nrg ) . ● test : ets-lindgren inc. ( ets-lindgren ) . aerospace & defense . pti , vacco and crissair primarily design and manufacture specialty filtration products , including hydraulic filter elements and fluid control devices used in commercial aerospace applications , unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and submarines . westland designs , develops and manufactures elastomeric-based signature reduction solutions for u.s. naval vessels . mayday designs and manufactures mission-critical bushings , pins , sleeves and precision-tolerance machined components for landing gear , rotor heads , engine mounts , flight controls , and actuation systems for the aerospace and defense industries . hi-tech is a full-service metal processor serving aerospace suppliers . globe is a vertically integrated supplier of composite-based products and solutions for acoustic , signature-reduction , communications , sealing , vibration-reducing , surface control , and hydrodynamic-related applications . usg . doble develops , manufactures and delivers diagnostic testing solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment . nrg designs and manufactures decision support tools for the renewable energy industry , primarily wind and solar . test . ets-lindgren is an industry leader in providing its customers with the ability to identify , measure and contain magnetic , electromagnetic and acoustic energy . the company continues to operate with meaningful growth prospects in its primary served markets and with considerable financial flexibility . the company continues to focus on new products that incorporate proprietary design and process technologies . management is committed to delivering shareholder value through organic growth , ongoing performance improvement initiatives , and acquisitions . covid-19 trends and uncertainties the covid-19 global pandemic has created significant and unprecedented challenges , and during these highly uncertain times , our top priority remains the health and safety of our employees , customers and suppliers , thereby securing the financial well-being of the company and supporting business continuity . our businesses have been deemed essential and are currently operational , supplying our customers with vital and necessary products . to date , our global supply chains have not been materially affected by the pandemic . given our diverse portfolio of strong , durable businesses serving non-discretionary end-markets , the strength and resilience of our business model positions us to continue to support our long-term outlook . recognizing the uncertainty presented by this global pandemic , we are suspending our practice of providing full-year financial guidance . our businesses are facing varying levels of pressure depending on the markets they serve as outlined below and the impact on our business can not be reasonably estimated at this time . in response to covid-19 , we have taken actions to enhance our financial condition , while continuing to execute our long-term strategy for profitable growth . some of the actions we have taken include : reducing a portion of executive compensation , reducing discretionary spending , minimizing capital spending , implementing hiring and salary freezes , and increasing our focus on optimizing free cash flow . these operational measures are prudent steps to maintain our liquidity and will increase our financial flexibility as we work through near-term volatility . as of september 30 , 2020 , we had approximately $ 725 million of liquidity ( amount available to borrow under credit facility plus $ 250 million increase option and $ 52.6 million in cash ) and net debt ( debt outstanding less cash on hand ) of approximately $ 9.8 million . story_separator_special_tag test the $ 1.6 million increase in ebit in 2020 as compared to 2019 was primarily due to the increased sales volumes from the segment 's asian operations partially offset by the decrease in sales volumes from the segment 's u.s. operations . 21 corporate corporate operating charges included in 2020 consolidated ebit increased to $ 78.3 million as compared to $ 41.9 million in 2019 mainly due to a $ 40.6 million pension plan termination charge as a result of the decision to terminate and annuitize the company 's defined benefit pension plan in 2020. see note 12 to the consolidated financial statements for further discussion . the “ reconciliation to consolidated totals ( corporate ) ” in note 14 to the consolidated financial statements represents corporate office operating charges . interest expense , net interest expense was $ 6.7 million in 2020 compared to $ 8.1 million in 2019 , primarily due to lower average outstanding borrowings ( $ 175.6 million compared to $ 236.4 million ) at relatively consistent average interest rates of 3.2 % . income tax expense the effective tax rates from continuing operations for 2020 , 2019 and 2018 were 35.9 % , 20.8 % and ( 6.4 % ) , respectively . the 2020 effective tax rate was unfavorably impacted by a pension plan termination charge of $ 40.6 million which is not deductible for tax purposes increasing the effective tax rate by 21.4 % . the 2020 effective tax rate was favorably impacted by the following : ( 1 ) an increase in the available 2019 foreign tax credit which was attributable to new information and tax planning strategies reducing the 2020 effective tax rate by 1.8 % ; ( 2 ) the release of a valuation allowance of $ 2.8 million for foreign net operating losses decreasing the effective tax rate by 7.2 % ; and ( 3 ) favorable 2019 state tax return to provision true-ups decreasing the effective tax rate by 1.6 % . the 2019 effective tax rate was favorably impacted by tax planning strategies to increase foreign tax credits claimed retrospectively . the company reduced the valuation allowance for excess foreign tax credits by $ 2.4 million and recorded an amended return benefit of $ 0.3 million , which favorably impacted the 2019 effective tax rate by 3.0 % . the 2017 tax cut and jobs act ( tcja ) made comprehensive changes to u.s. federal income tax laws by moving from a global to a modified territorial tax regime . as a result , cash repatriated to the u.s. is generally no longer subject to u.s. federal income tax . no provision is made for foreign withholding any applicable u.s. income taxes on the undistributed earnings of non-u.s. subsidiaries where these earnings are considered indefinitely invested or otherwise retained for continuing international operations . determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable . divestiture and acquisitions information regarding the company 's divestiture and acquisitions during 2020 , 2019 and 2018 is set forth in notes 2 and 3 to the company 's consolidated financial statements , which notes are incorporated by reference herein . all of the company 's acquisitions have been accounted for using the purchase method of accounting , and accordingly , the respective purchase prices were allocated to the assets ( including intangible assets ) acquired and liabilities assumed based on estimated fair values at the date of acquisition . the financial results from these acquisitions have been included in the company 's financial statements from the date of acquisition . pension plan termination on november 14 , 2019 , the company 's board of directors approved a resolution to terminate the company 's defined benefit pension plan ( the plan ) , effective as of february 29 , 2020. in connection with the termination , the company contributed $ 25.7 million to the plan during the fourth quarter of 2020 , settled approximately $ 32.4 million of plan liabilities during the fourth quarter of 2020 through lump-sum payments from existing plan assets to eligible participants who elected to receive them ; and recorded approximately $ 40.6 million of non-cash charges associated with these settlements . during 2020 , the company settled approximately $ 69.1 million of plan liabilities by entering into an agreement to purchase annuities from massachusetts mutual life insurance company ( massmutual ) . this agreement covered approximately 825 active and former employees and their beneficiaries , with massmutual assuming the future annuity payments for these individuals . additionally , the company settled approximately $ 0.1 million of plan liabilities through a combination of annuities and direct funding to the pension benefit guaranty corporation for the remaining approximately 14 former employees and their beneficiaries . refer to note 12 of the consolidated financial statements for more information . 22 capital resources and liquidity the company 's overall financial position and liquidity are strong . working capital from continuing operations ( current assets less current liabilities ) decreased to $ 190.6 million at september 30 , 2020 from $ 229.8 million at september 30 , 2019. accounts receivable decreased $ 14.6 million during 2020 mainly due to a $ 12 million decrease within the usg segment and a $ 7.9 million decrease within the aerospace & defense segment , driven by timing and lower sales volumes in the current year ; partially offset by an increase of approximately $ 4 million within the test segment due to timing of projects . inventories increased by $ 11.2 million during 2020 mainly due to a $ 5.4 million increase within the aerospace & defense segment , a $ 4.8 million increase within the usg segment and a $ 1.0 million increase within the test segment , resulting primarily from the timing of receipt of raw materials and work-in-progress due to timing of projects . the $ 13.3 million decrease in accounts payable at september 30 , 2020 was mainly due to a $ 9.8 million decrease within the test segment and a $ 2.4
| highlights of 2020 ● diluted eps – gaap for 2020 was $ 3.90 , consisting of $ 0.97 per share from continuing operations and $ 2.93 from discontinued operations as compared to diluted eps – gaap for 2019 of $ 3.10 , consisting of $ 2.97 per share from continuing operations and $ 0.13 per share from discontinued operations . ● sales , net earnings and diluted earnings per share from continuing operations in 2020 were $ 732.9 million , $ 25.5 million and $ 0.97 per share , respectively , compared to sales , net earnings and diluted earnings per share from continuing operations in 2019 of $ 726.0 million , $ 77.5 million and $ 2.97 per share , respectively . ● diluted eps – continuing operations as adjusted for 2020 was $ 2.76 and excludes the pension plan termination charge of $ 40.6 million ( or $ 1.55 per share after tax ) and $ 8.3 million of pretax charges ( or $ 0.24 per share after tax ) consisting primarily of facility consolidation charges for the doble manta facility ( including employee severance and compensation benefits ) , asset impairment charges and the incremental costs associated with the covid-19 pandemic . diluted eps – continuing operations as adjusted for 2019 was $ 2.95 and excludes $ 0.4 million of income ( or $ 0.02 per share after tax ) consisting primarily of the gain on the doble watertown building sale partially offset by purchase accounting charges related 18 to the globe acquisition and certain restructuring charges related to facility consolidations at doble , pti and vacco . see “ non-gaap financial measures ” below . replace_table_token_2_th ● net cash provided by operating activities from continuing operations was approximately $ 108.5 million in 2020 compared to $ 100.6 million in 2019 . ● at september 30 , 2020 , cash on hand was $ 52.6 million and outstanding debt was $ 62.4
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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 ar glasses , video headphones 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 . some of these models can also be used for ar and light virtual reality 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 and gaming , as well as support for stepping into virtual worlds , simulations , and gaming . our products are available with varying features , including with and without applications running computer processors , and are offered as either monocular or binocular display systems . 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 and gaming . all of the mobile display and mobile electronics markets 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 : · valuation of inventories ; · carrying value of long-lived assets ; 32 · software development costs ; · revenue recognition ; · product warranty ; · derivatives and fair value measurements ; · stock-based compensation ; and · 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 . the accounting estimate related to valuation of inventories is considered a “ critical accounting estimate ” because it is susceptible to changes from period-to-period due to the requirement for management to make estimates relative to each of the underlying factors , ranging from purchasing to sales , production , and after-sale support . if actual demand , market conditions or product life cycles differ from estimates , inventory adjustments to lower market values would result in a reduction to the carrying value of inventory , an increase in inventory write-offs and a decrease to gross margins . story_separator_special_tag amendments to asc 605-25 establish a hierarchy to determine the stand-alone selling price as follows : · vendor specific objective evidence of the fair value ( vsoe ) ; · third party evidence ( tpe ) ; and · 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 “ critical accounting estimate ” 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 . 34 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 compensation expense 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 . the company uses the black-scholes merton option pricing model to estimate the fair value of stock options granted subsequent to the adoption of asc topic 718. the application of this pricing model involves assumptions that are judgmental and sensitive in the determination of compensation expense .
| 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_16_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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engineering and development costs are expensed as incurred and consist primarily of salaries , contractor fees including non-recurring engineering charges related to product design , allocated facility costs , depreciation , and tooling costs . stock compensation plans and employee stock purchase plan stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of asc 718-10 , “ compensation-stock story_separator_special_tag overview we are a leading global supplier of automation equipment for test and industrial applications . we design , develop , manufacture and sell automatic test systems used to test semiconductors , wireless products , data storage and complex electronics systems in the consumer electronics , wireless , automotive , industrial , computing , communications , and aerospace and defense industries . our industrial automation products include collaborative robotic arms , autonomous mobile robots and advanced robotic control software used by global manufacturing and light industrial customers to improve quality , increase manufacturing and material handling efficiency and decrease manufacturing costs . our automatic test equipment and industrial automation products and services include : semiconductor test ( “ semiconductor test ” ) systems ; defense/aerospace ( “ defense/aerospace ” ) test instrumentation and systems , storage test ( “ storage test ” ) systems , and circuit-board test and inspection ( “ production board test ” ) systems ( collectively these products represent “ system test ” ) ; industrial automation ( “ industrial automation ” ) products ; and wireless test ( “ wireless test ” ) systems . we have a customer base which includes integrated device manufacturers ( “ idms ” ) , outsourced semiconductor assembly and test providers ( “ osats ” ) , original equipment manufacturers ( “ oems ” ) , wafer foundries , fabless companies that design , but contract with others for the manufacture of integrated circuits ( “ ics ” ) , developers of wireless devices and consumer electronics , manufacturers of circuit boards , automotive suppliers , wireless product manufacturers , storage device manufacturers , aerospace and military contractors , and distributors that sell collaborative robots , autonomous mobile robots and wireless test systems . the sales of our products and services are dependent , to a large degree , on these customers who are subject to cyclical trends in the demand for their products . these cyclical periods have had , and will continue to have , a significant effect on our business because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor , electronics and industrial automation industries . historically , these demand fluctuations have resulted in significant variations in our results of operations . the market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment . a few customers drive significant demand for our test products both through direct sales and sales to the customers ' supply partners . we expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future . 24 in 2019 , revenue in our test businesses exceeded our plan as a result of semiconductor test demand in china , early 5g test investments and strength in our system test businesses . the revenue growth of our industrial automation businesses was below our plan . in 2020 , we expect continued strong momentum in our test businesses and improvement in the growth of our industrial automation businesses . on february 26 , 2018 , we acquired energid technologies corporation ( “ energid ” ) for a total purchase price of approximately $ 27.6 million . energid 's technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets , ranging from heavy industry to healthcare , utilizing both traditional robots and collaborative robots . energid is included in our industrial automation segment . on april 25 , 2018 , we acquired mobile industrial robots aps ( “ mir ” ) , a danish limited liability company . mir is a leading maker of collaborative autonomous mobile robots ( “ amrs ” ) for industrial applications . the total purchase price was approximately $ 197.8 million , which included cash paid of approximately $ 145.2 million and $ 52.6 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. contingent consideration for 2018 was $ 30.8 million and was paid in march 2019. contingent consideration for 2019 was $ 9.1 million and is expected to be paid in march 2020. the remaining maximum contingent consideration that could be paid is $ 63.2 million . mir is included in our industrial automation segment . based on our december 31 , 2019 goodwill impairment test , the mir reporting unit 's estimated fair value exceeded its carrying value by 14 % . the mir goodwill amount is $ 123.6 million as of december 31 , 2019. key assumptions in the goodwill valuation model are forecasted revenues , discount rate and earnings before interest and taxes . a change in any of these key assumptions could result in the reporting unit being impaired in a future period . on january 30 , 2019 , we acquired all of the issued and outstanding shares of lemsys sa ( “ lemsys ” ) for a total purchase price of approximately $ 9.1 million . lemsys strengthens our position in the electrification trends of vehicles , solar , wind , and industrial applications . lemsys is included in our semiconductor test segment . on june 3 , 2019 , we invested $ 15.0 million in realwear , inc. ( “ realwear ” ) . realwear , a private company , develops and sells advanced wearable technology including industrial , hands-free , head-mounted augmented reality devices that make the workplace safer and more productive . story_separator_special_tag actuarial gains and losses are generally measured annually as of december 31 and , accordingly , recorded during the fourth quarter of each year or upon any interim remeasurement of the plans . in march 2017 , the financial accounting standards board ( “ fasb ” ) issued asu 2017-07 , “ compensation—retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost . ” we retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. this guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs . the non-service components of net benefit costs such as interest cost , expected return on assets , amortization of prior service cost , and actuarial gains or losses , are required to be reported separately outside of income or loss from operations . following the adoption of this guidance , we continue to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost , expected return on assets , amortization of prior service cost , and actuarial gains or losses are reported within other ( income ) expense , net . in 2017 , the retrospective adoption of this standard decreased income from operations by $ 5.0 million , due to the reclass of net actuarial pension gains and increased non-operating ( income ) expense by the same amount with no impact to net income ( loss ) . inventories inventories are stated at the lower of cost using a standard costing system which approximates cost based on a first-in , first-out basis or net realizable value . on a quarterly basis , we use consistent methodologies to evaluate all inventories for net realizable value . we record a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process . the inventory valuation is based upon assumptions about future demand , product mix , and possible alternative uses . equity incentive and stock purchase plans stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of asc 718 , “ compensation—stock compensation . ” upon adoption of asu 2016-09 , “ compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting , ” in the first quarter of 2017 , we made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate and recognizing compensation costs only for those stock-based compensation awards expected to vest . in accordance with asu 2016-09 , starting in the first quarter of 2017 , excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in our consolidated statements of operations and are reported as cash flows from operating activities . on january 1 , 2017 , a cumulative effect adjustment of $ 39.1 million for any prior year excess tax benefits or tax deficiencies not previously recorded was recorded as an increase to retained earnings and deferred tax assets . all cash payments made to taxing authorities on the employees ' behalf for withheld shares are presented as financing activities on the statement of cash flows . in 2019 , 2018 and 2017 , we recognized a discrete tax benefit of $ 4.9 million , $ 7.6 million and $ 6.3 million , respectively , related to net excess tax benefit . income taxes deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . the measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized . we performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with asc 740 , “ accounting for income taxes . ” this assessment included the evaluation of scheduled 27 reversals of deferred tax liabilities , estimates of projected future taxable income and tax-planning strategies . although realization is not assured , based on our assessment , we concluded that it is more likely than not that such assets , net of the existing valuation allowance , will be realized . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , “ investments—debt and equity securities . ” on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . investment in other companies we account for investments in other companies at cost and evaluate for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis . financial assets and financial liabilities in january 2016 , the fasb issued asu 2016-01 , “ financial instruments—overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities . ” we adopted the new accounting guidance in the first quarter of 2018 using the modified retrospective approach .
| results of operations information pertaining to fiscal year 2017 results of operations , including a year-to-year comparison against fiscal year 2018 , was included in our annual report on form 10-k for the year ended december 31 , 2018 under part ii , item 7 , “ management 's discussion and analysis of financial position and results of operations , ” which was filed with the sec on march 1 , 2019. this information is incorporated by reference herein . the following table sets forth the percentage of total net revenues included in our consolidated statements of operations : replace_table_token_3_th 29 revenues revenues for our reportable segments were as follows : replace_table_token_4_th the increase in semiconductor test revenues of $ 60.2 million , or 4 % , from 2018 to 2019 was driven primarily by an increase in semiconductor tester sales for 5g infrastructure and image sensors and higher service revenue , partially offset by a decrease in sales in the automotive and analog test segments . the increase in industrial automation revenues of $ 36.6 million , or 14 % , from 2018 to 2019 was primarily due to higher demand for collaborative robots . the mir acquisition was completed in april 2018. the increase in system test revenues of $ 71.4 million , or 33 % , from 2018 to 2019 was primarily due to higher sales in storage test of 3.5 ” hard disk drive testers , higher sales in defense/aerospace test instrumentation and systems , and higher sales in production board test from higher 5g demand . the increase in wireless test revenues of $ 25.3 million , or 19 % , from 2018 to 2019 was primarily due to higher demand for millimeter wave and cellular test products driven by new wireless standards and 5g , partially offset by lower sales in connectivity test products and services .
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consequently , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this report . in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere in this report . business overview we are a leader in advanced optical technology , providing high performance fiber optic test , measurement and control products for the telecommunications and photonics industries and distributed fiber optic sensing products for industries utilizing composite and other advanced materials , such as the automotive , aerospace , energy and infrastructure industries . our distributed fiber optic sensing products help designers and manufacturers more efficiently develop new and innovative products by providing valuable information such as highly detailed stress , strain , and temperature measurements of a new design or manufacturing process . in addition , our distributed fiber optic sensing products are used to monitor the structural integrity or operational health of critical assets , including large civil structures such as bridges . our communications test and control products accelerate the development of advanced fiber optic components and networks by providing fast and highly accurate characterization of components and networks . we also provide applied research services , typically under research programs funded by the u.s. government , in areas of sensing and instrumentation , advanced materials , optical technologies and health sciences . our business model is designed to accelerate the process of bringing new and innovative products to market . we use our in-house technical expertise across a range of technologies to perform applied research services for companies and for government funded projects . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . we are organized into two reporting segments , our products and licensing segment and our technology development segment . our products and licensing segment develops , manufactures and markets distributed fiber optic sensing products and fiber optic communications test and control products . we continue to develop and commercialize our fiber optic technology for sensing applications for aerospace , automotive , energy and infrastructure as well as for test and measurement applications in the telecommunications and data communications industries . our products and licensing segment revenues represented approximately 63 % and 51 % of our total revenues for the years ended december 31 , 2019 and 2018 , respectively . our technology development segment performs applied research principally in the areas of sensing and instrumentation , advanced materials and health sciences . our technology development segment comprised approximately 37 % and 49 % of our total revenues for the years ended december 31 , 2019 and 2018 , respectively . most of the government funding for our technology development segment is derived from the small business innovation research ( `` sbir '' ) , program coordinated by the u.s. small business administration . our technology development segment revenues have historically accounted for a large portion of our total revenues , and we expect that they will continue to represent a significant portion of our total revenues for the foreseeable future . within the technology development segment , we have historically had a backlog of contracts for which work has been scheduled , but for which a specified portion of work has not yet been completed . we define backlog as the dollar amount of obligations payable to us under negotiated contracts upon completion of a specified portion of work that has not yet been completed , exclusive of revenues previously recognized for work already performed under these contracts , if any . total backlog includes funded backlog , which is the amount for which money has been directly authorized by the u.s. government and for which a purchase order has been received by a commercial customer , and unfunded backlog , representing firm orders for which funding has not yet been appropriated . indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . the approximate value of our products and licensing segment backlog was $ 16.1 million and 29 $ 5.8 million at december 31 , 2019 and 2018 , respectively . the approximate value of our technology development segment backlog was $ 31.3 million and $ 26.0 million at december 31 , 2019 and 2018 , respectively . revenues from product sales are mostly derived from the sales of our sensing and test , measurement and control products that make use of light-transmitting optical fibers , or fiber optics . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . although we have been successful in licensing certain technologies in past years , we do not expect license revenues to represent a significant portion of future revenues . over time we intend to gradually increase such revenues . in the near term , we expect revenues from product sales to continue to be primarily in areas associated with our sensing and test , measurement and control fiber optic test platforms . in the long term , we expect that revenues from product sales will represent a larger portion of our total revenues . as we develop and commercialize new products , our revenues will reflect a broader and more diversified mix of products . we realized net income attributable to common stockholders of approximately $ 5.1 million for the year ended december 31 , 2019 and net income attributable to common stockholders of approximately $ 10.7 million for the year ended december 31 , 2018 . story_separator_special_tag critical accounting policies and estimates products and licensing revenues to determine the proper revenue recognition method for products and licensing contracts , we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation . we recognize revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer . for tangible products that contain software that is essential to the tangible product 's functionality , we consider the product and software to be a single performance obligation and recognize revenue accordingly . for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation based on their relative stand-alone selling prices . in such circumstances , we use the observable price of goods or services which are sold separately in similar circumstances to similar customers . if these prices are not observable , then we will estimate the stand-alone selling price using information that is reasonably available . for the majority of our standard products and services , price list and discount structures related to customer type are available . for products and services that do not have price list and discount structures , we may use one or more of the following : ( i ) adjusted market assessment approach , ( ii ) expected cost plus a margin approach , and ( iii ) residual approach . the adjusted market approach requires us to evaluate the market in which we sell goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services . the expected cost-plus margin approach requires us to forecast our expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service . the residual approach decreases the total transaction price by the sum of the observable standalone selling prices if either the company sells the same good or services to different customers for a broad range of amounts or the company has not established a price for the good or service and that good or service has not been sold on a standalone basis . shipping and handling activities primarily 31 occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations . similarly , sales and similar taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price . for standard products , we recognize revenue at a point in time when control passes to the customer . absent substantial product acceptance clauses , this is based on the shipping terms . for custom products that require engineering and development based on customer requirements , we will recognize revenue over time using the output method for any items shipped and any finished goods or work in process that is produced for balances of open sales orders . for any finished goods or work in process that has been produced for the balance of open sales orders we recognize revenue by applying the average selling price for such open order to the lesser of the on-hand balance in finished goods or open sales order quantity which we present as a contract asset on the balance sheet . cost of sales is recognized based on the standard cost of the finished goods and work in process associated with this revenue and inventory balances are reduced accordingly . for extended warranties and product rentals , revenue is recognized over time using the output method based on the time elapsed for the warranty or service period . in the case of warranties , we record a contract liability for amounts billed but that are not recognized until subsequent periods . a separate contract liability is recorded for the cost associated with warranty repairs based on our estimate of future expense . for testing services where we are performing testing on an asset the customer controls , revenue is recognized over time by the output method using the performance to date . for training , where the customer is receiving the benefit of training as it is occurring , and for repairs to a customer-controlled asset , revenue is recognized over time by the output method using the performance to date . for royalty revenue , we apply the practical expedient “ royalty exception ” recognizing revenue based on the royalty agreement which specifies an amount based on sales or minimum amount , whichever is greater . in some product rental contracts , a customer may be offered a discount on the purchase of an item that would provide for a material right . when a material right has been provided to a customer , a separate performance obligation is established , and a portion of the rental revenue will be deferred until the future product is purchased or the option expires . this deferred revenue is recognized as a contract liability on the balance sheet . technology development revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we account for a research contract when a contract has been executed , the rights of the parties are identified , payment terms are identified , the contract has commercial substance , and collectability of the contract price is considered probable . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided .
| results of operations the following table shows information derived from our consolidated statements of operations expressed as a percentage of total revenues for the periods presented . replace_table_token_2_th year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues replace_table_token_3_th our products and licensing segment included revenues from sales of test and measurement systems , primarily representing sales of our optical backscatter reflectometer , odisi , and optical vector analyzer platforms , optical components and sub-assemblies and sales of our hyperion and terahertz sensing platforms . our products and licensing segment revenues increased $ 22.5 million to $ 44.5 million for the year ended december 31 , 2019 compared to $ 21.9 million for the year ended december 31 , 2018 . the increase resulted primarily from $ 10.8 million of revenues realized from the legacy business of moi 35 and $ 10.5 million of revenues realized from the legacy business of gp during the year ended december 31 , 2019 . continued growth in sales of our fiber-optic sensing products , including our odisi products directed toward the expanding use of composite materials and the need for improved means of testing their structural integrity , and our communications test instruments also contributed to this increase . our technology development segment revenues increased $ 5.1 million to $ 26.0 million for the year ended december 31 , 2019 compared to $ 21.0 million for the year ended december 31 , 2018 . revenues within this segment increased due to additional contract awards , including higher value phase 2 sbir contracts . the increase continues a growth trend experienced over the past two years largely driven by successes in phase 2 sbir awards . the increase was realized primarily in our intelligent systems , advanced materials , optical systems and terahertz research groups .
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as a result of these sales , the company has accounted for the retail digital media and video business as a discontinued operation , and statements of operations for all periods presented have been restated to reflect the discontinuance of this story_separator_special_tag overview scm microsystems designs , develops and sells hardware , software and silicon solutions that enable people to conveniently and securely access digital content and services , including content and services that have been protected through digital encryption . we sell our products primarily to original equipment providers , or oems , who typically either bundle our products with their own solutions , or repackage our products for resale to their customers . our oem customers include : digital tv operators and broadcasters and conditional access providers for our conditional access modules ; government contractors , systems integrators , large enterprises , computer manufacturers , as well as banks and other financial institutions for our smart card readers ; and computer and photographic equipment manufacturers for our digital media readers . we sell and license our products through a direct sales and marketing organization , as well as through distributors , value added resellers and systems integrators worldwide . until the middle of 2003 , our operations included a retail digital media and video business that accounted for approximately half of our sales . we sold this business in the third quarter of 2003 , so that we are now solely focused on our core oem security business . as a result of this sale and divestiture , beginning in the second quarter of fiscal 2003 , we have accounted for the retail digital media and video business as a discontinued operation , and statements of operations for all periods presented have been restated to reflect the discontinuance of this business . for comparability , certain 2002 figures have been reclassified , where appropriate , to conform to the financial statement presentation used in 2003 and 2004 , including the adjustments necessary to conform to the discontinued operations presentation of the retail digital media and video business during 2002 . ( see note 2 of notes to consolidated financial statements . ) we have experienced a significant drop in revenues during the three year period from 2002 to 2004. the decline in our revenues is primarily related to a significant decrease in digital tv product sales , which have been adversely affected by overall weak demand in the digital television subscriber market in europe , historically our largest market for these products , as well as by the entry of new competition in the second half of 2003. sales of our pc security products also declined significantly in 2003 when orders for a major u.s. government project slowed following the completion of the high-volume purchase phase of the project ; however , revenue levels from this product area remained stable in 2004. sales of flash media interface products have declined slightly over the past two years from 2002 levels . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses scm '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 management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to product returns , customer incentives , bad debts , inventories , asset impairment , deferred tax assets , accrued warranty reserves , restructuring costs , contingencies and litigation . management bases its estimates and 17 judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are outlined in note 1 to the consolidated financial statements , which appear in part ii , item 8 of this annual report on form 10-k. some of those accounting policies require us to make estimates and assumptions that affect the amounts reported by us . management believes the following critical accounting policies , among others , affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we recognize product revenue upon shipment provided that risk and title have transferred , a purchase order has been received , collection is determined to be probable and no significant obligations remain . maintenance revenue is deferred and amortized over the period of the maintenance contract . provisions for estimated warranty repairs and returns and allowances are provided for at the time products are shipped . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . we write down inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual demand or market conditions are less favorable than those projected by management , additional inventory write-downs may be required . in 2004 , 2003 and 2002 , we wrote down approximately $ 5.4 million , $ 0.8 million and $ 4.0 million of inventory , respectively , based on such judgments . we record an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary . story_separator_special_tag additionally , compensation cost for the portion of awards for which the requisite service has not been rendered ( such as unvested options ) that are outstanding as of the date of adoption shall be recognized as the remaining services are rendered . the compensation cost relating to unvested awards at the date of adoption shall be based on the grant-date fair value of those awards as calculated for pro forma disclosures under the original sfas no . 123. in addition , companies may use the modified retrospective application method . this method may be applied to all prior years for which the original sfas no . 123 was effective or only to prior interim periods in the year of initial adoption . if the modified retrospective application method is applied , financial statements for prior periods shall be adjusted to give effect to the fair-value-based method of accounting for awards on a consistent basis with the pro forma disclosures required for those periods under the original sfas no . 123. acquisitions on may 22 , 2002 , we paid $ 4.5 million in cash for all the outstanding share capital of towitoko ag , a privately held smart card-based security solutions company based in munich , germany . the acquisition has been accounted for under the purchase method of accounting and the results of operations were included in our results of operations since the date of the acquisition . in connection with the acquisition , we incurred 19 acquisition costs of approximately $ 0.1 million . at the time of the acquisition , towitoko had no significant research and development projects that were incomplete . intangible assets and goodwill from the acquisition approximated $ 3.5 million and represented the excess of the purchase price over the fair value of the tangible assets acquired less the liabilities assumed . non-compete agreements entered into in connection with the acquisition were amortized on a straight-line basis over the term of the agreements of two years . the trade name and goodwill of $ 1.1 million were evaluated for impairment in the fourth quarter of 2002 and were written off . all other intangible assets are being amortized on a straight-line basis over their useful lives of five years . story_separator_special_tag impacted by new competition from suppliers that have emulated the conditional access decryption software for pay-tv content on conditional access modules that may be used to provide unauthorized access to that content . revenues from our flash media interface product line remained relatively stable year to year , with sales of $ 10.5 million in 2003 versus $ 11.1 million in 2002 , a decrease of 6 % . 22 gross profit the following table sets forth our gross profit and year-to-year change in gross profit by product segment for the fiscal years ended december 31 , 2004 , 2003 and 2002 : replace_table_token_5_th gross profit for 2004 was $ 14.9 million , or 30 % of total net revenue . gross profit was adversely impacted by a write-down of inventory of $ 5.4 million , of which $ 4.0 million related to digital tv product inventory , $ 0.7 million related to pc security product inventory and $ 0.7 million related to flash media interface product inventory . gross profit for 2003 was $ 26.8 million , or 40 % of total net revenue . gross profit was adversely impacted by a write-down of inventory of $ 0.8 million for a european digital tv customer whose sales did not meet forecast . gross profit for 2002 was $ 33.6 million , or 37 % of total net revenue . gross profit was adversely impacted by a write-down of inventory of $ 2.0 million related to digital tv and pc security products that were discontinued during the year . our gross profit has been and will continue to be affected by a variety of factors , including competition , the volume of sales in any given quarter , product configuration and mix , the availability of new products , product enhancements , software and services , and the cost and availability of components . accordingly , gross profit percentages are expected to continue to fluctuate from period to period . operating expenses research and development replace_table_token_6_th 23 research and development expenses consist primarily of employee compensation and fees for the development of prototype products . research and development costs are related to hardware and chip development , as well as software development . to date , the period between achieving technological feasibility and completion of software has been short , and software development costs qualifying for capitalization have been insignificant . accordingly , we have not capitalized any software development costs . research and development expenses rose 9 % in 2004 as compared to 2003 , primarily due to an increase in development activity to finalize and launch new products , as well as to higher costs associated with the effect of foreign currency exchange related to the payment of european employees in euros . research and development expenses increased 11 % in 2003 compared with 2002. in addition to higher costs associated with the effect of foreign currency exchange related to the payment of european employees in euros , the increase was primarily related to two additional factors . first , the 2003 figures include expenses for our indian research and development center , which had previously been associated with product development for our retail digital media and video business , now accounted for as discontinued operations .
| results of operations the following table sets forth our statements of operations as a percentage of net revenue for the periods indicated : replace_table_token_3_th we sell our secure digital access products into three markets segments : pc security , digital tv and flash media interface . for the pc security market , we offer smart card reader technology that enables secure access to pcs , networks and physical facilities . for the digital tv market , we offer conditional access modules that provide secure , removable decryption for digital pay-tv broadcasts . for the flash media interface market , we offer digital media readers and asics that are used to transfer digital content to and from various flash media . 20 revenue the following table sets forth our annual revenues and year-to-year change in revenues by product segment for the fiscal years ended december 31 , 2004 , 2003 and 2002 : replace_table_token_4_th fiscal 2004 revenue compared with fiscal 2003 revenue net revenue for the twelve months ended december 31 , 2004 was $ 49.1 million , compared to $ 66.5 million in 2003 , a decrease of 26 % . this decline was primarily related to lower revenues from our digital tv products . pc security and flash media interface product revenues also decreased slightly year to year . in our digital tv product line , sales decreased 46 % , from $ 35.3 million in 2003 to $ 19.1 million in 2004. the majority of our digital tv sales come from shipments of conditional access modules , which are used in conjunction with set-top boxes or integrated digital televisions to decrypt digital pay-television broadcasts . to date , sales primarily have been to small european operators or broadcasters or to distributors and conditional access suppliers serving these operators and broadcasters .
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our solutions enable our clients to focus on core operations , better monitor and manage investment performance and risk , improve operating efficiency and reduce operating costs . we provide our solutions globally to more than 6,900 clients , principally within the institutional asset management , alternative investment management and financial institutions vertical markets . in addition , our clients include commercial lenders , corporate treasury groups , insurance and pension funds , municipal finance groups and real estate property managers . since 2010 , through a combination of strategic acquisitions and internal development of new products and services , we have expanded our presence in current markets and entered new markets , increased our contractually recurring revenues , more than doubled our operating income and expanded our reach in the financial services market . our acquisitions since 2010 have expanded our offerings for alternative investment managers and added to our portfolio management systems . our acquisitions of globeop and the portia business in 2012 significantly expanded our geographic footprint , most notably in europe and asia , and our client base and added broader employee expertise . our contractually recurring revenues , which we define as our maintenance revenues and software-enabled services revenues , were $ 656.0 million in 2013 , compared to $ 500.2 million and $ 324.3 million in 2012 and 2011 , respectively . in 2013 , contractually recurring revenues represented 92.0 % of total revenues , compared to 90.6 % and 87.4 % in 2012 and 2011 , respectively . we believe our high level of contractually recurring revenues provides us with the ability to better manage our costs and capital investments . our revenues from sales outside the united states were $ 246.0 million in 2013 , compared to $ 191.4 million and $ 111.1 million in 2012 and 2011 , respectively . as we have expanded our business , we have focused on increasing our contractually recurring revenues . since 2010 , we have seen increased demand in the financial services industry for our software-enabled services from existing and new customers . we have taken a number of steps to support that demand , such as automating our software-enabled services delivery methods , expanded our service offerings and providing our employees with sales incentives . we have also acquired businesses that offer software-enabled services or have a large base of maintenance clients . our software-enabled services revenues increased from $ 246.0 million in 2011 to $ 552.6 million in 2013. our maintenance revenues increased from $ 78.3 million in 2011 to $ 103.4 million in 2013. maintenance customer retention rates have continued to be in excess of 90 % for our core enterprise products , and we have maintained both pricing levels for new contracts and annual price increases for existing contracts . to support the growth in our software-enabled services revenues and maintain our level of customer service , we have added personnel , expanded our facilities and invested in information technology . these investments and automation improvements in our software-enabled services have served to improve gross margins , although our acquisitions of globeop and the portia business in 2012 have added a significant amount of amortization expense related to intangible assets , which has resulted in an initial decrease in gross margins . gross margins have decreased from 50.3 % in 2011 to 45.4 % in 2013. in connection with the acquisitions of globeop and the portia business in the second quarter of 2012 , we entered into a new credit agreement , which is described below in liquidity and capital resources , to fund a portion of the purchase prices and refinance amounts outstanding under our prior senior credit facility . we generated $ 208.3 million in cash from operating activities in 2013 , compared to $ 134.4 million and $ 110.4 million in 2012 and 2011 , respectively . in 2013 , we used our operating cash flow and existing cash to repay $ 239.0 million of debt , invest $ 11.9 million in capital equipment in our business , acquire prime management limited for $ 3.7 million and invest $ 2.4 million in internally-developed capitalized software . 35 acquisitions . to supplement our growth , we evaluate and execute acquisitions that provide complementary products or services , add proven technology and an established client base , expand our intellectual property portfolio or address a highly specialized problem or a market niche . since the beginning of 2011 , we have spent approximately $ 991 million to acquire eight businesses in the financial services industry , using a combination of cash and debt financing ( as discussed in notes 6 and 12 to our consolidated financial statements ) . the following table lists the businesses we have acquired since january 1 , 2011 : acquired business acquisition date acquired capabilities , products and services prime management limited october 2013 expanded fund administration services in the insurance linked securities market hedgemetrix llc october 2012 expanded fund administration services in southwest usa gravity september 2012 expanded fund administration services in northeast usa globeop june 2012 expanded fund administration services in hedge fund and other asset management sectors the portia business may 2012 added portfolio management software and outsourcing services for institutional managers acquisition of teledata communications , inc. software december 2011 added background search and credit retrieval software-as-a-service ireland fund admin september 2011 expanded fund administration services to ucits funds benefitsxml march 2011 added employee benefits administration solutions the discussion in this part ii , item 7 of this annual report on form 10-k includes the operations of the business listed in the table above for the respective time periods each was owned by ss & c . story_separator_special_tag our cash and cash equivalents at december 31 , 2013 were $ 84.5 million , a decrease of $ 1.7 million from $ 86.2 million at december 31 , 2012. the decrease in cash is due primarily to cash used for repayments of debt and capital expenditures , partially offset by cash provided by operations and proceeds from stock option exercises and the related income tax benefits . net cash provided by operating activities was $ 208.3 million in 2013. cash provided by operating activities primarily resulted from net income of $ 117.9 million adjusted for non-cash items of $ 79.7 million and changes in our working capital accounts ( excluding the effect of acquisitions ) totaling $ 10.7 million . the changes in our working capital accounts were driven by changes in income taxes prepaid and payable and an increase in accrued expenses and a decrease in accounts receivable , partially offset by an increase in prepaid expenses and other current assets and decreases in accounts payable and deferred revenues . the change in income taxes prepaid and payable was primarily related to the utilization of prepaid taxes in 2013. the decrease in accounts payable was primarily due to timing of payments . 40 investing activities used net cash of $ 17.9 million in 2013 , primarily related to $ 11.9 million in cash paid for capital expenditures , $ 3.7 million in cash paid for our acquisition of prime management limited , and $ 2.4 million in cash paid for capitalized software . financing activities used net cash of $ 189.8 million in 2013 , representing $ 239.0 million in repayments of debt , $ 1.9 million in deferred financing costs , and $ 0.9 million in the purchases of common stock for treasury , partially offset by proceeds of $ 27.8 million from stock option exercises and income tax windfall benefits of $ 24.2 million related to the exercise of stock options . we have made a permanent reinvestment determination in certain non-u.s. operations that have historically generated positive operating cash flows . at december 31 , 2013 , we held approximately $ 55.3 million in cash and cash equivalents at non-u.s. subsidiaries where we had made such a determination and in turn no provision for u.s. income taxes had been made . at december 31 , 2013 , we held approximately $ 24.0 million in cash by subsidiaries of ss & c technologies holdings europe s.a.r.l. , or ss & c sarl , the foreign borrower under our credit facility that will be used to facilitate debt servicing of ss & c sarl . at december 31 , 2013 , we held approximately $ 19.3 million in cash at our indian operations that if repatriated to our foreign debt holder would incur distribution taxes of approximately $ 3.3 million . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2013 that require us to make future cash payments ( in thousands ) : replace_table_token_12_th ( 1 ) reflects interest payments on our credit facility at an assumed interest rate of one-month libor of 0.17 % plus 2.50 % for u.s. dollar loans on our term a-2 facility and 3.25 % on our term b-1 and b-2 facilities . on february 12 , 2014 , we completed a repricing of our term a-2 facility . see note 17 to our consolidated financial statements . ( 2 ) we are obligated under noncancelable operating leases for office space and office equipment . the lease for the corporate facility in windsor , connecticut expires in 2022. we sublease office space under noncancelable leases . for the years ended december 31 , 2011 , 2012 and 2013 we received rental income under these leases of $ 1.3 million , $ 1.4 million and $ 1.2 million , respectively . the effect of the rental income to be received in the future has not been included in the table above . 41 ( 3 ) purchase obligations include the minimum amounts committed under contracts for goods and services . ( 4 ) as of december 31 , 2013 , our liability for uncertain tax positions and related net interest payable was $ 7.6 million and $ 0.1 million , respectively . we are unable to reasonably estimate the timing of such liability and interest payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions . credit facility on march 14 , 2012 , in connection with our acquisition of globeop , we entered into a credit agreement with ss & c and ss & c sarl as the borrowers , which we refer to as the credit agreement . the credit agreement has four tranches of term loans : ( i ) a $ 0 term a-1 facility with a five and one-half year term for borrowings by ss & c , ( ii ) a $ 325.0 million term a-2 facility with a five and one-half year term for borrowings by ss & c sarl , ( iii ) a $ 725.0 million term b-1 facility with a seven year term for borrowings by ss & c and ( iv ) a $ 75.0 million term b-2 facility with a seven year term for borrowings by ss & c sarl . in addition , the credit agreement had a $ 142.0 million bridge loan facility , of which $ 31.6 million was immediately drawn , with a 364-day term available for borrowings by ss & c sarl and has a revolving credit facility with a five and one-half year term available for borrowings by ss & c with $ 100.0 million in commitments .
| results of operations revenues our revenues consist primarily of software-enabled services and maintenance revenues , and , to a lesser degree , software license and professional services revenues . as a general matter , fluctuations in our software-enabled services revenues are attributable to the number of new software-enabled services clients as well as total assets under management in our clients ' portfolios and the number of outsourced transactions provided to our existing clients , while our software license and professional services revenues tend to fluctuate based on the number of new licensing clients . maintenance revenues vary based on the rate by which we add or lose maintenance clients over time and , to a lesser extent , on the annual increases in maintenance fees , which are generally tied to the consumer price index . 36 the following table sets forth the percentage of our total revenues represented by each of the following sources of revenues for the periods indicated : replace_table_token_5_th the following table sets forth revenues ( dollars in thousands ) and percent change in revenues for the periods indicated : replace_table_token_6_th fiscal 2013 versus fiscal 2012. our revenues increased in 2013 as compared to 2012 primarily due to revenues related to our 2012 acquisitions of globeop and the portia business , for which revenues increased $ 119.2 million , reflecting a full year of activity , as well as a continued increase in demand for our hedge fund and private equity services from alternative investment managers . these increases were partially offset by the unfavorable impact from foreign currency translation of $ 2.0 million , which resulted from the strength of the u.s. dollar relative to currencies such as the canadian dollar and the australian dollar . our software licenses revenues in 2013 increased by $ 6.2 million from 2012 due to increased demand for our portia , camra , and pages software products , which increased 2013 by approximately $ 4.8
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we design , develop , manufacture and market medical devices and have a broad portfolio of products that addresses challenging medical conditions and significant clinical needs across our major markets . our team focuses on developing , manufacturing and marketing products for use by specialist physicians to drive improved clinical outcomes . we believe that the cost-effectiveness of our products is attractive to our hospital customers . since our founding in 2004 , we have invested heavily in our product development capabilities in our major markets : neuro and vascular . we have successfully developed , obtained regulatory clearance or approval for , and introduced products into the neurovascular market since 2007 , vascular market since 2013 and neurosurgical market since 2014 , respectively . we continue to expand our portfolio of product offerings , while developing and iterating on our currently available products . we expect to continue to develop and build our portfolio of products , including our thrombectomy , embolization and access technologies . generally , when we introduce a next generation product or a new product designed to replace a current product , sales of the earlier generation product or the product replaced decline . our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products . in addition to the development of thrombectomy , embolization and access technologies , in the second quarter of 2017 , we formed mvi health inc. ( “ mvi ” ) , a privately-held joint venture , with sixense enterprises , inc. ( “ sixense ” ) for the purpose of exploring healthcare applications of virtual reality technology . at the time mvi was formed , we held 50 % of the issued and outstanding equity of mvi with sixense holding the remaining 50 % . on august 31 , 2018 , we acquired a 90 % controlling interest in mvi and expect to continue to make investments to further develop mvi 's technology which is currently in the development stage . we sell our products to hospitals primarily through our direct sales organization in the united states , most of europe , canada and australia , as well as through distributors in select international markets . in 2018 , 34.7 % of our revenue was generated from customers located outside of the united states . our sales outside of the united states are denominated principally in the euro and japanese yen , with some sales being denominated in other currencies . as a result , we have foreign exchange exposure , but do not currently engage in hedging . we generated revenue of $ 444.9 million , $ 333.8 million and $ 263.3 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . this represents annual increases of 33.3 % and 26.8 % , respectively . impact of the mvi asset acquisition during the year ended december 31 , 2018 , we incurred a $ 30.8 million in-process research and development ( “ ipr & d ” ) charge in connection with the acquisition of a controlling interest in mvi which was accounted for as an asset acquisition . as a result of the ipr & d charge , we generated an operating loss of $ 0.9 million for the year ended december 31 , 2018 . this compared to an operating income of $ 1.2 million and operating loss $ 1.4 million , respectively , for the years ended december 31 , 2017 and 2016 . our results are discussed in more detail in the results of operations section below . factors affecting our performance there are a number of factors that have impacted , and we believe will continue to impact , our results of operations and growth . these factors include : the rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth . our industry is intensely competitive and , in particular , we compete with a number of large , well-capitalized companies . we must continue to successfully compete in light of our competitors ' existing and future products and their resources to successfully market to the specialist physicians who use our products . 50 we must continue to successfully introduce new products that gain acceptance with specialist physicians and successfully transition from existing products to new products , ensuring adequate supply . in addition , as we introduce new products and expand our production capacity , we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales , which may cause quarterly fluctuations in our operating results and financial condition . publications of clinical results by us , our competitors and other third parties can have a significant influence on whether , and the degree to which , our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition . the specialist physicians who use our products may not perform procedures during certain times of the year , such as those periods when they are at major medical conferences or are away from their practices for other reasons , the timing of which occurs irregularly during the year and from year to year . most of our sales outside of the united states are denominated in the local currency of the country in which we sell our products . as a result , our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates . story_separator_special_tag we provide a valuation allowance to reduce the net deferred tax assets ( “ dtas ” ) to their estimated realizable value . the calculation of our dtas involves the use of estimates , assumptions and judgments while taking into account estimates of the amounts and type of future taxable income . dtas are reduced to their estimated realizable value by a valuation allowance when it is more likely than not that the future realization of all or some of the dtas will not be achieved . valuation allowances related to dtas can be affected by changes to tax laws , statutory tax rates , and projections of future taxable income . the calculation of our current provision for income taxes involves the use of estimates , assumptions and judgments while taking into account current tax laws , interpretation of current tax laws and possible outcomes of future tax audits . we have established reserves to address potential exposures related to tax positions that could be challenged by tax authorities . although we believe our estimates , assumptions and judgments to be reasonable , any changes in tax law or interpretation of tax law and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements . we follow fasb asc 740-10 “ accounting for uncertainty in income taxes ” that prescribes a financial statement recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on our income tax returns , and also provides guidance on derecognition , classification , interest and penalty accrual , accounting in interim periods , and disclosure requirements . we include interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations . on december 22 , 2017 , the tax cuts and jobs act of 2017 , ( “ the tax reform act ” ) was enacted . the tax reform act significantly revised the u.s. corporate income tax regime by , including but not limited to , lowering our u.s. corporate income tax rate from 34 % to 21 % effective january 1 , 2018 , implementing a territorial tax system , imposing a one-time transition tax on previously untaxed accumulated earnings and profits of foreign subsidiaries , and creating new taxes on foreign sourced earnings . also on december 22 , 2017 , the securities and exchange commission issued staff accounting bulletin 118 ( “ sab 118 ” ) which provides guidance on accounting for tax effects of the tax reform act . sab 118 provides for a measurement period that should not extend beyond one year from the tax reform act enactment date for companies to complete the accounting under asc 740. in accordance with sab 118 , a company must reflect the income tax effects of those aspects of the tax reform act for which the accounting under asc 740 is complete . as of december 31 , 2018 , we completed the accounting for tax effects of the tax reform act under asc 740 and therefore our financial statements reflect estimates of the tax affects based on current interpretations of the authoritative guidance available to date . in the reporting period ended december 31 , 2017 , we recorded an adjustment for the reduction of our u.s. corporate income tax rate to 21 % effective january 1 , 2018 , resulting in a decrease to our dtas in the amount of $ 15.4 million with a corresponding charge to income tax expense . no adjustments related to the federal tax rate reduction were made to our dta balance subsequent to december 31 , 2017. in the reporting period ended december 31 , 2018 , we completed the accounting for the one-time transition tax on the cumulative value of foreign earnings and profits that were previously not repatriated for u.s. income tax purposes , and completed our analysis of the new global intangible low-taxed income ( “ gilti ” ) 52 inclusion attributable to foreign sourced earnings . the tax effects of the one-time transition tax and gilti income inclusion did not have a material impact on our financial statements as of and for the year ended december 31 , 2018. we include u.s. taxes due on income inclusions attributable to gilti as a period cost in the tax year incurred . not all provisions of the tax reform act are applicable to us in the tax year ended december 31 , 2018. for example , we do not meet the statutory gross receipts threshold and therefore are not subject to the base erosion anti-abuse ( “ beat ” ) minimum tax , and , due to current year losses we are not entitled to the foreign-derived intangible income ( “ fdii ” ) deduction provisions . the final impact of the tax reform act may differ from our current estimates , due to , among other things , additional legislative guidance that may be issued which could change our current interpretation or application of the new tax law . significant domestic dtas were generated in recent years , primarily due to excess tax benefits from stock option exercises and vesting of restricted stock . as of december 31 , 2018 , we had approximately $ 100.0 million , $ 88.7 million and $ 0.7 million of federal , state and foreign net operating loss carryforwards , respectively , available to offset future taxable income . the federal and state net operating loss carryforwards will begin to expire in 2036 and 2020 , respectively . at december 31 , 2018 , we had research credits available to offset federal and state tax liabilities in the amount of $ 6.4 million and $ 8.0 million , respectively . the federal tax credits will begin to expire in 2024. california state tax credits have no expiration .
| results of operations the following table sets forth the components of our consolidated statements of operations in dollars and as a percentage of revenue for the periods presented : replace_table_token_3_th year ended december 31 , 2018 compared to year ended december 31 , 2017 revenue replace_table_token_4_th revenue increased $ 111.2 million , or 33.3 % , to $ 444.9 million in 2018 , from $ 333.8 million in 2017 . our revenue growth resulted from further market penetration of our existing products and sales of new products . increased sales within our neuro and vascular businesses accounted for approximately 55 % and 45 % of the revenue increase , respectively , in the year ended december 31 , 2018 . revenue from our neuro products increased $ 61.9 million , or 26.6 % , to $ 294.3 million in 2018 , from $ 232.4 million in 2017 . this was primarily attributable to increased sales of our penumbra system and neuro access products , which accounted for approximately 85 % and slightly less than 20 % of the neuro revenue increase , respectively . our neuro product sales experienced strong momentum due to further market penetration and growth in the market for endovascular treatment of stroke , which led to an increase in the number of procedures performed by specialist physicians using these products . this growth was partially offset by a decrease in sales of our neuro embolization products , which decreased by slightly less than 5 % of the total change in neuro revenue , as demand for our neuro embolization products fluctuates from period to period due to the number of procedures performed . prices for our neuro products remained substantially unchanged during the period . 56 revenue from our vascular products increased $ 49.3 million , or 48.6 % , to $ 150.6 million in 2018 , from $ 101.3 million in 2017 .
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as of december 31 , 2017 and 2016 story_separator_special_tag overview we are a leading global supplier of automation equipment for test and industrial applications . we design , develop , manufacture and sell automatic test systems used to test semiconductors , wireless products , data storage and complex electronics systems in the consumer electronics , wireless , automotive , industrial , computing , communications , and aerospace and defense industries . our industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality , increase manufacturing efficiency and decrease manufacturing costs . our automatic test equipment and industrial automation products and services include : semiconductor test ( semiconductor test ) systems ; defense/aerospace ( defense/aerospace ) test instrumentation and systems , storage test ( storage test ) systems , and circuit-board test and inspection ( production board test ) systems ( collectively these products represent system test ) ; industrial automation ( industrial automation ) products ; and wireless test ( wireless test ) systems . we have a broad customer base which includes integrated device manufacturers ( idms ) , outsourced semiconductor assembly and test providers ( osats ) , original equipment manufacturers ( oems ) , wafer foundries , fabless companies that design , but contract with others for the manufacture of integrated circuits ( ics ) , developers of wireless devices and consumer electronics , manufacturers of circuit boards , automotive suppliers , wireless product manufacturers , storage device manufacturers , aerospace and military contractors , and distributors that sell collaborative robots . the market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment . one customer drives significant demand for our products both through direct sales and sales to the customer 's supply partners . we expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future . in 2015 , we acquired universal robots a/s ( universal robots ) , the leading supplier of collaborative robots which are low-cost , easy-to-deploy and simple-to-program robots that work side by side with production workers to improve quality , increase manufacturing efficiency and decrease manufacturing costs . universal robots is a separate operating and reportable segment , industrial automation . the acquisition of universal robots provides a growth engine to our business and complements our existing system test and wireless test segments . the total purchase price for universal robots was approximately $ 315 million , which included cash paid of approximately $ 284 million and $ 32 million in fair value of contingent consideration payable upon achievement of revenue and earnings targets through 2018. contingent consideration for the period from july 2015 to december 2017 was $ 24.5 million and is expected to be paid in march 2018. contingent consideration for 2015 was $ 15 million and was paid in february 2016. the remaining maximum contingent consideration that could be paid is $ 25 million . we believe our recent acquisition has enhanced our opportunities for growth . we intend to continue to invest in our business , grow market share in our markets and expand further our addressable markets while tightly managing our costs . the sales of our products and services are dependent , to a large degree , on customers who are subject to cyclical trends in the demand for their products . these cyclical periods have had , and will continue to have , a 24 significant effect on our business since our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor and electronics industries . historically , these demand fluctuations have resulted in significant variations in our results of operations . the sharp swings in the semiconductor and electronics industries have generally affected the semiconductor and electronics test equipment and services industries more significantly than the overall capital equipment sector . in the second quarter of 2016 , the wireless test reporting unit ( which is our wireless test operating and reportable segment ) reduced headcount by 11 % as a result of a sharp decline in projected demand attributable to an estimated smaller future wireless test market . the decrease in projected demand was due to lower forecasted buying from our largest wireless test segment customer ( who had previously contributed between 51 % and 73 % of annual wireless test sales since the litepoint acquisition in 2011 ) as a result of the customer 's numerous operational efficiencies ; slower smartphone growth rates ; and a slowdown of new wireless technology adoption . we considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test . following the interim goodwill impairment test , we recorded a goodwill impairment charge of $ 254.9 million , with approximately $ 8.0 million of goodwill remaining , and $ 83.3 million for the impairment of acquired intangible assets with approximately $ 3.6 million of acquired intangible assets remaining at december 31 , 2017. critical accounting policies and estimates we have identified the policies discussed below as critical to understanding our business and our results of operations and financial condition . the impact and any associated risks related to these policies on our business operations is discussed throughout management 's discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results . revenue recognition we recognize revenues , including revenues from distributors , when there is persuasive evidence of an arrangement , title and risk of loss have passed , delivery has occurred or the services have been rendered , the sales price is fixed or determinable and collection of the related receivable is reasonably assured . title and risk of loss generally pass to our customers upon shipment or at delivery destination point . story_separator_special_tag in accordance with asu 2016-09 , starting in the first quarter of 26 2017 , excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in our consolidated statements of operations and are reported as cash flows from operating activities . a cumulative effect adjustment of $ 39.1 million for any prior year excess tax benefits or tax deficiencies not previously recorded was recorded as an increase to retained earnings and deferred tax assets . all cash payments made to taxing authorities on the employees ' behalf for withheld shares are presented as financing activities on the statement of cash flows . in 2017 , we recognized a discrete tax benefit of $ 6.3 million , related to net excess tax benefit . income taxes deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . the measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized . we performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with asc 740 , accounting for income taxes . this assessment included the evaluation of scheduled reversals of deferred tax liabilities , estimates of projected future taxable income and tax-planning strategies . although realization is not assured , based on our assessment , we concluded that it is more likely than not that such assets , net of the existing valuation allowance , will be realized . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , investmentsdebt and equity securities . on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . goodwill , intangible and long-lived assets we assess goodwill for impairment at least annually in the fourth quarter , as of december 31 , on a reporting unit basis , or more frequently , when events and circumstances occur indicating that the recorded goodwill may be impaired . if the book value of a reporting unit exceeds its fair value , the implied fair value of goodwill is compared with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment charge is recorded in an amount equal to that excess . in the second quarter of 2016 , the wireless test reporting unit ( which is our wireless test operating and reportable segment ) reduced headcount by 11 % as a result of a sharp decline in projected demand attributable to an estimated smaller future wireless test market . the decrease in projected demand was due to lower forecasted buying from our largest wireless test segment customer ( who had previously contributed between 51 % and 73 % of annual wireless test sales since the litepoint acquisition in 2011 ) as a result of the customer 's numerous operational efficiencies ; slower smartphone growth rates ; and a slowdown of new wireless technology adoption . we considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test . following the interim goodwill impairment test , we recorded a goodwill impairment charge of $ 254.9 million , with approximately $ 8.0 million of goodwill remaining . no goodwill impairment was identified in the fourth quarter of 2017 , 2016 and 2015 , as part of the annual goodwill impairment test . 27 we assess the impairment of intangible and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results , significant changes in the manner that we use the acquired asset and significant negative industry or economic trends . as a result of the interim goodwill impairment test in the second quarter of 2016 described above , we performed an impairment test of the wireless test segment 's intangible and long-lived assets based on the comparison of the estimated undiscounted cash flows to the recorded value of the assets and recorded an $ 83.3 million acquired intangible assets impairment charge , with approximately $ 3.6 million of intangible assets remaining at december 31 , 2017. there were no events or circumstances indicating that the carrying value of acquired intangible and long-lived assets may not be recoverable in 2017 and 2015 , as such no impairment test was performed . when we determine that the carrying value of intangible and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the associated risks . story_separator_special_tag basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions . forecasted revenues information is obtained from the sales and marketing groups and incorporates factors such as backlog and future product demand . this quarterly process identifies obsolete and excess inventory . obsolete inventory , which represents items for which there is no demand , is fully reserved .
| results of operations the following table sets forth the percentage of total net revenues included in our consolidated statements of operations : replace_table_token_7_th 28 book to bill ratio book to bill ratio is calculated as net bookings divided by net sales . book to bill ratio by reportable segment was as follows : replace_table_token_8_th revenues revenues for our four reportable segments were as follows : replace_table_token_9_th the increase in semiconductor test revenues of $ 294.3 million , or 22 % , from 2016 to 2017 was driven primarily by increased sales in the microcontroller , power management , flash memory , and automotive safety test segments and an increase in service revenues . the increase in semiconductor test revenues of $ 166.7 million , or 14 % , from 2015 to 2016 was driven primarily by system-on-a-chip ( soc ) product volume in the mobile application processor market . the increase in system test revenues of $ 2.3 million , or 1 % , from 2016 to 2017 was primarily due to higher service revenue in defense/aerospace test instrumentation and systems . the decrease in system test revenues of $ 21.8 million , or 10 % , from 2015 to 2016 was primarily due to lower sales in storage test of 3.5 hard disk drive testers . the increase in industrial automation revenues of $ 71.1 million , or 72 % , from 2016 to 2017 was due to higher demand for collaborative robots . the acquisition of universal robots , completed in june 2015 , added $ 99.0 million of revenues in 2016 and $ 41.9 million of revenues in 2015. the increase in wireless test revenues of $ 15.7 million , or 16 % , from 2016 to 2017 was primarily due to higher demand for connectivity test systems and higher service revenue . the decrease in wireless test revenues of $ 88.4 million , or 48 % , from 2015 to 2016 was driven by lower demand for connectivity and cellular test systems primarily from our largest wireless test segment customer .
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performance bonds do not have stated expiration dates , as the company is released from the bonds upon completion of the contract and any related warranty period . the company has never been required to make any payments related to these performance-based bonds with respect to any of its current portfolio of businesses . warranties . we reserve estimated exposures on known claims , as well as on a portion of anticipated claims for product warranty and rework costs based on historical product liability story_separator_special_tag forward-looking statements this discussion contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these statements reflect our current views with respect to future events and financial performance . the words “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ forecast , ” “ project , ” “ should ” and similar expressions are intended to identify “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. all forecasts and projections in this document are “ forward-looking statements , ” and are based on management 's current expectations or beliefs of the company 's near-term results , based on current information available pertaining to the company , including the risk factors noted under item 1a in this form 10-k. from time to time , we also may provide oral and written forward-looking statements in other materials we release to the public , such as press releases , presentations to securities analysts or investors , or other communications by the company . any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results . accordingly , we wish to caution investors that any forward-looking statements made by or on behalf of the company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements . these uncertainties and other risk factors include , but are not limited to , the risks and uncertainties set forth under item 1a in this form 10-k. we wish to caution investors that other factors might in the future prove to be important in affecting the company 's results of operations . new factors emerge from time to time ; it is not possible for management to predict all such factors , nor can it assess the impact of each such factor on the business or the extent to which any factor , or a combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . we undertake no obligation to update publicly or revise any forward-looking statements , whether as a result of new information , future events or otherwise . overview we are a world leader in the design and development of value-added glass and metal products and services . our four reporting segments are : architectural framing systems , architectural glass , architectural services and large-scale optical technologies ( lso ) . 15 during fiscal 2018 , we advanced strategies to diversify and strengthen our revenue streams in order to improve the stability of our business throughout an economic cycle , by focusing on diversifying geographies , markets and project sizes served . we also focused on generating cash flow and expanding backlog , as we continue to execute on our strategies and grow our business in fiscal 2019 and beyond . fiscal 2018 story_separator_special_tag style= '' vertical-align : bottom ; background-color : # cceeff ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > n/m ( 0.18 ) ( 0.02 ) n/m adjusted operating income $ 132,929 $ 124,478 6.8 % $ 3.23 $ 3.03 6.6 % results of operations net sales replace_table_token_5_th fiscal 2018 compared to fiscal 2017 net sales in fiscal 2018 increased by 19.0 percent compared to fiscal 2017 due to the acquisition of efco in the second quarter of 2018. this acquisition , as well as a full year of results from sotawall ( acquired in the fourth quarter of fiscal 2017 ) and pricing and volume gains from our existing segment businesses , resulted in overall growth in our architectural framing systems segment , which was partially offset by volume declines in our architectural services and architectural glass segments . fiscal 2017 compared to fiscal 2016 net sales in fiscal 2017 increased by 13.6 percent compared to fiscal 2016 , due to gains in volume across all three architectural segments , as well as the inclusion of sotawall , acquired in the fourth quarter of fiscal 2017. volume growth was driven by continued strength in non-residential construction end-markets and success in our strategies to expand geographically and introduce new products . the architectural framing systems segment drove nearly 60 percent of our growth , with the acquisition of sotawall in 16 the fourth quarter contributing 13 percent of our overall growth . the architectural glass segment drove approximately 22 percent of our growth and the architectural services segment contributed nearly all of the remainder . performance the relationship between various components of operations , as a percentage of net sales , is provided below . replace_table_token_6_th fiscal 2018 compared to fiscal 2017 gross profit was 25.1 percent in fiscal 2018 , a decline of 110 basis points from fiscal 2017 , driven by reduced operating leverage on volume within the architectural services and architectural glass segments and the inclusion of efco at lower margins , somewhat offset by improved productivity across all our segments . selling , general and administrative ( sg & a ) expense for fiscal 2018 was 16.5 percent , an increase of 130 basis points , or $ 49.4 million , from fiscal 2017 , mainly as a result of the inclusion of efco , as well as a full year of amortization expense on intangible assets acquired in the sotawall transaction . story_separator_special_tag we estimate fiscal 2019 capital expenditures to be $ 60 to $ 65 million , as we continue to invest in productivity and capacity to capture new geographic and market segments . we continue to review our portfolio of businesses and their assets in comparison to our internal strategic and performance objectives . as part of this review , we may continue to acquire other businesses , pursue geographic expansion , take actions to manage capacity and further invest in , fully divest and or sell parts of our current businesses . financing activities . we paid dividends totaling $ 16.4 million in fiscal 2018. additionally , we repurchased 702,299 shares under our authorized share repurchase program during fiscal 2018 , for a total cost of $ 33.7 million . we repurchased 250,001 shares under the program in fiscal 2017 and 575,000 shares under the program in fiscal 2016. we have repurchased a total of 4,009,932 shares , at a total cost of $ 106.0 million , since the 2004 inception of this program . we have remaining authority to repurchase 1,240,068 shares under this program , which has no expiration date . we maintain a $ 335.0 million committed revolving credit facility that expires in november 2021 , as further described in note 8 of the notes to consolidated financial statements . $ 195.0 million was outstanding under this credit facility as of march 3 , 2018 , as we used this facility to finance the efco acquisition . as defined within the credit facility , we have two financial covenants which require us to stay below a maximum leverage ratio and to maintain a minimum interest expense-to-ebitda ratio . at march 3 , 2018 , we were in compliance with both financial covenants . other financing activities . the following summarizes our significant contractual obligations that impact our liquidity as of march 3 , 2018 : replace_table_token_12_th in addition to the committed revolving credit facility discussed above , we also have industrial revenue bond obligations of $ 20.4 million that mature in fiscal years 2021 through 2043 and $ 0.5 million of other debt that matures in august 2022 . 19 we acquire the use of certain assets through operating leases , such as warehouses , vehicles , forklifts , office equipment , hardware , software and some manufacturing equipment . while many of these operating leases have termination penalties , we consider the risk related to termination penalties to be minimal . purchase obligations in the table above relate to raw material commitments and capital expenditures . we expect to make contributions of approximately $ 1.0 million to our defined-benefit pension plans in fiscal 2019 , which will equal or exceed our minimum funding requirements . as of march 3 , 2018 , we had reserves of $ 4.6 million and $ 1.3 million for long-term unrecognized tax benefits and environmental liabilities , respectively . we expect approximately $ 0.5 million of the unrecognized tax benefits to lapse during the next 12 months . we are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled . at march 3 , 2018 , we had ongoing letters of credit of $ 23.5 million related to industrial revenue bonds and construction contracts that expire in fiscal 2019 and that reduce availability of funds under our committed credit facility . in addition to the above standby letters of credit , we are required , in the ordinary course of business , to provide surety or performance bonds that commit payments to our customers for any non-performance by us . at march 3 , 2018 , $ 238.6 million of our backlog was bonded by performance bonds with a face value of $ 519.3 million . performance bonds do not have stated expiration dates , as we are released from the bonds upon completion of the contracts and any related warranty periods . we have never been required to make any payments related to these performance bonds with respect to any of our current portfolio of businesses . we had total cash and short-term marketable securities of $ 19.8 million , and $ 116.5 million available under our committed revolving credit facility , at march 3 , 2018 . due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility , we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements , planned capital expenditures and dividend payments for at least the next 12 months . off-balance sheet arrangements . with the exception of operating leases , we had no off-balance sheet arrangements at march 3 , 2018 or march 4 , 2017 . outlook the following statements are based on our current expectations for fiscal 2019 results . these statements are forward-looking , and actual results may differ materially . revenue growth of approximately 10 percent over fiscal 2018 . operating margin of 8.8 to 9.3 percent . earnings per diluted share of $ 3.30 to $ 3.50. adjusted operating margin of 9.1 to 9.6 percent and adjusted earnings per diluted share of $ 3.43 to $ 3.63. these are non-gaap measures that reflect the after-tax impact of amortization of short-lived acquired intangible assets from the sotawall and efco acquisitions of $ 3.8 million ( $ 0.13 per diluted share ) . capital expenditures of approximately $ 60 to $ 65 million . effective annual tax rate of approximately 24 percent . recently issued accounting pronouncements see note 1 of the notes to consolidated financial statements within item 8 of this form 10-k for information pertaining to recently issued accounting pronouncements , incorporated herein by reference . critical accounting policies our analysis of operations and financial condition is based on our consolidated financial statements prepared in accordance with u.s. gaap .
| summary of results : consolidated net sales increased to $ 1.3 billion , or 19 percent over fiscal 2017 . operating income was $ 114.3 million , a decline of 6.5 percent from $ 122.2 million in the prior year . diluted eps was $ 2.76 , compared to $ 2.97 in the prior year , a decline of 7 percent . adjusted operating income was $ 132.9 million , an increase of 6.8 percent compared to the prior year , and adjusted diluted eps was $ 3.23 , an increase of 6.6 percent compared to the prior year . refer to the tables that follow for details of these adjusted amounts . in june 2017 , we acquired the assets of efco corporation , a privately-held u.s. manufacturer of architectural aluminum window , curtainwall , storefront and entrance systems for commercial construction projects , for $ 192 million in cash . efco 's results of operations have been included in our consolidated financial statements and within the architectural framing systems segment since the date of acquisition . adjusted operating income , adjusted operating margin and adjusted earnings per diluted share ( “ adjusted diluted eps ” ) are supplemental non-gaap measures provided to assess performance on a more comparable basis from period to period by excluding amounts that management does not consider part of core operatingresults .
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we are a public accounting firm registered with the public company accounting oversight board ( story_separator_special_tag references to “ we , ” “ us , ” “ our , ” “ our company , ” or “ the company ” refer to greenlight capital re , ltd. ( “ glre ” ) and our wholly-owned subsidiaries , greenlight reinsurance , ltd , ( “ greenlight re ” ) , greenlight reinsurance ireland , designated activity company ( “ gril ” ) , greenlight re marketing ( uk ) limited ( “ greenlight re uk ” ) and verdant holding company , ltd. ( “ verdant ” ) , unless the context dictates otherwise . references to our “ ordinary shares ” refers collectively to our class a ordinary shares and class b ordinary shares . the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes , which appear elsewhere in this filing . the following is a discussion and analysis of our results of operations for the years ended december 31 , 2020 and 2019 and financial condition as of december 31 , 2020 and 2019 . 52 link to we have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because that disclosure was already included in our form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 27 , 2020. you are encouraged to reference part ii , item 7 , within that report , for a discussion of our financial condition and result of operations for the fiscal year ended december 31 , 2019 compared to the fiscal year ended december 31 , 2018. general we are a global specialty property and casualty reinsurer , headquartered in the cayman islands , with a reinsurance and investment strategy that we believe differentiates us from most of our competitors . our goal is to build long-term shareholder value by providing risk management products and services to the insurance , reinsurance and other risk marketplaces . we focus on delivering risk solutions to clients and brokers who value our expertise , analytics and customer service offerings . we aim to complement our underwriting results with a non-traditional investment approach in order to achieve higher rates of return over the long term than reinsurance companies that exclusively employ more traditional investment strategies . our investment portfolio is managed according to a value-oriented philosophy , in which our investment advisor takes long positions in perceived undervalued securities and short positions in perceived overvalued securities . because we seek to capitalize on favorable market conditions and opportunities , period-to-period comparisons of our underwriting results may not be meaningful . also , our historical investment results are not necessarily indicative of future performance . due to the nature of our reinsurance and investment strategies , our operating results will likely fluctuate from period to period . the company 's subsidiaries hold an a.m. best financial strength rating of a- ( excellent ) with a negative outlook . outlook and trends covid-19 has created an unusually high level of uncertainty in the global reinsurance market . while we believe that our aggregate exposure to the pandemic is small compared to other industry participants , the impact of the pandemic and related risks could harm our results of operations , financial position , and liquidity . for a further discussion of risks associated with covid-19 , see “ risks relating to our business ” in “ part i - item 1a . risk factors. ” while the covid-19 uncertainty has caused reserving challenges throughout the industry , it has also led to underwriting opportunities . the lack of clarity that we face is impacting the insurance and reinsurance market as a whole on a significantly larger scale . as reinsurers ' reserves must accommodate a wide range of loss estimates , they could have less capital to deploy to new underwriting opportunities . we have already seen widespread pricing improvements , and this dynamic may be a significant driver of the increases . adding to the reduction in capital was the unusually high frequency of loss events in 2020. putting aside covid-19 , 2020 was the fifth costliest year in history regarding the impact of natural and human-made catastrophes on the insurance industry . while investors have injected new capital into the industry , we believe that this new capital represents a small portion of what has been lost or encumbered . compared to most of our competitors , we are small and have low overhead expenses . we believe that our current expense efficiency , agility , and existing relationships have provided support to our competitive position and enable us to participate in lines of business that fit within our strategy . however , the current size of our capital base may reduce the number of high-quality underwriting opportunities that brokers refer to us . additionally , a prolonged negative outlook from a.m. best or an a.m. best revision to our subsidiaries ' ratings below a- ( excellent ) may adversely impact our ability to execute our business strategy . see “ risks relating to our business ” in “ part i , item 1a . risk factors. ” our growing innovations business is increasing in importance as a source of attractive and lasting underwriting opportunities . our innovations partnerships generally enable us to add value to the relationship in multiple ways : as a strategic partner , a provider of risk capacity , and an investor . investor interest in later-stage “ insurtechs ” has surged in 2020 , a development that is well-suited to our early-stage investment strategy . january 1 is a key renewal date for the global reinsurance industry , and , as noted earlier , in 2021 we have seen improved rates in most of the classes of business we write . this hardening market enabled us to selectively expand our specialty book while taking advantage of improved rates . story_separator_special_tag we record our property and casualty reinsurance premiums as premiums written based upon contract terms and information received from ceding companies and their brokers . excess of loss reinsurance contracts typically state premiums as a percentage of the subject premiums written by the client , subject to a minimum and deposit premium . the minimum and deposit premium is generally based on an estimate of subject premiums expected to be written by the client during the contract term . the minimum and deposit premium is reported initially as premiums written and adjusted , if necessary , in subsequent periods once the actual subject premium is known . certain contracts provide for reinstatement premiums in the event of a loss . reinstatement premiums are written and earned when a triggering loss event occurs . our client estimates gross premiums written at the contract 's inception for each proportional contract we underwrite . we generally account for such premiums using our best estimates and then adjust our estimates based on our client 's actual reports and based on our expectations of industry developments . as the contract progresses , we monitor actual premiums received in conjunction with the client 's correspondence to refine our estimate . variances from initial gross premiums written estimates are generally greater for proportional contracts than for non-proportional contracts . we earn premiums on proportional contracts over the risk coverage period . unearned premiums represent the unexpired portion of reinsurance provided . at the inception of each of our reinsurance contracts , we receive premium estimates from the client , which , we use in conjunction with historical and and industry data to estimate what we believe will be the ultimate premium payable under each contract . we receive actual premiums written by each client as the client reports the actual results of the underlying insurance 55 link to writings to us monthly or quarterly ( depending on the contract ) . we book the actual premiums written when we receive them from our client . each reporting period we estimate the premiums written for stub periods that have not yet been reported to us by the client . for example , at year-end we may have to estimate december premiums ceded under certain contracts since the client may not be required to report the actual results to us until after we have issued our audited consolidated financial statements . typically , we only use premium estimates for unreported stub periods , which account for a small percentage of our total premiums written . we confirm the accuracy and completeness of premiums reported by our clients by reviewing the client 's statutory filings or performing an audit of the client under the contract terms . discrepancies between premiums ceded and reported under a contract are , in our experience , rare . to date , we have not had any material difference in premiums reported by a client that required a formal dispute resolution process . assessing whether a reinsurance contract meets the conditions for risk transfer requires judgment . the determination of risk transfer is critical to reporting premiums written and is based , in part , on the use of actuarial and pricing models and assumptions . if we determine that a reinsurance contract does not transfer sufficient risk to merit reinsurance accounting treatment , the premium we receive is reported as a deposit liability . similarly , we report the premium we pay as a deposit asset for ceded contracts that do not transfer sufficient risk to merit reinsurance accounting . any gains or losses on deposit accounted contracts are calculated using the interest method and recorded in the consolidated statements of operations under the caption “ other income ( expense ) . ” investments . we carry our investment in silp at fair value , based on the most recent net asset value obtained from silp 's third-party administrator . the caption “ other investments ” in our consolidated balance sheets includes private and unlisted equity securities that do not have readily determinable fair values . we determine these private equity securities ' carrying value based on the original cost , reviewed for impairment and any subsequent changes in the valuation based on any recent observable transactions . we determine realized gains and losses from other investments based on specific identification method ( by reference to cost or amortized cost , as appropriate ) . these gains and losses are included in the captions “ net investment income ( loss ) ” in the consolidated statements of operations . loss and loss adjustment expense reserves . the process of estimating our loss and lae reserves involves a considerable degree of judgment and our estimates as of any given date are inherently uncertain . estimating loss and lae reserves requires us to make assumptions regarding reporting and development patterns , frequency and severity trends , claims settlement practices , potential changes in legal environments , inflation , loss amplification , foreign exchange movements and other factors . these estimates and judgments are based on numerous considerations and are often revised as : ( i ) we receive changes in loss amounts reported by ceding companies and brokers ; ( ii ) we obtain additional information , experience or other data ; ( iii ) we develop new or improved methodologies ; or ( iv ) we observe changes in the legal environment . our loss and lae reserves relating to short-tail property risks are typically reported to us and settled more promptly than those relating to our long-tail risks . however , the timeliness of loss reporting can be affected by such factors as the nature of the event causing the loss , the location of the loss , whether the loss is from policies in force with primary insurers or with reinsurers and where our exposure falls within the cedent 's overall reinsurance program . our loss and lae reserves are composed of case reserves ( which are based on claims that have been reported to us ) and ibnr reserves .
| results of operations the table below summarizes our operating results for the years ended december 31 , 2020 , 2019 , and 2018 : replace_table_token_13_th * the net adverse financial impact associated with changes in the estimate of losses incurred in prior years , which incorporates earned reinstatement premiums assumed and ceded , adjustments to assumed and ceded acquisition costs , and adjustments to deposit accounted contracts , was $ 3.7 million , $ 30.1 million , and $ 7.4 million in 2020 , 2019 , and 2018 , respectively . 62 link to year ended 2020 compared to 2019 for the year ended december 31 , 2020 , the fully diluted book value per share increased by $ 0.54 per share , or 4.2 % , to $ 13.42 per share from $ 12.88 per share on december 31 , 2019. for the year ended december 31 , 2020 , the basic book value per share increased by $ 0.57 per share , or 4.4 % , to $ 13.47 per share from $ 12.90 per share on december 31 , 2019. the increases in basic and fully diluted book value per share for the year ended december 31 , 2020 were due primarily to ( i ) share repurchases executed , ( ii ) net income earned , and ( iii ) restricted shares forfeited during the year . for the year ended december 31 , 2020 , the net income was $ 3.9 million , compared to a net loss attributable to the company of $ 4.0 million reported for the year ended december 31 , 2019. the developments that most significantly affected our financial performance during the year ended december 31 , 2020 , compared to the equivalent 2019 period , are summarized below : underwriting : the underwriting loss for the year ended december 31 , 2020 , was $ 1.6 million on net earned premiums of $ 455.4 million .
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in the first half of 2014 , the company repurchased and cancelled 869,699 shares for $ 90.0 million . as of may 27 , 2014 , the company had repurchased the maximum amount authorized under the stock repurchase plan . on june 12 , 2014 the company announced that its board of directors authorized an additional stock repurchase plan in which the company was authorized to repurchase up to $ 100 million of its common stock . as of december 24 , 2014 , a total of 1,151,603 shares at a price of $ 100 million , the maximum authorized under the stock repurchase plan , had been repurchased and subsequently cancelled . 64 15. quarterly results of operations ( unaudited ) : replace_table_token_35_th ( 1 ) the sum of the story_separator_special_tag the following is management 's discussion and analysis of certain significant factors that have affected aspects of the company 's financial position , results of operations , comprehensive income and cash flows during the periods included in the accompanying consolidated financial statements . this discussion should be read in conjunction with the company 's consolidated financial statements and notes thereto presented elsewhere in this report . overview dril-quip designs , manufactures , sells and services highly engineered offshore drilling and production equipment that is well suited for use in deepwater , harsh environments and severe service applications . the company designs and manufactures subsea equipment , surface equipment and offshore rig equipment for use by major integrated , large independent and foreign national oil and gas companies in offshore areas throughout the world . the company 's principal products consist of subsea and surface wellheads , subsea and surface production trees , subsea control systems and manifolds , mudline hanger systems , specialty connectors and associated pipe , drilling and production riser systems , liner hangers , wellhead connectors and diverters . dril-quip also provides technical advisory assistance services on an as-requested basis during installation of its products , as well as rework and reconditioning services for customer-owned dril-quip products . in addition , dril-quip customers may rent or purchase running tools from the company for use in the installation and retrieval of the company 's products . oil and gas prices both the market for offshore drilling and production equipment and services and the company 's business are substantially dependent on the condition of the oil and gas industry and , in particular , the willingness of oil and gas companies to make capital expenditures on exploration , drilling and production operations offshore . oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility . see item 1a . risk factorsa material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income. according to the energy information administration ( eia ) of the u.s. department of energy , average brent crude oil and natural gas ( henry hub ) closing prices are listed below for periods covered by this report : replace_table_token_7_th in 2012 , brent crude oil prices ranged between $ 88.69 per barrel and $ 128.14 per barrel with an average price of $ 111.57 per barrel price . crude oil ended 2012 at $ 110.80 per barrel . in 2013 , the brent crude oil price ranged between a low of $ 96.84 per barrel and a high of $ 118.90 per barrel with an average of $ 108.56 per barrel and ended the year at $ 109.95 per barrel . in 2014 , brent crude oil prices ranged between a low of $ 55.27 per barrel and a high of $ 115.19 per barrel with an average price of $ 98.97 per barrel . brent crude oil ended the year at $ 55.27 per barrel . according to the january 2015 release of the short-term energy outlook published by the eia , brent crude oil prices are projected to average $ 57.58 per barrel in 2015 and $ 75.00 in 2016. in its january 2015 report , the eia expects henry hub natural gas prices to average $ 3.55 per mcf in 2015 and $ 3.98 per mcf in 2016. henry hub natural gas price was $ 3.24 per mcf at the end of december 2014 . 29 in its january 2015 oil market report , the international energy agency projected global oil demand was 92.4 million barrels per day in 2014 rising to an estimated average of 93.3 million barrels per day in 2015. according to the eia , between january 1 , 2015 and february 2 , 2015 , the price of brent crude oil ranged from $ 45.13 per barrel to $ 55.38 per barrel , closing at $ 51.74 per barrel on february 2 , 2015. for the same period , henry hub natural gas price ranged from $ 2.97 per mcf to $ 3.42 per mcf , closing at $ 2.97 per mcf on january 27 , 2015. rig count detailed below is the average contracted offshore rig count for the company 's geographic regions for the years ended december 31 , 2014 , 2013 and 2012. the rig count data includes floating rigs ( semi-submersibles and drillships ) and jack-up rigs . the company has included only these types of rigs as they are the primary end users of the company 's products . replace_table_token_8_th source : ihspetrodata rigbasedecember 31 , 2014 , 2013 and 2012 the table above represents rigs under contract and includes rigs currently drilling as well as rigs committed , but not yet drilling . according to ihs-petrodata rigbase , as of december 31 , 2014 , there were 66 rigs under contract ( 48 floating rigs and 18 jack-up rigs ) in the u.s. gulf of mexico , 63 of which were actively drilling ( 46 floating rigs and 17 jack-up rigs ) . story_separator_special_tag domestic revenue approximated 37 % , 33 % and 26 % , respectively , of the company 's total revenues for 2014 , 2013 and 2012. product contracts are typically negotiated and sold separately from service contracts . in addition , service contracts are not typically included in the product contracts or related sales orders and are not offered to the customer as a condition of the sale of the company 's products . the demand for products and services is 31 generally based on world-wide economic conditions in the offshore oil and gas industry , and is not based on a specific relationship between the two types of contracts . substantially all of the company 's sales are made on a purchase order basis . purchase orders are subject to change and or termination at the option of the customer . in case of a change or termination , the customer is required to pay the company for work performed and other costs necessarily incurred as a result of the change or termination . generally , the company attempts to raise its prices as its costs increase . however , the actual pricing of the company 's products and services is impacted by a number of factors , including global oil prices , competitive pricing pressure , the level of utilized capacity in the oil service sector , maintenance of market share , the introduction of new products and general market conditions . the company accounts for larger and more complex projects that have relatively longer manufacturing time frames on a percentage-of-completion basis . during 2014 , there were 17 projects that were accounted for using the percentage-of-completion method , which represented approximately 11 % , of the company 's total revenues and 13 % of the company 's product revenues . during 2013 and 2012 , there were 21 projects that were accounted for using the percentage-of-completion method which represented 15 % and 20 % , respectively of the company 's total revenue and 18 % and 24 % of the company 's product revenues , respectively . this percentage may fluctuate in the future . revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete , which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales . accordingly , price and cost estimates are reviewed periodically as the work progresses , and adjustments proportionate to the percent complete are reflected in the period when such estimates are revised . losses , if any , are recorded in full in the period they become known . amounts received from customers in excess of revenues recognized are classified as a current liability . see item 1a . risk factorswe may be required to recognize a charge against current earnings because of percentage-of-completion accounting. the following table sets forth , for the periods indicated , a breakdown of the company 's u.s. gulf of mexico products and services revenues : replace_table_token_10_th numerous subsea equipment orders were completed and shipped , contributing to the large increase in subsea equipment revenue for the year ended december 31 , 2014 and 2013 as compared to the same period for 2012. the change in offshore rig equipment revenues for 2014 compared to the same period of 2013 resulted primarily from an increase of revenues from projects accounted for under the percentage-of-completion method for offshore rig equipment projects . for 2014 , 2013 and 2012 the company 's u.s. gulf of mexico service revenues as a percentage of worldwide revenue was 6.0 % and 6.1 % and 6.9 % , respectively . cost of sales . the principal elements of cost of sales are labor , raw materials and manufacturing overhead . cost of sales as a percentage of revenues is influenced by the product mix sold in any particular period , costs from projects accounted for under the percentage-of-completion method and market conditions . the company 's costs related to its foreign operations do not significantly differ from its domestic costs . 32 selling , general and administrative expenses . selling , general and administrative expenses include the costs associated with sales and marketing , general corporate overhead , business development expenses , compensation expense , stock-based compensation expense , legal expenses , foreign currency transaction gains and losses and other related administrative functions . engineering and product development expenses . engineering and product development expenses consist of new product development and testing , as well as application engineering related to customized products . income tax provision . the company 's overall effective income tax rate has historically been lower than the statutory rate primarily due to foreign income tax rate differentials , research and development credits and deductions related to domestic manufacturing activities . story_separator_special_tag before taxes of $ 224.1 million , resulting in an effective income tax rate of approximately 24.2 % . income tax expense in 2012 was $ 42.9 million on income before taxes of $ 162.1 million , resulting in an effective tax rate of approximately 26.4 % . the decrease in the effective income tax rate reflects the $ 1.2 million research and development tax credit from the american taxpayer relief act of 2012 recognized on the 2012 u.s. income tax return , but not recorded until 2013 for financial statement purposes in accordance with gaap . also contributing to the decreased tax rate is the difference in income tax rates between the company 's three geographic areas . net income . net income was approximately $ 169.8 million in 2013 and $ 119.2 million in 2012 for the reasons set forth above . liquidity and capital resources cash flows provided by ( used in ) operations by type of activity were as follows : replace_table_token_13_th 35 statements of cash flows for entities with international operations that are local currency functional exclude the effects of the changes in foreign currency exchange rates that occur during any given year , as these are non-cash changes .
| results of operations the following table sets forth , for the periods indicated , certain consolidated statements of income data expressed as a percentage of revenues : replace_table_token_11_th the following table sets forth , for the periods indicated , a breakdown of our products and service revenues : replace_table_token_12_th 33 year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues . revenues increased by $ 58.6 million , or approximately 6.7 % , to $ 931.0 million in 2014 from $ 872.4 million in 2013. product revenues increased by approximately $ 41.6 million for the year ended december 31 , 2014 compared to the same period in 2013 as a result of increased revenues of $ 37.9 million in subsea equipment and an increase of $ 4.3 million in offshore rig equipment , partially offset by decreases of $ 0.6 million in surface equipment . the increase in subsea equipment revenue was primarily due to increased revenues of $ 24.1 million in subsea equipment in the u.s. gulf of mexico as numerous subsea equipment orders were completed and shipped . product revenues increased in the western hemisphere by $ 10.2 million , $ 19.1 million in the eastern hemisphere and in asia-pacific by $ 12.3 million . service revenues increased by approximately $ 17.0 million resulting from increased service revenues in the western hemisphere of $ 2.2 million , $ 13.1 million in the eastern hemisphere and $ 1.7 million in asia-pacific . the majority of the increases in service revenues related to increased technical advisory assistance services and rental of the company 's running and installation tools . cost of sales .
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this discussion and analysis and other parts of this annual report contain forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ risk factors ” and elsewhere in this annual report . you should carefully read the “ risk factors ” section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled “ forward-looking statements. ” 51 overview chimerix , inc. is a biotechnology company committed to discovering , developing and commercializing medicines that address significant , unmet medical needs . we were founded in 2000 based on the promise of our proprietary lipid conjugate technology to unlock the potential of some of the most broad-spectrum antivirals by enhancing their antiviral activity and safety profiles in convenient dosing regimens . our lead compound , brincidofovir ( bcv ) , is in development as an oral and intravenous ( iv ) formulation for the prevention and treatment of dna viruses , including smallpox , adenoviruses , and the human herpesviruses . we are also advancing the development of cmx521 for the treatment and prevention of norovirus . in addition , we have an active discovery program focusing on viral targets for which limited or no therapies are currently available . recent developments preliminary data from ongoing phase 1 single ascending dose study of intravenous bcv in healthy subjects on march 2 , we presented preliminary data from the ongoing phase 1 single ascending dose study of iv brincidofovir in which a total of 40 healthy subjects have been randomized to receive either a single dose of iv brincidofovir or iv placebo in one of four cohorts : cohort 1 : iv bcv 10 mg ( n=6 ) or placebo ( n=2 ) ; cohort 2 : iv bcv 25 mg ( n=6 ) or placebo ( n=2 ) ; cohort 3 : iv bcv 50 mg given over 2 hours ( n=9 ) or placebo ( n=3 ) ; and cohort 4 : iv bcv 50 mg given over 4 hours ( n=9 ) or placebo ( n=3 ) . in this ongoing blinded study , a favorable safety and tolerability profile has been observed in all three cohorts completed to date . grade 1-2 ( on a scale of grade 1-5 ) safety laboratory changes were observed in some subjects in the first three dosing cohorts ; none were considered clinically significant . no grade 3 or higher safety laboratory abnormalities were observed for any subjects receiving iv study drug in cohorts 1 , 2 and 3. in cohort 3 , iv bcv 50 mg or placebo , mild adverse events ( aes ) were reported that possibly were related to study-drug included : a single lower gastrointestinal event of loose stools was reported in one subject , and two other subjects each reported a mild headache that spontaneously resolved . in addition , three subjects had bruising at the site of the iv catheter . iv bcv 50 mg provided plasma drug exposures higher than achieved with oral bcv dosing , and in the range of exposures targeted for treatment indications such as for bk nephropathy . cohort 4 will explore iv bcv 50 mg or placebo over a longer period of infusion . complete clinical and pharmacokinetic data , from all four cohorts are expected to be reported in the first half of 2017. final data from advise trial on february 23 , 36-week data from the advise trial of bcv for the treatment of adenovirus infection in allogeneic hematopoietic cell transplant ( hct ) recipients was presented at the combined annual meetings of the center for international blood & marrow transplant research ( cibmtr ) and the american society for blood and marrow transplantation ( asbmt ) held february 22-26 , 2017 in orlando , fl . the advise trial , conducted between march 2014 and april 2016 , was an open-label , multicenter study designed to evaluate the efficacy , safety and overall tolerability of oral brincidofovir for the treatment of adenovirus infection . pediatric and adult subjects were assigned to one of three cohorts : cohort a , comprised of allogeneic hct recipients with asymptomatic or limited adenovirus infection ; cohort b , comprised of allogeneic hct recipients with disseminated adenovirus disease ; and cohort c , comprised of autologous hct recipients , solid organ transplant recipients and other patients with serious adenovirus infections . all subjects were to receive 12 weeks of oral brincidofovir and were followed for at least 36 weeks . the final analysis includes 158 allogeneic hct recipients assigned to cohorts a ( 23 adult and 42 pediatric patients ) and b ( 35 adult and 58 pediatric patients ) . in the advise trial , declines in adv viral load of ≥2 log 10 c/ml or below the limit of detection at week four were observed in 76 percent of pediatric patients and 45 percent of adult patients . notably , this antiviral effect was observed even in hct recipients who did not yet have immune recovery . in cohort a , 55 percent of patients with baseline low immunity ( cd4 counts < 50 cells/ìl ) achieved ≥2 log 10 c/ml decline or undetectable adv at week 4. in cohort b , 52 percent of patients with baseline low immunity achieved ≥2 log 10 c/ml decline or undetectable adv over the same period of time . 52 in patients with disseminated disease , rapid virologic response , defined as undetectable adv viremia at week 6 , was associated with nearly double the survival rate and lower adv-associated mortality compared with subjects who did not have an antiviral response , as summarized in the table below . story_separator_special_tag our research and development expenses consist primarily of : fees paid to consultants and contract research organizations ( cros ) , including in connection with our preclinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; salaries and related overhead expenses , which include stock option and employee stock purchase program compensation and benefits , for personnel in research and development functions ; payments to third-party manufacturers , which produce , test and package our drug substance and drug product ( including continued testing of process validation and stability ) ; costs related to legal and compliance with regulatory requirements ; and license fees for and milestone payments related to licensed products and technologies . from our inception through december 31 , 2016 , we have incurred approximately $ 355.4 million in research and development expenses , of which $ 315.6 million relates to our development of brincidofovir . these costs were largely related to the conduct of our clinical trials , including most recently our two clinical trials of brincidofovir . the table below summarizes our research and development expenses for the periods indicated ( in thousands ) . our direct research and development expenses consist primarily of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with our clinical trials , preclinical development , and payments to third-party manufacturers of drug substance and drug product . we typically use our employee and infrastructure resources across multiple research and development programs . replace_table_token_5_th the successful development of our clinical and preclinical product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our product candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; 54 the ability to market , commercialize and achieve market acceptance for any of our product candidates that we are developing or may develop in the future ; the results of ongoing or future clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate in the united states or in europe , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . brincidofovir the majority of our research and development resources has been focused on completing our phase 3 trial of brincidofovir for prevention of cmv in hct recipients ( suppress ) , our trial of brincidofovir as a treatment for adv ( advise ) , and our other clinical and preclinical studies and other work needed to provide sufficient data supporting the safety , tolerability and efficacy of brincidofovir for approval in the united states and equivalent health authority approval outside the united states . in addition , pursuant to our contract with barda , we are evaluating brincidofovir for the treatment of smallpox . during the base performance segment of the contract , we incurred significant expense in connection with the development of orthopox virus animal models , the demonstration of efficacy and pharmacokinetics of brincidofovir in the animal models , the conduct of an open label clinical safety study for subjects with dna viral infections , and the manufacture and process validation of bulk drug substance and brincidofovir 100 mg tablets . during the first option segment of the contract , we performed additional animal testing of brincidofovir . in september 2014 , we initiated performance under the second option segment of the contract with barda and performed additional animal testing of brincidofovir . in september 2015 , we initiated performance under the third option segment which focuses on brincidofovir chemistry , manufacturing and controls at large scale . following conclusion of our phase 3 suppress trial and our advise study , and the closing of our sustain and surpass trials in kidney transplant recipients , research and development expenses significantly decreased in 2016. as we increase development with the iv formulation , with cmx521 for norovirus , and with our barda activities , we currently expect research and development expenses to trend upward modestly in 2017. general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for employees in executive , finance , marketing , investor relations , information technology , legal , human resources and administrative support functions , including share-based compensation expenses and benefits . other significant general and administrative expenses include the pre-launch activities for brincidofovir , accounting and legal services , cost of various consultants , director and officer liability insurance , occupancy costs and information systems . general and administrative expenses decreased in 2016 , driven primarily by a reduction in expenses related to commercial preparations and other cost saving efforts .
| results of operations comparison of the years ended december 31 , 2016 and december 31 , 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and december 31 , 2015 , together with the changes in those items in dollars and percentage ( in thousands , except percentages ) : replace_table_token_9_th contract revenue for the year ended december 31 , 2016 , contract revenue decreased to $ 5.7 million compared to $ 9.2 million for the year ended december 31 , 2015 . the decrease of $ 3.5 million , or 38.1 % , was related to a decrease in reimbursable expenses related to our contract with barda . collaboration and licensing revenue for the year ended december 31 , 2016 , we did not have any collaboration and licensing revenue . for the year ended december 31 , 2015 , total collaboration and licensing revenue was $ 1.5 million related to our collaboration and licensing agreement with contravir pharmaceuticals . research and development expenses for the year ended december 31 , 2016 , our research and development expenses decreased to $ 58.6 million compared to $ 97.7 million for the year ended december 31 , 2015 .
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many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this annual report on form 10-k. overview we are a leading provider of outsourced commercial services to established and emerging pharmaceutical , biotechnology and healthcare companies in the united states . we are a leading provider of outsourced sales teams that target healthcare providers , offering a range of complementary sales support services designed to achieve our customers ' strategic and financial product objectives . in addition to outsourced sales teams , we also provide other promotional services including clinical educator services , digital communications , teledetailing and through our interpace biopharma business unit , we provide pharmaceutical , 21 pdi , inc. annual report on form 10-k ( continued ) biotechnology , medical device and diagnostics clients with full-service product commercialization solutions . combined , our services offer customers a range of both personal and non-personal promotional options for the commercialization of their products throughout their lifecycles , from development through maturity . we provide innovative and flexible service offerings designed to drive our customers ' businesses forward and successfully respond to a continually changing market . our services provide a vital link between our customers and the medical community through the communication of product information to physicians and other healthcare professionals for use in the care of their patients . we provide these services through three reporting segments : sales services ; marketing services ; and product commercialization services . these segments are described in detail under the caption description of reporting segments below . our business depends in large part on demand from the pharmaceutical , biotechnology and healthcare industries for outsourced promotional services . in recent years , this demand has been impacted by certain industry-wide factors affecting pharmaceutical , biotechnology and healthcare companies , including , among other things , pressures on pricing and access , successful challenges to intellectual property rights ( including the introduction of competitive generic products ) , a strict regulatory environment , decreased pipeline productivity and a slow-down in the rate of approval of new products by the united states food and drug administration ( fda ) . additionally , a number of pharmaceutical companies have made changes to their commercial models by reducing the internal number of sales representatives . a significant portion of our revenue is derived from our sales force arrangements with large pharmaceutical companies , and we have therefore benefited from cost control measures implemented by these companies and their resultant increased reliance on outsourced promotional services . however , we are also experiencing fluctuations in revenue due to certain clients renewing with a smaller salesforce and the expiration of certain other contracts due to the timing of new business and the variable nature of our business . we believe that we will continue to experience a high degree of customer concentration and this trend may continue as a result of the continuing consolidation within the pharmaceutical industry . with our proven record of outsourced promotional services expertise , we took action in 2013 on our stated strategy of searching for product in-licensing , acquisition and partnering opportunities that could add more predictable , higher growth , higher margin business that can reduce the natural volatility of our current core businesses , and at the same time leverage the breadth of our installed infrastructure and strength of our core commercialization capabilities . through our interpace diagnostics entity , we have recently announced a strategy focused on becoming a leading commercialization company for the molecular diagnostics industry via in-licensing , acquiring or partnering . the molecular diagnostics industry is highly fragmented with numerous strong science-based companies that have developed clinically important tests which are ready or near ready for market . a vast majority of these companies have very limited experience bringing a test to market and many of them do not have the capital to build an infrastructure to effectively commercialize their test . due to their complexity , most molecular diagnostic tests require a specialized go-to-market strategy , which includes messaging to physicians and potentially patients , similar to launching of a new drug in the pharmaceutical market . developing and delivering these kinds of messages , fully leveraging our extensive commercial infrastructure in an impactful , innovative and roi centric manner is one of our strengths . given our proven core sales and marketing and full commercialization capabilities , we believe this is a natural extension for us and the strength of these core capabilities , our installed infrastructure and the ability to gain synergies significantly mitigates the risks associated with this strategy . in october 2013 , we entered into phase one of a collaboration agreement to commercialize cardiopredict , a molecular diagnostic test developed by transgenomic , in the united states . under the terms of the strategic collaboration agreement , we will be responsible for all u.s.-based marketing and promotion of cardiopredict , while transgenomic will be responsible for processing cardiopredict in its state-of-the-art clia lab and all customer support . both parties will pay their respective expenses and will split profit on a formula basis . if we enter into phase two of the collaboration agreement , we may provide transgenomic with funding support of up to $ 3.0 million , principally to finance working capital requirements . in august 2013 , we entered into phase one of a collaboration agreement with a privately held molecular diagnostics company ( the diagnostics company ) to commercialize their molecular diagnostic tests . the initial test to be commercialized is fully developed . under the terms of the collaboration agreement , we paid an initial fee of $ 1.5 million and have received an option to purchase the outstanding common stock of the diagnostics company . story_separator_special_tag ” critical accounting policies we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of financial statements and related disclosures in conformity with gaap requires management to make judgments , estimates and assumptions at a specific point in time that affect the amounts reported in our consolidated financial statements and disclosed in the accompanying notes . these assumptions and estimates are inherently uncertain . outlined below are accounting policies , which are important to our financial position and results of operations , and require our management to make significant judgments in their application . some of those judgments can be subjective and complex . management 's estimates are based on historical experience , information from third-party professionals , facts and circumstances available at the time and various other assumptions that are believed to be reasonable . actual results could differ from those estimates . additionally , changes in estimates could have a material impact on our consolidated results of operations in any one period . for a summary of all of our significant accounting policies , including the accounting policies discussed below , see note 1 , nature of business and significant account policies , to our consolidated financial statements included in this annual report on form 10-k. revenue and cost of services we recognize revenue from services rendered when the following four revenue recognition criteria are met : persuasive evidence of an arrangement exists ; services have been rendered ; the selling price is fixed or determinable ; and collectability is reasonably assured . our contracts containing multiple deliverables are accounted for in accordance with accounting standards codification 605-25 , revenue recognition : multiple element arrangements . sales services revenue under pharmaceutical detailing contracts is generally based on the number of sales representatives utilized or the number of physician details made . revenue is generally recognized on a straight-line basis over the contract period or as the physician details are performed . a portion of revenues earned under certain contracts may be risk-based . the risk-based metrics may be based on activity metrics such as call activity , turnover , or other agreed upon measures , or on contractually defined percentages of prescriptions written . revenue from risk-based metrics is recognized in the period which the metrics have been attained and when we are reasonably assured that payment will be made . many of our product detailing contracts also allow for additional periodic incentive fees to be earned if certain activities have occurred or client specific sales performance benchmarks have been attained . revenue from incentive fees is recognized in the period earned when the performance benchmarks have been attained and when we are reasonably assured that payment will be made . many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating to the penalties have been achieved . commission based revenue is recognized when performance is completed . our product detailing contracts are generally for terms of one to three years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer without cause upon 30 days ' to 180 days ' prior written notice . certain contracts include provisions mandating that such notice may not be provided prior to a pre-determined future date and also provide for termination payments if the customer terminates the agreement without cause . typically , however , the total compensation provided by minimum service periods ( otherwise referred to as minimum purchase obligations ) and termination payments within any individual agreement will not fully offset the revenue we would have earned from fully executing the contract or the costs we may incur as a result of its early termination . we maintain continuing relationships with our sales services customers which may lead to multiple ongoing contracts between us and one customer . in situations where we enter into multiple contracts with one customer at or near the same time , we evaluate the various factors involved in negotiating the arrangements in order to determine if the contracts were negotiated as a package and should be accounted for as a single agreement . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our financial condition or results of operations . historically , we have derived a significant portion of service revenue from a limited number of customers . concentration of business in the pharmaceutical industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the year ended december 31 , 2013 , our two largest customers , who each individually represented 10 % or more of our sales services revenue , collectively accounted for approximately 65.5 % of our consolidated service revenue . for the year ended december 31 , 2012 , our three largest customers , who each individually represented 10 % or more of our sales services 24 pdi , inc. annual report on form 10-k ( continued ) revenue , collectively accounted for approximately 52.5 % of our consolidated service revenue . see note 13 , significant customers , to our consolidated financial statements included in this annual report on form 10-k. cost of services consists primarily of the costs associated with executing product detailing programs , performance based contracts or other sales and marketing services identified in the contract and includes personnel costs and other direct costs , as well as the initial direct costs associated with staffing a product detailing program . personnel costs , which constitute the largest portion of cost of services , include all labor related costs , such as salaries , bonuses , fringe benefits and payroll taxes for the sales representatives , sales managers and professional staff that are directly responsible for executing a particular program .
| consolidated results of operations the following table sets forth for the periods indicated below selected statement of comprehensive loss data as a percentage of revenue . the trends illustrated in this table may not be indicative of future operating results . 29 pdi , inc. annual report on form 10-k ( continued ) replace_table_token_1_th results of continuing operations for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 replace_table_token_2_th operations overview we operate in three business segments : sales services ; marketing services ; and pc services . in 2013 , significant increases in revenues from our sales services segment drove an increase in sales services segment gross profit relative to 2012 ; however , this improvement was more than offset by declines in revenues in both our pc services and marketing services segments and decreases in gross profit as a percent of revenue in all of our segments . we are in the pursuit of adding more predictable , higher growth , higher margin business that will eliminate natural volatility of our current core businesses , and at the same time leverage the breadth of our installed infrastructure and the strength of our core commercialization capabilities through our recently announced strategy to become a leading commercialization company for the molecular diagnostics industry via in-licensing , acquiring or partnering through our interpace diagnostics entity . the molecular diagnostics industry is highly fragmented with numerous strong science-based companies that have developed clinically important tests which are ready or near ready for market . a vast majority of these companies have very limited experience bringing a test to market and many of them do not have the capital to build an infrastructure to effectively commercialize their test .
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for payments made in advance , the company recognizes research and development expense as the services are rendered . research and development costs primarily consist of salaries and related expenses for personnel and resources and the costs of clinical trials . other research and development expenses include preclinical analytical testing , manufacturing of drug product , outside services , providers , materials and consulting fees . costs for certain development activities , story_separator_special_tag the following discussion of the financial condition and results of our operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors set forth in item 1a of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company focused on the discovery , clinical development and commercialization of innovative , small molecule drugs that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system , or cns . in december 2019 , we announced that caplyta ( lumateperone ) has been approved by the fda for the treatment of schizophrenia in adults ( 42mg/day ) . we expect to initiate the commercial launch of caplyta late in the first quarter of 2020. in support of our commercialization efforts , we expect to deploy a national sales force consisting of approximately 240 sales representatives . at the time of launch , caplyta will be priced in line with other currently marketed branded antipsychotics indicated for the treatment of schizophrenia . as used in this report , “ caplyta ” refers to lumateperone approved by the fda for the treatment of schizophrenia in adults , and “ lumateperone ” refers to , where applicable , caplyta as well as lumateperone for the treatment of indications beyond schizophrenia . lumateperone is also in phase 3 clinical development as a novel treatment for bipolar depression . our lumateperone bipolar depression phase 3 clinical program currently consists of three monotherapy studies and one adjunctive study . in the first quarter of 2020 we initiated our third monotherapy phase 3 study , study 403 , evaluating lumateperone as monotherapy in the treatment of major depressive episodes associated with bipolar i or bipolar ii disorder . we anticipate reporting topline results from study 403 in the second half of 2021. on july 8 , 2019 , we announced topline results from our first monotherapy study , study 401 , conducted in the u.s. , and our second monotherapy study , study 404 , conducted globally , evaluating lumateperone as monotherapy in the treatment of major depressive episodes associated with bipolar i or bipolar ii disorder . in study 404 , lumateperone 42 mg met the primary endpoint for improvement in depression as measured by change from baseline versus placebo on the madrs total score ( p < 0.0001 ; effect size = 0.56 ) . study 401 tested two doses of lumateperone , 42 mg and 28mg along with placebo . in this trial , neither dose of lumateperone met the primary endpoint of statistical separation from placebo as measured by change from baseline on the madrs total score . there was a high placebo response in this trial . lumateperone was generally well-tolerated in both bipolar depression studies , with a favorable safety profile . the rates of discontinuation due to treatment emergent adverse events for both doses of lumateperone were low . our global study evaluating adjunctive lumateperone in bipolar depression ( study 402 ) is ongoing and we anticipate reporting topline results from this study in mid-2020 . subject to the results of study 402 and our interactions with the fda regarding our bipolar depression program , in late 2020 we expect to submit a supplemental new drug application , or snda , to the fda for potential regulatory approval of lumateperone for the treatment of bipolar depression . in the second quarter of 2016 , we initiated phase 3 development of lumateperone for the treatment of agitation in patients with dementia , including ad . our iti-007-201 trial was a phase 3 multi-center , randomized , double-blind , placebo-controlled clinical trial in patients with a clinical diagnosis of probable ad and clinically significant symptoms of agitation . in the fourth quarter of 2018 , an independent data monitoring committee , or dmc , completed a pre-specified interim analysis of the iti-007-201 trial , and concluded that the trial was not likely to meet its primary endpoint upon completion and therefore recommended the study should be stopped for futility . as a result , we determined to discontinue the iti-007-201 trial . lumateperone was generally well 56 tolerated in the iti-007-201 trial and the decision to discontinue the study was not related to safety . we are analyzing the data set from this trial and will determine the next steps in our program following completion of this analysis . we are also pursuing clinical development of lumateperone for the treatment of additional cns diseases and disorders . we believe lumateperone may have utility for treating agitation , aggression and sleep disturbances in diseases that include dementia , ad , huntington 's disease and autism spectrum disorders . at a dose of 42 mg , lumateperone has been shown effective in treating the symptoms associated with schizophrenia , and we believe this higher dose range may merit further investigation for the treatment of bipolar disorder , depressive disorders and other neuropsychiatric diseases . story_separator_special_tag expenses for other projects and overhead increased as we expanded our preclinical development of iti-333 and iti-214 , among others . 60 as development of lumateperone progresses , we anticipate costs for lumateperone to increase due primarily to ongoing and planned clinical trials relating to our lumateperone programs in the next several years as we conduct phase 3 and other clinical trials . we are also required to complete non-clinical testing to obtain fda approval and manufacture material needed for clinical trial use , which includes non-clinical testing of the drug product and the creation of an inventory of drug product in anticipation of possible fda approval . we received fda approval on december 20 , 2019 for lumateperone as a treatment for schizophrenia . there was no lumateperone inventory purchased , received , or produced from the date of approval through december 31 , 2019 and therefore no inventory costs are reflected on our balance sheet through december 31 , 2019. as of december 31 , 2019 , we employed 56 full time personnel in our research and development group as compared to 49 full time personnel in our research and development group at december 31 , 2018. we expect to hire additional staff as we increase our development efforts and grow our business in the upcoming years . we currently have several projects , in addition to lumateperone , that are in the research and development stages , including in the areas of cognitive dysfunction and the treatment of neurodegenerative diseases , including ad , among others . we have used internal resources and incurred expenses not only in relation to the development of lumateperone , but also in connection with these additional projects as well , including our pde program . we have not , however , reported these costs on a project by project basis , as these costs are broadly spread among these projects . the external costs for these projects have been modest and are reflected in the amounts discussed in this section “ —research and development expenses. ” the research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the united states and other countries . this process typically takes years to complete and requires the expenditure of substantial resources . the steps required before a drug may be marketed in the united states generally include the following : completion of extensive pre-clinical laboratory tests , animal studies , and formulation studies in accordance with the fda 's good laboratory practice , or glp , regulations ; submission to the fda of an investigational new drug application , or ind , for human clinical testing , which must become effective before human clinical trials may begin ; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed indication ; submission to the fda of a new drug application , or nda , after completion of all clinical trials ; satisfactory completion of an fda pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient , or api , and finished drug product are produced and tested to assess compliance with current good manufacturing practices , or cgmps ; satisfactory completion of fda inspections of clinical trial sites to assure that data supporting the safety and effectiveness of product candidates has been generated in compliance with good clinical practices ; and fda review and approval of the nda prior to any commercial marketing or sale of the drug in the united states . the successful development of our product candidates and the approval process requires substantial time , effort and financial resources , and is uncertain and subject to a number of risks . we can not be certain that any of our product candidates will prove to be safe and effective , will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval , or will be granted marketing approval on a timely basis , if at all . data from pre-clinical studies and clinical trials are susceptible to varying interpretations that could delay , limit or prevent regulatory approval or could result in label warnings related to or recalls of approved products . 61 we , the fda , or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find deficiencies in the conduct of the trials or other problems with our product candidates . other risks associated with our product candidates are described in the section entitled “ risk factors ” in this annual report on form 10-k. general and administrative expenses general and administrative expenses increased for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 by approximately $ 34.8 million , or 115.8 % . the increase is primarily the result of an increase in pre-commercialization costs of approximately $ 21.2 million , labor costs of approximately $ 7.7 million , stock compensation expense of approximately $ 1.4 million , rent expense of approximately $ 1.1 million and professional fees of approximately $ 0.9 million . salaries , bonuses and related benefit costs for our executive , finance and administrative functions for the years ended 2019 and 2018 constituted approximately 40 % and 56 % , respectively , of our total general and administrative costs . the next major categories of expenses were patent costs and , to a lesser extent , general office-related overhead . we expect general and administrative costs to increase significantly as we hire additional staff and expand our operations .
| results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements . discussions of year-over-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. revenues we expect to initiate the commercial launch of caplyta late in the first quarter of 2020 , but have not generated any revenue from product sales to date . we had approximately $ 61,000 of grant revenues for the year ended december 31 , 2019 and no revenue for the year ended december 31 , 2018. we have received and may continue to receive grants from u.s. government agencies and foundations . we do not expect any revenues that we may generate in the next several years to be significant enough to completely fund our operations . expenses the process of researching and developing drugs for human use is lengthy , unpredictable and subject to many risks . we are unable with certainty to estimate either the costs or the timelines in which those costs will be incurred . the costs associated with the commercialization of caplyta will be substantial and will be incurred prior to our generating sufficient revenue to offset these costs . costs for the clinical development of lumateperone for the treatment of bipolar depression consumes and , together with our anticipated clinical development programs for depressive disorders and iti-214 , will continue to consume a large portion of our current , as well as projected , resources . we intend to pursue other disease indications that lumateperone may address , but there are significant costs associated with pursuing fda approval for those indications , which would include the cost of additional clinical trials .
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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 $ 1,041.1 million as of december 31 , 2012 , 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 if they 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 three 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. in september 2012 , we closed our development center in portsmouth , new hampshire to reduce occupancy and personnel-related expenses . 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 cash equivalents . 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 27 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 . revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable . when significant post-delivery obligations exist , revenue is deferred until such obligations are fulfilled . our arrangements generally do not have any significant post-delivery obligations . if our arrangements include customer acceptance provisions , revenue is recognized upon obtaining the signed acceptance certificate from the customer , unless we can objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement prior to obtaining the signed acceptance . in those instances where revenue is recognized prior to obtaining the signed acceptance certificate , we use successful completion of customer testing as the basis to objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement . we also consider historical acceptance experience with the customer , as well as the payment terms specified in the arrangement , when revenue is recognized prior to obtaining the signed acceptance certificate . when collectability is not reasonably assured , revenue is recognized when cash is collected . we make certain sales to product distributors . these customers are given certain privileges to return a portion of inventory . return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time . story_separator_special_tag 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 . 29 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 re-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 ( 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 . in 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 . on august 9 , 2012 , our board of directors approved the acceleration of vesting of all unvested options to purchase shares of zhone common stock that were held by our senior management and employees as of that date . the acceleration for shares held by senior management was effective as of august 9 , 2012 and the acceleration of shares held by all other employees was effective as of september 30 , 2012. 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 , 2012. the acceleration of these options was undertaken to partially offset previous reductions in cash compensation and other benefits by our senior management and employees . inventories inventories are stated at the lower of cost or market , with cost being determined using the first-in , first-out ( fifo ) method . in assessing the net realizable value of inventories , we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels . once inventory has been written down to its estimated net realizable value , its carrying value can not be increased due to subsequent changes in demand forecasts . to the extent that a severe decline in forecasted demand occurs , or we experience a higher incidence of inventory obsolescence due to rapidly changing technology and customer requirements , we may incur significant charges for excess inventory . accounting for impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable based on expected undiscounted cash flows attributable to that asset . recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future net undiscounted cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . any assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and would no longer be depreciated . the assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet . 30 during the year ended december 31 , 2012 , we recorded $ 0.1 million in impairment charges related to the impairment of long-lived assets as discussed in note 4 to the consolidated financial statements .
| results of operations we list in the table below the historical consolidated statement of comprehensive loss as a percentage of net revenue for the periods indicated . replace_table_token_4_th 2012 compared with 2011 net revenue information about our net revenue for products and services for 2012 and 2011 is summarized below ( in millions ) : replace_table_token_5_th 31 information about our net revenue for north america and international markets for 2012 and 2011 is summarized below ( in millions ) : replace_table_token_6_th net revenue decreased 7 % or $ 9.1 million to $ 115.4 million for 2012 compared to $ 124.5 million for 2011. the decrease in net revenue was primarily attributable to a decrease in product revenue , which in 2012 decreased 8 % or $ 9.1 million compared to 2011. the decrease was primarily due to decreased sales in our slms product portfolio . service revenue remained flat at $ 5.1 million in 2012 and 2011. service revenue represents revenue from maintenance and other services associated with product shipments . international net revenue decreased 10 % or $ 7.2 million to $ 64.5 million in 2012 and represented 56 % of total net revenue compared with 58 % in 2011. the decrease in international net revenue was primarily due to decreased sales in the middle east and latin america , which was partially offset by higher revenue from asia as a result of recent growth in demand for our products in this region . domestic net revenue decreased 4 % or $ 1.9 million to $ 50.9 million in 2012 compared to $ 52.8 million in 2011. axtel accounted for 10 % and 9 % of net revenue in 2012 and 2011 , respectively .
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these forward-looking statements can be identified by the use of words such as “ believes , ” “ estimates , ” “ could , ” “ possibly , ” “ probably , ” anticipates , ” “ projects , ” “ expects , ” “ may , ” “ will , ” or “ should ” or other variations or similar words . no assurances can be given that the future results anticipated by the forward-looking statements will be achieved . forward-looking statements reflect management 's current expectations and are inherently uncertain . our actual results may differ significantly from management 's expectations . the following discussion and analysis should be read in conjunction with our financial statements , included herewith . this discussion should not be construed to imply that the results discussed herein will necessarily continue into the future , or that any conclusion reached herein will necessarily be indicative of actual operating results in the future . such discussion represents only the best present assessment of our management . general overview coda octopus develops , manufactures , sells and services real-time 3d sonar and other products , as well as engineering design and manufacturing services on a worldwide basis . headquartered in new york city , with research and development , sales and manufacturing facilities located in the united kingdom , united states and norway , the company is engaged in software development , defense contracting and engineering services through subsidiaries located in the united states and the united kingdom . founded in 1994 , coda operated for ten years as a private company based in the uk . by the late 1990s , the company had developed a strong reputation as a developer and marketer of high quality software-based products used for underwater mapping , geophysical survey and other related marine applications . shortly after september 11 , 2001 , management was introduced to , and in december 2002 completed the acquisition of omnitech as , a norwegian company that had developed and patented a prototype system called the echoscope® . the echoscope® permits accurate three-dimensional visualization , measurement , data recording and mapping of underwater objects – in effect , the ability to “ see ” an object underwater in real time . management believed that real-time 3d sonar could represent a truly disruptive technology with the potential to change industry standard practices and procedures . it envisioned significant applications for this technology in defense , underwater port security , oil and gas exploration and security , bridge repair , and large-scale underwater construction projects . given these beliefs , the company decided that the best way to gain access to the capital and the visibility needed to commercialize real time 3d sonar , and to successfully enter multiple worldwide markets in the post 9/11 environment would be to move its headquarters to the usa , and to become a publicly traded company in the united states . on july 13 , 2004 coda octopus became a public company through a reverse merger with the panda project , inc. , a publicly traded florida corporation . as a result of the transaction , coda and its shareholders , including its then controlling shareholder , fairwater technology group ltd , were issued 20,050,000 common shares comprising approximately 90.9 % of the then issued and outstanding shares of panda . subsequently , panda was reincorporated in delaware , and changed its name to coda octopus group , inc. by mid 2005 , the company had completed the move of its headquarters from the uk to new york city . since moving to new york , the company has accomplished a series of objectives : 1. it raised approximately $ 33 million in funds , through three private placements primarily with institutional investors . the company raised approximately $ 8 million in 2006 , approximately $ 13 million in april/may 2007 , and approximately $ 12 million in a convertible debt transaction that was completed in february 2008 . 2. it completed the commercialization of the echoscope® and successfully deployed its real-time 3d technology and products on three continents with major corporations , governments , ports , law enforcement agencies and security organizations . 3. it significantly broadened both its revenue base and its base of expertise in engineering , defense electronics , military and security training , and software development primarily through the acquisition of four privately held companies . management believes that broadening the base of the company in these specific areas was necessary to position coda octopus as a reliable and experienced contractor , subcontractor and supplier of 3d sonar products and systems on a worldwide basis . 19 4. beginning in july 2007 , the us department of defense ( dod ) technical support working group ( tswg ) funded coda octopus to build and deliver next-generation underwater inspection systems ( uis ) for the us coast guard and other potential users . the program has included money to build and deliver current systems , as well as a roadmap for their future development . during the year ended october 31 , 2007 , the company delivered three uis systems to the us coast guard against a purchase order totaling $ 2.59 million . in fy 2008 the company was funded for an additional $ 1.53 million to develop certain mutually agreed technical enhancements to the system . the company 's latest contract with tswg covers the funding of an additional $ 1.4 million for additional enhancements and the delivery of additional systems . the company believes it has successfully completed the key second-stage enhancements sought by the dod and the coast guard . as a result , management believes that the company is positioned to build and deploy fully integrated systems that meet the highest standards in the world . these will enable users to “ see ” objects that are smaller than a baseball from a distance of more than 100 meters , and to do so in all kinds of ocean or water conditions at virtually any depth . story_separator_special_tag s expansion into new geographies like north america and western europe . s expansion into new commercial markets like commercial marine survey with innovative products . s recent sole source classification for one of our products and its derivatives by certain government procurement agencies . further , we believe the echoscope® will transform certain segments of the sonar products market . in addition , 3d sonar , currently in the early stages of adoption , has disruptive technology qualities as it has the ability to change industry standard practice in respect of the method for visualization and imaging of underwater objects and environment . therefore , it will likely change who supplies into this market as well as our market position and that of our competitors . we believe the market opportunity in underwater security and defense could grow at a rapid pace over the next several years . critical accounting policies this discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements in conformity with us gaap requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period . actual results could materially differ from those estimates . below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain . a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 1 , `` summary of significant accounting policies '' of our consolidated financial statements . revenue recognition we record revenue in accordance fasb asc topic 605 - revenue recognition . 21 revenue is derived from our products sold by our subsidiaries , coda octopus products inc. and ltd. , from sales of underwater technologies and equipment for imaging , mapping , defense and survey applications . revenue is also derived through service contracts gained by our martech , colmek tactical and innalogic businesses . revenue is recognized when conclusive evidence of firm arrangement exists , delivery has occurred or services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . no right of return privileges are granted to customers after shipment . for arrangements with multiple deliverables , we recognize product revenue by allocating the revenue to each deliverable based on the fair value of each deliverable in accordance with asc 605 , and recognize revenue for equipment upon delivery and for installation and other services as performed . asc 605 was effective for revenue arrangements entered into in fiscal periods beginning after june 15 , 2003. our contracts typically require customer payments in advance of revenue recognition . these deposit amounts are reflected as liabilities and recognized as revenue when the company has fulfilled its obligations under the respective contracts . revenues derived from our software license sales are recognized in accordance with fasb asc topic 985 - software . for software license sales for which any services rendered are not considered essential to the functionality of the software , we recognize revenue upon delivery of the software , provided ( 1 ) there is evidence of an arrangement , ( 2 ) collection of our fee is considered probable and ( 3 ) the fee is fixed and determinable . recoverability of deferred costs we defer costs on projects for service revenue . deferred costs consist primarily of direct and incremental costs to customize and install systems , as defined in individual customer contracts , including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties . we recognize such costs in accordance with our revenue recognition policy by contract . for revenue recognized under the completed contract method , costs are deferred until the products are delivered , or upon completion of services or , where applicable , customer acceptance . for revenue recognized under the percentage of completion method , costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation . for revenue recognized ratably over the term of the contract , costs are recognized ratably over the term of the contract , commencing on the date of revenue recognition . at each balance sheet date , we review deferred costs , to ensure they are ultimately recoverable . any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue . stock based compensation the company accounts for stock-based compensation in accordance with fasb asc topic 718 “ compensation - stock compensation ” ( “ asc 718 ” ) . under the fair value recognition provisions of this statement , share-based compensation cost is measured at the grant date based on the value of the award . this value is expensed ratably over the vesting period for time-based awards and when the achievement of performance goals is probable in our opinion for performance-based awards . determining the fair value of share-based awards at the grant date requires judgment ; including volatility , terms , and estimating the amount of share-based awards that are expected to be forfeited . if actual results differ significantly from these estimates , stock based compensation expense and the company 's results of operations could be materially impacted . 22 income taxes deferred income taxes are provided using the asset and liability method for financial reporting purposes in accordance with the provisions of fasb asc 740 - income taxes .
| results of operations introduction results for the year ending october 31 , 2009 ( the “ 2009 period ” ) , include two new operations , coda octopus tactical intelligence , inc and dragon design ltd , both of which were acquired during the period . this should be taken into account when comparing the 2009 period with the year ending october 31 , 2008 ( the “ 2008 period ” ) . recent developments cash framework agreement on march 16 , 2009 the company entered a “ cash control framework agreement ” with the royal bank of scotland ( the debt holder pursuant to which it is assumed that , subject to the company being compliant with the terms of the transaction documents entered into on february 21 , 2008 , no adverse actions will be taken by the debt holder ) . this agreement has been extended until march 16 , 2011 and it creates debtor book financing package to allow the company to obtain up to $ 2.15m in working capital in exchange for receivables or project financing . as part of the terms of that agreement , the company committed to a cost reduction program ( including management pay cuts ) to reduce significantly our sg & a , r & d and capital expenditure costs by an annualized $ 3.35 million . in addition , on january 18 , 2010 , the debt holder waived for one year its right to demand repayment of the loan as a result of our failure to observe certain specified loan covenants 23 cost cutting program in february 2009 , we embarked on a cost reduction program . this resulted in annualized savings of at least $ 3.35 million for the 2009 period . actual savings for the 2009 period amounted to $ 2.1 million against budget .
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under the 2012 incentive program , each executive officer of the company , other than executive officers earning any commission-based compensation , have a short-term incentive cash bonus opportunity based on achievements of a specified level of financial performance , specifically the company 's ebitda ( as defined in the 2012 incentive program ) in 2012 ( 2012 ebitda ) compared to the story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with selected financial data and our financial statements and the related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under risk factors and elsewhere in this annual report . background cpsi was founded in 1979 and specializes in delivering comprehensive healthcare information systems and related services to community hospitals . our systems and services are designed to support the primary functional areas of a hospital and to enhance access to necessary financial and clinical information . our comprehensive system enables healthcare providers to improve clinical , financial and administrative processes and outcomes . our products and services provide solutions in key areas , including patient management , financial management , patient care and clinical , enterprise and office automation . in addition to servicing small to medium-sized hospitals , we provide information technology services to other related entities in the healthcare industry , such as nursing homes , home health agencies and physician clinics . we sell a fully integrated , enterprise-wide financial and clinical hospital information system comprised of all necessary software , hardware , peripherals , forms and office supplies , together with comprehensive customer service and support . we also offer business management services , including electronic billing submissions , patient statement processing and accounts receivable management , as part of our overall information system solution . we believe that as our customer base grows , the demand for our business management services will also continue to grow , supporting further increases in recurring revenues . our system currently is installed and operating in over 650 hospitals in 45 states and the district of columbia . our customers consist of community hospitals with 300 or fewer acute care beds , with hospitals having 100 or fewer acute care beds comprising approximately 94 % of our customers . management overview we primarily seek revenue growth through sales of healthcare information technology systems and related services to existing and new customers within our historic target market . our strategy has produced consistent revenue growth over the long-term , as reflected in five-and ten-year compounded annual growth rates in revenues of approximately 8.4 % and 11.3 % , respectively . selling new and additional products and services to our existing customer base is an important part of cpsi 's future revenue growth . we believe that as our customer base grows , the demand for additional products and services , including business management services , will also continue to grow , supporting further increases in recurring revenues . we also expect to drive revenue growth from new product development that we may generate from our research and development activities . in addition to revenue growth , our business model is focused on earnings growth . once a hospital has installed our system , we continue to provide support and maintenance services to our customers on an ongoing basis . these services are typically provided by the same personnel who perform our system installations but at a reduced cost to us , and therefore at an increased gross margin . we also look to increase margins through cost containment measures where appropriate . as a result of the recent economic recession and the uncertainty surrounding the credit markets and tightened lending standards , hospitals have experienced reduced availability of third party credit and an overall reduction in their investment portfolios . in addition , healthcare organizations with a large dependency on medicare and medicaid populations , such as community based hospitals , have been impacted by the challenging financial condition of the federal government and many state governments and government programs . accordingly , we recognize that prospective hospital customers often do not have the necessary capital to make 33 index to financial statements investments in information technology . additionally , in response to these challenges , hospitals have become more selective regarding where they invest capital , resulting in a focus on strategic spending that generates a return on their investment . despite the current economic environment , we believe healthcare information technology is often viewed as more strategic to hospitals than other possible purchases because the technology offers the possibility of a quick return on investment . information technology also plays an important role in healthcare by improving safety and efficiency and reducing cost . additionally , we believe most hospitals recognize that they must invest in healthcare information technology to meet current and future regulatory , compliance and government reimbursement requirements . we have experienced an increase in customers seeking financing arrangements from us over the past four years for system installations as a result of ongoing economic conditions and the uncertainty surrounding the credit markets and tightened lending standards . historically , we have made financing arrangements available to customers on a case-by-case basis depending upon various aspects of the proposed contract and customer attributes . these financing arrangements include short-term payment plans , longer-term lease financing through us or third-party financing companies , and software as a service ( saas ) arrangements . we intend to continue to work with prospective customers to provide for financing arrangements to purchase our systems so long as such arrangements do not adversely affect our financial position and liquidity . story_separator_special_tag revenues the company allocates revenue to its multiple element arrangements , including software and software-related services based on a hierarchy of evidence to support selling prices in accordance with generally accepted accounting principles . revenue from general support agreements for post-contract support services ( support and maintenance ) and information technology management and professional services are recognized by the company ratably over the term of the agreement . system sales . revenues from system sales are derived from the sale of information systems ( including software , conversion and installation services , hardware , peripherals , forms and office supplies ) to new customers and from the sale of new or additional products to existing customers . we do not record revenue upon the execution of a sales contract . upon the execution of a contract to purchase a system from us , each customer pays a non-refundable 10 % deposit that is recorded as deferred revenue . the customer pays 40 % of the purchase price for the software and the related installation , training and conversion when we install the system and commence on-site training at the customer 's facility , which is likewise recorded as deferred revenue . when the system begins operating in a live environment , the remaining 50 % of the system purchase price for each module that has been installed is payable . revenue from the sale of the software perpetual license and the system 35 index to financial statements installation and training is recognized on a module by module basis after the installation and training have been completed and the system is functioning as designed for each individual module . revenue from the sale of hardware is recognized upon shipment of the hardware to the customer . support and maintenance . we also derive revenues from the provision of system support services , including software application support , hardware maintenance , continuing education and related services . support services are provided pursuant to a support agreement under which we provide comprehensive system support and related services in exchange for a monthly fee based on the services provided . the initial term of these contracts ranges from one to seven years , with a typical duration of five years . upon expiration of the initial term , these contracts renew automatically on a year-to-year basis thereafter until terminated . revenues from support services are recognized in the month when these services are performed . we provide our products to some customers utilizing the software as a service model , or saas. we provide saas services on a remote access basis by storing and maintaining servers at our headquarters which contain customers ' patient and administrative data . these customers then access this data remotely in exchange for a monthly fee . in addition , as part of our total information solution , we serve as an internet service provider , or isp , for some of our customers for a monthly fee . we also provide web-site design , hosting services , and other information technology management and professional services if needed . revenues from our saas and isp services are recognized in the month when these services are performed . business management services . our business management services include electronic billing , statement processing , payroll processing and business office management ( primarily accounts receivable management ) . most of these business management services are sold pursuant to one-year customer agreements , with automatic one year renewals until terminated . revenues from business management services are recognized when these services are performed . reference is made to note 2 to the financial statements for additional discussion of our revenue recognition policies . costs of sales system sales . the principal costs associated with the design , development , sale and installation of our systems are employee salaries , benefits , travel expenses and certain other overhead expenses . these costs are expensed as incurred . for the sale of equipment , we incur costs to acquire these products from the respective distributors or manufacturers . the costs related to the acquisition of equipment are capitalized into inventory and expensed upon the sale of the equipment utilizing the average cost method . support and maintenance . the principal costs associated with our system support and maintenance services are employee salaries , benefits and certain other overhead expenses . these costs are expensed as incurred . our employees that perform system installations also provide support and maintenance services . we allocate their time equally between the two functions to provide them with an equal amount of time at home providing support services versus travelling away from home performing system installations . as such , salary related expenses are allocated between cost of system sales and cost of support and maintenance services based upon an estimate of the percentage of time employees spend performing each function . we had 572 software installation and support employees as of december 31 , 2011 compared to 505 as of december 31 , 2010. business management services . the principal cost related to our statement processing services is postage . the principal costs related to our electronic billing services are employee related expenses , such as salaries and benefits , and long distance telecommunication fees . supplies and forms represent an additional cost associated with our business management services . these costs are expensed as incurred . 36 index to financial statements story_separator_special_tag installations at 33 new hospital clients in 2009. system sales to existing customers in 2010 was 64.0 % of total revenues as compared to 66.8 % for 2009. support and maintenance revenues increased by 6.0 % , or $ 3.4 million . the increase in revenues from support and maintenance was attributable to an increase in recurring revenues as a result of additional support and maintenance services to existing customers .
| results of operations the following table sets forth certain items included in our results of operations for each of the three years in the period ended december 31 , 2011 , expressed as a percentage of our total revenues for these periods ( dollar amounts in thousands ) : replace_table_token_3_th 2011 compared to 2010 revenues . total revenues increased by 13.2 % , or $ 20.2 million . this was largely attributable to an increase in system sales of clinical applications to existing customers attempting to attain meaningful use of ehrs under the arra , as well as an increase in support fees for these added clinical applications . system sales revenues increased by 15.3 % , or $ 9.4 million . we completed financial and patient software system installations at 17 new hospital clients in 2011 , compared to installations at 44 new hospital clients in 2010. system sales to existing customers in 2011 was 75.4 % of total revenues as compared to 64.0 % for 2010. we encountered many hospitals deferring it system purchases in 2011 until they had further information regarding reimbursement of these expenditures under the arra . this deferral resulted in fewer system installations in 2011. despite the reduction of new system installations , we were still able to increase revenues due to high levels of clinical application installations by our existing customers in order to meet the meaningful use provisions of the arra . support and maintenance revenues increased by 14.0 % , or $ 8.3 million . the increase in revenues was primarily attributable to an increase in customers adding clinical systems which require additional support and maintenance services . we had 657 customers at december 31 , 2011 , compared to 670 at december 31 , 2010 , due 37 index to financial statements to the loss in 2011 of a hospital syndicate with multiple facilities .
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in addition , the company establishes a reserve for estimated sales return that is recorded as a reduction to revenue . this reserve is maintained to account for the future return of products sold in the current period . product returns were not material for the years ended december 31 , 2011 , 2010 and 2009 . 76 nuvasive story_separator_special_tag forward-looking statements may prove inaccurate you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included in this report . this discussion and analysis may contain forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , such as those set forth under heading risk factors , and elsewhere in this report . overview we are a medical device company focused on developing minimally disruptive surgical products and procedures for the spine . our currently-marketed product portfolio is focused on applications for spine fusion surgery , including biologics , a combined market estimated to exceed $ 8.0 billion globally in 2012. our principal product offering includes a minimally disruptive surgical platform called maximum access surgery , or mas ® , as well as an offering of biologics , cervical , motion preservation products , and intra-operative monitoring ( iom ) services . our spine surgery product line offerings , which include products for the thoracolumbar spine , the cervical spine , and a set of motion preservation product offerings still under development , are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimally disruptive fashion . our biologic product line offerings include allograft , ( donated human tissue ) triad ® , and osteocel plus ® , an allograft cellular matrix containing viable mesenchymal stem cells , or mscs , formagraft ® , a collagen synthetic product used to aid the fusion process , and attrax ® , a synthetic bone graft material , which is still in the process of u.s. regulatory clearance , to aid in spinal fusion . our recently acquired subsidiary , impulse monitoring , inc. ( impulse monitoring ) provides iom services for insight into the nervous system during spine and other surgeries . we continue to focus significant research and development efforts to expand our mas product platform and advance the applications of our unique technology into procedurally integrated surgical solutions . we dedicate significant resources toward training spine surgeons on our unique technology and products . we continue to train surgeons who are new to our mas product platform as well as surgeons previously trained on our mas product platform who are attending advanced training programs . our mas platform , with the unique advantages provided by our nerve monitoring systems , enables an innovative lateral procedure known as extreme lateral interbody fusion , or xlif ® , in which surgeons access the spine for a fusion procedure from the side of the patient 's body , rather than from the front or back . our maxcess instruments provide access to the spine in a manner that affords direct visualization and our nerve monitoring systems allow surgeons to avoid critical nerves . at various times over the past two years , certain insurance providers have adopted policies of not providing reimbursement for the xlif procedure . we have worked with our surgeon customers and nass who , in turn , have worked with these insurance providers to supply the information , explanation and clinical data they require to categorize the xlif procedure as a procedure entitled to reimbursement under their policies . at present , all major insurance companies provide reimbursement for xlif procedures , including aetna , cigna , humana , and united healthcare along with the majority of the blue cross blue shield association independently operated member companies , including health care service corporation ( hcsc ) , the largest non-investor owned member which operates four blue cross and blue shield plans in the midwest and southwest ( illinois , oklahoma , texas , and new mexico ) , each of whom has reversed their prior policy of non-coverage . certain smaller regional carriers may , however , have policies against coverage of xlif . we can not offer definitive time frames or final outcomes regarding reversal of the non-coverage policies , as the process is dictated by the third-party insurance providers . to date , we have not experienced significant lack of payment for our procedures based on these policies . in recent years , we have significantly expanded our product offering relating to procedures in the cervical spine as well as in the area of biologics . our cervical product offering now provides a full set of solutions for 40 cervical fusion surgery , including both allograft and coroent ® implants , as well as cervical plating and posterior fixation products , and a set of motion preservation product offerings still under development . we have an active product development pipeline focused on expanding our current fusion product platform as well as products designed to preserve spinal motion . revenues . to date , the majority of our revenues are derived from the sale of disposables and implants and we expect this trend to continue for the foreseeable future . we loan our proprietary software-driven nerve monitoring systems and surgical instrument sets at no cost to surgeons and hospitals that purchase disposables and implants for use in individual procedures . in addition , we place our proprietary software-driven nerve monitoring systems , maxcess ® and other mas or cervical surgical instrument sets with hospitals for an extended period at no up-front cost to them . our implants and disposables are currently sold and shipped from our primary distribution and warehousing operations facility located in memphis , tennessee . story_separator_special_tag however , if the overall condition of the healthcare industry were to deteriorate , or if the historical data used to calculate the allowance provided for doubtful accounts does not accurately reflect our customer 's future failure to pay outstanding receivables , significant additional allowances could be required . in addition , we establish a reserve for estimated sales returns that is recorded as a reduction to revenue . this reserve is maintained to account for future return of products sold in the current period . this reserve is reviewed quarterly and is estimated based on an analysis of our historical experience related to product returns . excess and obsolete inventory . we provide an inventory reserve for estimated obsolescence and excess inventory based upon historical turnover and assumptions about future demand for our products and market conditions . our allograft products have shelf lives ranging from two to five years and are subject to demand fluctuations based on the availability and demand for alternative products . our inventory , which consists primarily of disposables and specialized implants , is at risk of obsolescence following the introduction and development of new or enhanced products . our estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis . the estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts . increases in the reserve for excess and obsolete inventory result in a corresponding charge to cost of goods sold . a stated goal of our business is to focus on continual product innovation and to obsolete our own products . while we believe this provides a competitive edge , it also results in the risk that our products and related capital instruments will become obsolete prior to sale or to the end of their anticipated useful lives . if we introduce new products or next-generation products , we may be required to dispose of existing inventory prior to the end of its estimated useful life and or write off the value or accelerate the depreciation of the capital instruments . 42 accounting for income taxes . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved . the evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis , and includes a review of all available positive and negative evidence . factors reviewed include projections of pre-tax book income for the foreseeable future , determination of cumulative pre-tax book income after permanent differences , earnings history , and reliability of forecasting . during the fourth quarter of 2010 , we concluded that it was more likely than not that we would be able to realize the benefit of our domestic deferred tax assets in the future . we based this conclusion on historical and projected operating performance , as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets . as a result , we released the valuation allowance on our domestic deferred tax assets . as a result of the litigation award accrual totaling $ 101.2 million recorded in the third quarter of 2011 , we evaluated the need for a valuation allowance on our deferred tax assets by reviewing all available positive and negative evidence . based on our review , we concluded that it was more likely than not that we would be able to realize the benefit of our u.s. federal deferred tax assets and our deferred tax assets for all states except california in the future . this conclusion was primarily based on historical and projected operating performance , as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the federal deferred tax assets well within the statutory carryover periods . accordingly , we did not establish a valuation allowance on our federal or non-california state deferred tax assets as of december 31 , 2011. based on this same evidence and consideration of the state of california 's past and current suspension of the use of net operating loss carryforwards , the state of california 's statutory carryover periods and our apportionment election beginning in 2011 , we concluded that it is more likely than not that we will not be able to utilize our california deferred tax assets . therefore , we established a full valuation allowance on our california deferred tax assets as of december 31 , 2011. accordingly , the income tax benefit reported for the year ended december 31 , 2011 , includes income tax expense totaling $ 4.8 million in connection with the establishment of this valuation allowance . we will continue to assess the need for a valuation allowance on our deferred tax assets by evaluating both positive and negative evidence that may exist . any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required . valuation of stock-based compensation . the estimated fair value of stock-based awards exchanged for shareowner ( employee ) and non-employee director services are expensed over the requisite service period . option awards issued to non-employees ( excluding non-employee directors ) are recorded at their fair value as determined in accordance with authoritative guidance , and are periodically revalued as the options vest and are recognized as expense over the related service period .
| results of operations revenue replace_table_token_4_th our spine surgery product line offerings , which include products for the thoracolumbar spine and the cervical spine , are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimally disruptive fashion . our biologic product line offerings include allograft ( donated human tissue ) , formagraft , a collagen synthetic product used to aid the fusion process , and osteocel plus , an allograft cellular matrix containing viable mesenchymal stem cells , or mscs , to aid in spinal fusion . our monitoring service line offering includes hospital based revenues and net patient service revenues related to iom services performed . the continued adoption of minimally invasive procedures for spine has led to the continued expansion of our innovative lateral procedure known as extreme lateral interbody fusion , or xlif , in which surgeons access the spine for a fusion procedure from the side of the patient 's body , rather than from the front or back . in addition , increased market acceptance in our international markets contributed to the increase in revenues noted for the periods presented . we expect continued adoption of our xlif procedure and deeper penetration into existing accounts and our newer international markets as our sales force executes on the strategy of selling the full mix of our products . however , recent changes in payer and hospital behavior in the united states have created less predictability in the lumbar portion of the spine market and impacted the overall spine market 's growth rate . accordingly , we believe that our growth in revenue in 2012 will primarily come from market share gains related to the market shift toward less invasive spinal surgery and the benefit of an entire fiscal year of revenue from our iom service business as a result of the impulse monitoring acquisition .
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note 3 - new lease accounting standard method and impact of adoption on january 28 , 2019 , we adopted the new lease accounting standard using the optional transition method by recognizing a cumulative-effect adjustment to the consolidated balance sheet and not adjusting comparative information for prior periods . in addition , we elected the package of practical expedients permitted under the transition guidance , which allowed us not to reassess ( 1 ) whether any expired or existing contracts are or contain leases , ( 2 ) lease classification for any expired or existing leases , and ( 3 ) initial direct costs story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 1a . risk factors ” , “ item 6. selected financial data ” , our consolidated financial statements and related notes thereto , as well as other cautionary statements and risks described elsewhere in this annual report on form 10-k , before deciding to purchase , hold or sell shares of our common stock . overview our company and our businesses nvidia pioneered accelerated computing to help solve the most challenging computational problems . starting with a focus on pc graphics , we extended our focus in recent years to the revolutionary field of ai . fueled by the sustained demand for exceptional 3d graphics and the scale of the gaming market , nvidia leveraged its gpu architecture to create platforms for vr , hpc , and ai . our two reportable segments - gpu and tegra processor - are based on a single underlying graphics architecture . from our proprietary processors , we have created platforms that address four large markets where our expertise is critical : gaming , professional visualization , data center , and automotive . our gpu product brands are aimed at specialized markets including geforce for gamers ; quadro for designers ; tesla and dgx for ai data scientists and big data researchers ; and grid for cloud-based visual computing users . our tegra brand incorporates gpus and multi-core cpus to drive supercomputing for autonomous robots , drones , and cars , as well as for game consoles and mobile gaming and entertainment devices . headquartered in santa clara , california , nvidia was incorporated in california in april 1993 and reincorporated in delaware in april 1998. recent developments , future objectives and challenges fiscal year 2020 story_separator_special_tag accelerated momentum of ray-tracing games by supporting a growing list of titles ; introduced new rtx studio laptops powered by geforce rtx and quadro rtx gpus for online and studio-based creatives and prosumer customers ; unveiled two new models of the shield tv streaming media player ; and introduced two new service offerings for geforce now cloud gaming service . in professional visualization , we expanded adoption of nvidia rtx ray-tracing technology by 3d application providers ; rolled out a full range of turing-based quadro gpus for mobile workstations , incorporating ray tracing for product design , architecture , effects and scientific visualization ; and unveiled the nvidia omniverse open-collaboration platform to simplify creative workflows for content creation . in data center , we introduced the nvidia cuda-x ai platform for accelerating data science ; announced availability of nvidia t4 tensor core gpus from leading oems and cloud service providers ; unveiled the dgx superpod ; and announced support for arm cpus , providing a new path to build ai-enabled exascale supercomputers , as well as a collaboration with arm and others on a reference design for gpu accelerated arm-based servers . we launched the nvidia egx intelligent edge computing platform , bringing accelerated ai to vertical industries ; and announced a collaboration to integrate microsoft 25 azure with egx , as well as plans for a scalable gpu-accelerated supercomputer in the microsoft azure cloud . additionally , we entered the 5g telecom market , enabling telcos to build efficient , virtualized 5g rans ; announced a collaboration to deliver software-defined 5g ran ; and announced that alibaba and baidu 's recommendation engines run on nvidia ai . tegra processor business in our automotive platform , we announced a partnership with toyota research institute-advanced development to develop , train and validate self-driving vehicles ; unveiled the nvidia drive ap2x automated driving solution , encompassing drive autopilot software , drive agx and drive validation tools ; introduced the nvidia drive av safety force field to enable safe , comfortable driving experiences ; and announced availability of the nvidia drive constellation autonomous vehicle simulation platform . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , cost of revenue , expenses and related disclosure of contingencies . on an on-going basis , we evaluate our estimates , including those related to inventories , revenue recognition , income taxes , and goodwill . 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 the carrying values of assets and liabilities . we believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements . our management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors . the audit committee has reviewed our disclosures relating to our critical accounting policies and estimates in this annual report on form 10-k. inventories inventory cost is computed on an adjusted standard basis , which approximates actual cost on an average or first-in , first-out basis . story_separator_special_tag as of january 26 , 2020 , we had a valuation allowance of $ 621 million related to state and certain foreign deferred tax assets that management determined are not likely to be realized due to jurisdictional projections of future taxable income and potential utilization limitations of tax attributes acquired as a result of stock ownership changes . to the extent realization of the deferred tax assets becomes more-likely-than-not , we would recognize such deferred tax asset as an income tax benefit during the period . we recognize the benefit from a tax position only if it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position . our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense . refer to note 14 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . goodwill goodwill is subject to our annual impairment test during the fourth quarter of our fiscal year , or earlier , if indicators of potential impairment exist , using either a qualitative or a quantitative assessment . our impairment review process compares the fair value of the reporting unit in which the goodwill resides to its carrying value . we have identified two reporting units , 27 gpu and tegra processor , for the purposes of completing our goodwill analysis . goodwill assigned to the gpu and tegra processor reporting units as of january 26 , 2020 was $ 210 million and $ 408 million , respectively . determining the fair value of a reporting unit requires us to make judgments and involves the use of significant estimates and assumptions . we also make judgments and assumptions in allocating assets and liabilities to each of our reporting units . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . we performed our annual goodwill assessment during the fourth quarter of fiscal year 2020 using a qualitative assessment and concluded there was no goodwill impairment . refer to note 6 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . results of operations a discussion regarding our financial condition and results of operations for fiscal year 2020 compared to fiscal year 2019 is presented below . a discussion regarding our financial condition and results of operations for fiscal year 2019 compared to fiscal year 2018 can be found under item 7 in our annual report on form 10-k for the fiscal year ended january 27 , 2019 , filed with the sec on february 21 , 2019 , which is available free of charge on the sec 's website at http : //www.sec.gov and at our investor relations website , http : //investor.nvidia.com . the following table sets forth , for the periods indicated , certain items in our consolidated statements of income expressed as a percentage of revenue . replace_table_token_5_th revenue revenue by reportable segments replace_table_token_6_th gpu business . gpu business revenue decreased by 7 % in fiscal year 2020 compared to fiscal year 2019 , which reflects a decline in gpus sold for gaming . geforce gpu product sales for gaming decreased by 10 % , reflecting lower sales of geforce 28 desktop gpus and socs for gaming platforms , partially offset by growth in geforce notebook gpus . revenue from quadro gpus for professional visualization increased by 7 % , reflecting strength in desktop and notebook workstations . data center revenue , which includes tesla , grid and dgx , increased by 2 % , driven by vertical industry growth partially offset by lower hyperscale sales . tegra processor business . tegra processor business revenue decreased by 6 % in fiscal year 2020 compared to fiscal year 2019 . this was driven by a decline in revenue from socs for gaming platforms , which was partially offset by an increase of 9 % in automotive revenue , reflecting growth in ai cockpit solutions and development services agreements . concentration of revenue revenue from sales to customers outside of the united states accounted for 92 % and 87 % of total revenue for fiscal years 2020 and 2019 , respectively . revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the revenue is attributable to end customers in a different location . dell represented approximately 11 % of our total revenue for fiscal year 2020 and was attributable to the gpu business . no customer represented 10 % or more of total revenue for fiscal year 2019 . gross profit and gross margin gross profit consists of total revenue , net of allowances , less cost of revenue . cost of revenue consists primarily of the cost of semiconductors purchased from subcontractors , including wafer fabrication , assembly , testing and packaging , board and device costs , manufacturing support costs , including labor and overhead associated with such purchases , final test yield fallout , inventory and warranty provisions , memory and component costs , and shipping costs . cost of revenue also includes development costs for license and service arrangements and stock-based compensation related to personnel associated with manufacturing . our overall gross margin was 62.0 % and 61.2 % for fiscal years 2020 and 2019 , respectively . the increase in fiscal year 2020 was driven by reduced inventory provisions and the sale of previously written-off components . inventory provisions totaled $ 161 million and $ 270 million for fiscal years 2020 and 2019 , respectively . sales of inventory that was previously written-off or written-down totaled $ 145 million and $ 41 million for fiscal years 2020 and 2019 , respectively .
| summary replace_table_token_4_th revenue for fiscal year 2020 was $ 10.92 billion , down 7 % from a year earlier . gpu business revenue was $ 9.47 billion , down 7 % from a year earlier . tegra processor business revenue - which includes automotive , socs for gaming platforms , and embedded edge ai platforms - was $ 1.45 billion , down 6 % from a year earlier . from a market platform perspective , gaming revenue was $ 5.52 billion , down 12 % from a year ago , reflecting lower sales of geforce desktop gpus and socs for gaming platforms , partially offset by growth in geforce notebook gpus . professional visualization revenue was $ 1.21 billion , up 7 % from a year ago , reflecting strength in desktop and notebook workstations . data center revenue was $ 2.98 billion , up 2 % from a year ago , driven by vertical industry growth partially offset by lower hyperscale sales . automotive revenue was $ 700 million , up 9 % from a year ago , reflecting growth in ai cockpit solutions and development services agreements . 24 oem and other revenue was $ 505 million , down 34 % from a year ago , primarily due to the absence of cryptocurrency-specific product sales . gross margin for fiscal year 2020 was 62.0 % , up 80 basis points from a year ago , primarily driven by reduced inventory provisions and the sale of previously written-off components . operating expenses for fiscal year 2020 were $ 3.92 billion , up 16 % from a year ago , reflecting primarily employee additions and increases in employee compensation and other related costs , including stock-based compensation and infrastructure costs . income from operations for fiscal year 2020 was $ 2.85 billion , down 25 % from a year earlier .
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forward-looking statements are typically included , for example , in discussions regarding the manufactured housing and site-built housing industries ; the company 's financial performance and operating results ; and the expected effect of certain risks and uncertainties on the company 's business , financial condition and results of operations , economic conditions and consumer confidence , operational and legal risks , how the company may be affected by the covid-19 pandemic , governmental regulations and legal proceedings , the availability of favorable consumer and wholesale manufactured home financing , market interest rates and company investments and the ultimate outcome of the company 's commitments and contingencies . forward-looking statements involve risks , uncertainties and other factors that may cause the company 's actual results , performance or achievements to be materially different from those expressed or implied by such forward-looking statements , many of which are beyond our control . to the extent that the company 's assumptions and expectations differ from actual results , the company 's ability to meet such forward-looking statements , including the ability to generate positive cash flow from operations , may be significantly hindered . factors that could affect the company 's results and cause them to materially differ from those contained in the forward-looking statements include , without limitation , those discussed under item 1a , `` risk factors , '' and elsewhere in this annual report . the company expressly disclaims any obligation to update any forward-looking statements contained in this annual report , whether as a result of new information , future events or otherwise . for all of these reasons , you should not place undue reliance on any such forward-looking statements included in this annual report . introduction the following should be read in conjunction with the company 's consolidated financial statements and the related notes that appear in part iv of this report . references to `` note '' or `` notes '' pertain to the notes to the company 's consolidated financial statements . overview headquartered in phoenix , arizona , the company designs and produces factory-built homes primarily distributed through a network of independent and company-owned retailers , planned community operators and residential developers . the company is one of the largest producers of manufactured homes in the united states , based on reported wholesale shipments , marketed under a variety of brand names , including cavco , fleetwood , palm harbor , fairmont , friendship , chariot eagle and destiny . the company is also one of the leading producers of park model rvs , vacation cabins and systems-built commercial structures , as well as modular homes built primarily under the nationwide homes brand . cavco 's finance subsidiary , countryplace , is an approved fannie mae and freddie mac seller/servicer and a ginnie mae mortgage-backed securities issuer that offers conforming mortgages , non-conforming mortgages and home-only loans to purchasers of factory-built homes . cavco 's insurance subsidiary , standard casualty , provides property and casualty insurance to owners of manufactured homes . 31 company growth from its inception in 1965 , cavco traditionally served affordable housing markets in the southwestern united states principally through manufactured home production . during the period from 1997 to 2000 , cavco was purchased by , and became a wholly-owned subsidiary of , centex corporation , which operated the company until 2003 , when cavco became a stand-alone publicly-held company traded on the nasdaq global select market under the ticker symbol cvco . the company has strategically expanded its factory operations and related business activities primarily through the acquisition of other industry participants . this has enabled cavco to meet the needs of the affordable housing market on a national basis . the purchase of the fleetwood and palm harbor assets in august 2009 and april 2011 , respectively , increased home production and distribution capabilities and provided for vertical integration through entry into financial services businesses specific to the company 's industry . these transactions expanded the company 's geographic reach at a national level by adding factories and retail locations serving the northwest , west , south , south central and mid-atlantic regions . the purchase of chariot eagle , fairmont , lexington and destiny , in march 2015 , may 2015 , april 2017 and august 2019 , respectively , provided additional operating capacity , increased home production capabilities and further strengthened the company 's market in certain areas of the united states and several provinces in canada . in april 2020 , the company decided to shut down production and close its lexington , mississippi plant . ongoing market and operating challenges were exacerbated by decreased business and the ongoing uncertainty resulting from the covid-19 pandemic , all of which contributed to this decision . this location has stopped accepting new orders for homes , is working to support customers by completing production of home orders already in process ( which are expected to be completed in june 2020 ) and has notified its workforce of this shut down decision in accordance with applicable legal requirements . the company will remain available to serve wholesale customers previously served by the lexington facility , that choose to continue to purchase the company 's products , from its other production lines in the southeast . the company does not expect that closing the lexington facility will have a significant adverse financial effect on the company and no significant restructuring or related asset impairment charges are expected . currently , no decisions have been made on the disposition of the production facility , which is currently leased , or related assets . the company operates 20 homebuilding production lines located in millersburg and woodburn , oregon ; nampa , idaho ; riverside , california ; phoenix and goodyear , arizona ; austin , fort worth , seguin and waco , texas ; montevideo , minnesota ; nappanee , indiana ; lafayette , tennessee ; martinsville and rocky mount , virginia ; douglas and moultrie , georgia ; and ocala and plant city , florida . story_separator_special_tag 33 financial services operations have also continued to operate since the onset of the covid-19 pandemic , largely through the implementation of work-from-home solutions . this includes accepting and processing new applications as well as servicing home loans and insurance policies . the financial services operations are complying with all state and federal regulations regarding loan forbearance , home foreclosures and policy cancellations and are assisting customers in need . because of changed economic conditions at the end of the fiscal year , loan loss reserves have been increased . certain loans serviced by countryplace for investors expose the company to cash flow deficits if customers do not make contractual monthly payments of principal and interest in a timely manner . our primary investor , ginnie mae , permits cash obligations on loans in forbearance from covid-19 to be offset by other incoming cash flows from loans , such as loan pre-payments . while monthly collections of principal and interest from borrowers has normally exceeded scheduled principal and interest payments owed to investors , given various state and local emergency order changes in light of covid-19 , this could change . in april 2020 , the company decided to shut down production and close its lexington , mississippi plant . ongoing market and operating challenges were exacerbated by decreased business and the ongoing uncertainty resulting from the covid-19 pandemic , all of which contributed to this decision . see further discussion above . currently , no decisions have been made on the disposition of the production facility , which is currently leased , or related assets . it is difficult to predict the future impacts on housing demand or the nature of operations at each of our locations due to the covid-19 pandemic . we could experience further reduction of customer demand , plant utilization or production levels , increased costs resulting from our efforts to mitigate the impact of the virus , impairment or write down of assets or other consequences . however , our wholesale customers have been positive about continuing the process of delivering homes and appreciative of our efforts to continue production to meet housing needs . the company continues to focus on developing order volume growth opportunities by working to improve its production capabilities and adjusting product offerings as appropriate . the company strives to manage its production levels and workforce size in order to match the demand for its product offerings while ensuring efficient use of its production capabilities . the company continually reviews wage rates of its production employees and has established other monetary incentive programs to ensure competitive compensation . the company is working to more extensively use on-line recruiting tools , update recruitment brochures and improve the appearance and appeal of its production facilities in order to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates . the company believes its ability to help meet the overall need for affordable housing continues to improve . the company participates in certain commercial loan programs with members of the company 's independent wholesale distribution chain . under these programs , the company provides a significant amount of the funds that independent financiers then lend to distributors to finance retail inventories of its products . in addition , the company has entered into direct commercial loan arrangements with distributors , communities and developers under which the company provides funds for financing homes ( see note 7 to the consolidated financial statements ) . the company 's involvement in commercial loans helps to increase the availability of manufactured home financing to distributors , communities and developers . participation in wholesale financing is helpful to these customers and provides additional opportunity for product exposure to potential home buyers . these initiatives support the company 's ongoing efforts to expand product distribution . however , these initiatives do expose the company to risks associated with the creditworthiness of this customer base and the company 's inventory financing partners . the company has included considerations related to the covid-19 pandemic when assessing its risk of loan loss and setting reserve amounts for its commercial finance portfolio . 34 the lack of an efficient secondary market for manufactured home-only loans and the limited number of institutions providing such loans result in higher borrowing costs for home-only loans , which continues to constrain industry growth . the company is working directly with other industry participants to develop secondary market opportunities for manufactured home-only loan portfolios and expand lending availability in the industry . additionally , the company continues to invest in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities . the company 's mortgage subsidiary also develops and invests in home-only lending programs to grow sales of homes through traditional distribution points . the company believes that growing its investment and participation in home-only lending may provide additional sales growth opportunities for the financial services segment , as well as provide a means that could lead to increased home sales for its factory-built housing operations . the company is also working through industry trade associations to encourage favorable legislative and gse action to address the mortgage financing needs of buyers of affordable homes . federal law requires the gses to implement the `` duty to serve '' requirements specified in the federal housing enterprises financial safety and soundness act of 1992 , as amended by the housing and economic recovery act of 2008. in december 2017 , fannie mae and freddie mac each released their final underserved markets plan that describes , with specificity , the actions they will take over a three-year period to fulfill the `` duty to serve '' obligation . these plans became effective on january 1 , 2018. each of the three-year plans offers an enhanced mortgage loan product through their `` mh advantage '' and `` choicehome '' programs , respectively , that began in the latter part of calendar year 2018. small-scale pilot programs for the purchase of home-only loans that were expected to commence towards the end of calendar year 2019 have not occurred .
| results of operations fiscal year 2020 compared to fiscal year 2019 net revenue . net revenue consisted of the following for fiscal years 2020 and 2019 , respectively ( dollars in thousands ) : replace_table_token_3_th in the factory-built housing segment , the increase was from improved home sales volume , including homes sold from the new destiny homes acquisition , which contributed $ 30.1 million in revenue , changes in product mix and higher home selling prices compared to the prior year . net factory-built housing revenue per home sold is a volatile metric dependent upon several factors . a primary factor is the price disparity between sales of homes to independent distributors , builders , communities and developers ( `` wholesale '' ) and sales of homes to consumers by company-owned retail centers ( `` retail '' ) . wholesale sales prices are primarily comprised of the home and the cost to ship the home from a homebuilding facility to the home-site . retail home prices include these items and retail markup , as well as items that are largely subject to home buyer discretion , including , but not limited to , installation , utility connections , site improvements , landscaping and additional services . changes to the proportion of home sales among these distribution channels between reporting periods impacts the overall net revenue per home sold . for the twelve months ended march 28 , 2020 , the company sold 12,247 homes wholesale and 2,853 retail versus 11,806 homes wholesale and 2,583 homes retail in the comparable prior year period . further , fluctuations in net factory-built housing revenue per home sold are the result of changes in product mix , which results from home buyer tastes and preferences as they select home types/models , as well as optional home upgrades when purchasing the home . these selections vary regularly based on consumer interests , local housing preferences and economic circumstances .
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our domestic segment includes all operations in the united states relating to our role as a healthcare logistics company providing distribution , packaging and logistics services to healthcare providers and manufacturers . the international segment consists of our european third-party logistics and packaging businesses . segment financial information is provided in note 20 of notes to consolidated financial statements included in this annual report . financial highlights . the following table provides a reconciliation of reported operating earnings , net income and diluted net income per common share to non-gaap measures used by management : replace_table_token_4_th the following items have been excluded in our non-gaap financial measures : ( 1 ) acquisition-related charges , pre-tax , were $ 16.1 million in 2014 , $ 3.5 million in 2013 and $ 10.5 million in 2012. current year charges consist primarily of costs incurred to perform due diligence and analysis related to the medical action and arc royal acquisitions , costs to complete the transactions , and costs to begin the integration of the acquired operations ( including certain severance and contractual payments to former management ) as well as certain costs in movianto to resolve issues and claims with the former owner . charges in 2013 included costs to transition the information technology and other operations and administrative functions of movianto from the former owner . acquisition-related charges in 2012 were primarily transaction costs incurred with movianto to perform due diligence and to analyze , negotiate and consummate the acquisition as well as costs to perform certain post-closing activities to establish the organizational structure . 15 exit and realignment charges ( income ) , pre-tax , were $ 26.7 million in 2014 , $ 8.9 million in 2013 and $ ( 0.4 ) million in 2012. these charges were associated with optimizing our operations and include the closure and consolidation of certain distribution and logistics centers , administrative offices and warehouses in the united states and europe . these charges also include other costs associated with our strategic organizational realignment which include management changes , certain professional fees , and costs to streamline administrative functions and processes . further information regarding these items is included in note 9 of notes to consolidated financial statements . ( 2 ) the fourth quarter of 2014 includes a gain of $ 6.7 million ( pretax ) recorded in other operating income , net from a fair value adjustment to contingent consideration related to the 2012 movianto acquisition purchase price , offset by the incremental charge to cost of goods sold of $ 3.0 million ( pretax ) from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the current year acquisitions . ( 3 ) the fourth quarter of 2014 includes a loss in other operating income , net related to an accrual for the estimated settlement amount of a breach of contract claim in the united kingdom for $ 3.9 million ( pretax ) . ( 4 ) in 2014 , we repaid our 2016 notes and recorded a net loss on the early retirement of $ 14.9 million ( pretax ) , which includes the redemption premium offset by the recognition of a gain on previously settled interest rate swaps . these charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes . more information about these charges is provided in notes 3 , 9 and 10 of notes to consolidated financial statements included in this annual report . adjusted eps decreased to $ 1.76 in 2014 from $ 1.90 in 2013 primarily due to a decrease in adjusted operating earnings of $ 8.0 million and an increase in interest expense of $ 5.1 million . domestic segment operating earnings were $ 209.3 million for 2014 , a decrease of $ 2.7 million when compared to the prior year . international segment operating losses were $ 6.7 million for 2014 compared to $ 1.4 million in 2013. the higher operating loss in the international segment was largely attributable to the loss of certain customers in the united kingdom early in 2014 as well as increased costs in the united kingdom to transition a significant new customer . the domestic segment experienced lower margins on new and renewed customer contracts in 2014 compared to 2013 and higher sg & a costs to support sales growth . the domestic segment operating earnings included a $ 5.3 million recovery in the first quarter from the settlement of a direct purchaser , anti-trust class-action lawsuit related to the purchases of medical devices which , for the year , was largely offset by increased legal fees related to ongoing litigation . use of non-gaap measures adjusted operating earnings , adjusted net income and adjusted eps are an alternative view of performance used by management , and we believe that investors ' understanding of our performance is enhanced by disclosing these performance measures . in general , the measures exclude items and charges that ( i ) management does not believe reflect our core business and relate more to strategic , multi-year corporate activities ; or ( ii ) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends . management uses these non-gaap financial measures internally to evaluate our performance , evaluate the balance sheet , engage in financial and operational planning and determine incentive compensation . management provides these non-gaap financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and in comparing our performance to that of our competitors . however , the non-gaap financial measures used by us may be calculated differently from , and therefore may not be comparable to , similarly titled measures used by other companies . story_separator_special_tag replace_table_token_15_th ( 1 ) based on year end accounts receivable and net revenue for the fourth quarter ( 2 ) based on average annual inventory and costs of goods sold for the years ended december 31 , 2014 and 2013 liquidity and capital expenditures . the following table summarizes our consolidated statements of cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_16_th cash used for operating activities in 2014 reflected unfavorable changes in working capital driven primarily by the timing of vendor payments and increased net working capital needs resulting from strong sales growth . depreciation and amortization in the statement of cash flow for 2014 includes $ 6.0 million in accelerated amortization which is included in acquisition-related and exit and realignment charges in the statement of income related to the change in useful life ( from 10 years to 1 year ) for an information system which is being replaced in the international segment . cash from operating activities for 2013 decreased compared to 2012 due to changes in working capital , including increases in accounts and notes receivable which experienced an increase in dso of 1.3 days ( unfavorable impact on cash of $ 33.3 million ) . cash used for investing activities in 2014 included cash paid for the acquisitions of medical action and arc royal of approximately $ 261.6 million plus assumed third-party debt ( capital lease obligations ) of $ 13.4 million and capital expenditures of $ 70.8 million ( compared to $ 60.1 million in 2013 ) primarily related to distribution center and logistics facility moves and modifications and information technology initiatives . in 2012 , we acquired movianto in exchange for approximately $ 155.2 million of cash plus assumed third-party debt ( primarily capitalized leases ) of $ 2.1 million . domestic segment capital expenditures were $ 34.5 million in 2012 , primarily related to our strategic and operational efficiency initiatives , particularly initiatives relating to information technology enhancements . in 2014 , cash provided by financing activities reflects proceeds from borrowings of $ 581.4 million and the repayment of long-term debt of $ 217.4 million . we paid dividends of $ 63.1 million , $ 60.7 million and $ 55.7 million and repurchased common stock under a share repurchase program for $ 9.9 million , $ 18.9 million and $ 15.0 million in the years ended december 31 , 2014 , 2013 and 2012 . 21 capital resources . our sources of liquidity include cash and cash equivalents and a revolving credit facility . on september 17 , 2014 , we amended our existing credit agreement with wells fargo bank , n.a. , jpmorgan chase bank , n.a. , bank of america , n.a . and a syndicate of financial institutions ( the amended credit agreement ) increasing our borrowing capacity from $ 350 million to $ 450 million and extending the term through 2019. under the amended credit agreement , we have the ability to request two one -year extensions and to request an increase in aggregate commitments by up to $ 200 million . the interest rate on the amended credit agreement , which is subject to adjustment quarterly , is based on the london interbank offered rate ( libor ) , the federal funds rate or the prime rate , plus an adjustment based on the better of our debt ratings or leverage ratio ( credit spread ) as defined by the amended credit agreement . we are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility . the terms of the amended credit agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage , including on a pro forma basis in the event of an acquisition . we may utilize the revolving credit facility for long-term strategic growth , capital expenditures , working capital and general corporate purposes . if we were unable to access the revolving credit facility , it could impact our ability to fund these needs . based on our leverage ratio at december 31 , 2014 , the interest rate under the credit facility is libor plus 1.375 % . at december 31 , 2014 , we had $ 33.7 million in borrowings and letters of credit of approximately $ 5.0 million outstanding under the amended credit agreement , leaving $ 411 million available for borrowing . we also have a $ 1.5 million letter of credit outstanding as of december 31 , 2014 and 2013 , which supports our facilities leased in europe . on september 16 , 2014 , we issued $ 275 million of 3.875 % senior notes due 2021 ( the “ 2021 notes ” ) and $ 275 million of 4.375 % senior notes due 2024 ( the “ 2024 notes ” ) . the 2021 notes were sold at 99.5 % of the principal amount with an effective yield of 3.951 % . the 2024 notes were sold at 99.6 % of the principal amount with an effective yield of 4.422 % . interest on the 2021 notes and 2024 notes is payable semiannually in arrears , commencing on march 15 , 2015 and december 15 , 2014 , respectively . we have the option to redeem the 2021 notes and 2024 notes in part or in whole prior to maturity at a redemption price equal to the greater of 100 % of the principal amount or the present value of the remaining scheduled payments discounted at the treasury rate plus 30 basis points . we are deferring and amortizing over the respective terms $ 5.3 million in costs incurred in connection with the issuance of the 2021 notes and the 2024 notes .
| results of operations 2014 compared to 2013 replace_table_token_5_th consolidated net revenue improved in our two segments for the year ended december 31 , 2014. excluding the impact of the fourth quarter acquisitions , net revenue increased by 2.6 % and 25.5 % in our domestic and international segments , respectively . in the domestic segment , the continued trend of growth in our existing large healthcare provider customer accounts and new business exceeded declines from smaller customers when compared to prior year . domestic segment growth rates are impacted by ongoing market trends including healthcare utilization rates . the increases in the international segment were a result of new buy/sell contracts and growth in fee-for-service business as well as positive impacts from foreign exchange . fee-for-service business generally represents approximately two-thirds of net revenue in the international segment . cost of goods sold . for the years ended december 31 , change ( dollars in thousands ) 2014 2013 $ % cost of goods sold $ 8,270,216 $ 7,954,457 $ 315,759 4.0 % 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 , bear the risk of general and physical inventory loss and carry all credit risk associated with sales . these are sometimes referred to as distribution or buy/sell contracts . beginning in the fourth quarter of 2014 , cost of goods sold also includes direct and certain indirect labor , material and overhead costs associated with our acquired packaging operations . there is no cost of goods sold associated with our fee-for-service business .
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interest is payable monthly under this promissory note , initially at a rate of 3.0 % story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under “ risk factors ” and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . you should not place undue reliance on these forward-looking statements , which apply only as of the date of this annual report on form 10-k. except as required by law , we assume no obligation to update these forward-looking statements publicly , or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements , even if new information becomes available in the future . you should read this annual report on form 10-k and the documents that we reference in this annual report on form 10-k completely . overview we are a biopharmaceutical company focused on discovering , developing and commercializing novel immunotherapeutic products to improve treatment options for patients with cancer . our portfolio includes biologic and small-molecule immunotherapy product candidates intended to treat a wide range of oncology indications . our lead product candidate , algenpantucel-l cancer immunotherapy , or hyperacute pancreas , is being studied in two phase 3 clinical trials ; one in surgically-resected pancreatic cancer patients that is being performed under a special protocol assessment , or spa , with the united states food and drug administration , or fda , and one in patients with locally advanced pancreatic cancer . we initiated these trials based on encouraging phase 2 data that suggest improvement in both disease-free and overall survival . we have also received fast track and orphan drug designations from the fda for this product candidate for the adjuvant treatment of surgically-resected pancreatic cancer and orphan medicinal product designation for this product candidate from the european commission . the primary endpoint for our impress ( immunotherapy for pancreatic resectable cancer survival study ) phase 3 trial with algenpantucel-l for patients with surgically-resected pancreatic cancer is overall survival . our additional product candidates in clinical development include tergenpumatucel-l , or hyperacute lung , dorgenmeltucel-l , or hyperacute melanoma , our hyperacute prostate cancer immunotherapy , or hyperacute prostate , our hyperacute renal cancer immunotherapy , or hyperacute renal , 1-methyl-d-tryptophan ( d-imt ) , or indoximod , our proprietary ido pathway inhibitor product candidate , and nlg919 , an ido pathway inhibitor licensed to genentech . to date , our hyperacute product candidates have been dosed in more than 700 cancer patients , either as a monotherapy or in combination with other therapies , and have demonstrated a favorable safety profile . we believe that our immunotherapeutic technologies have the potential to lead to multiple product candidates , targeting a wide range of oncologic indications that can be used either alone or in combination with the other therapies . in addition , we have significant technology to address infectious diseases , including our rvsv-ebov vaccine candidate for the ebola virus . we have incurred significant losses since our inception . our profits to date have been primarily the result of large payments received in connection with licensing transactions . in the absence of such transactions , which we do not expect in 2015 , we expect our losses to increase over the next several years as we advance our product candidates through late-stage clinical trials , pursue regulatory approval of our product candidates , and expand our commercialization activities in anticipation of one or more of our product candidates receiving marketing approval . we generated net income of $ 102.9 million , and incurred net losses of $ 31.2 million and $ 23.3 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . on october 25 , 2011 , we filed a certificate of amendment of the restated certificate of incorporation with the secretary of state of delaware effecting a 2.1-for-one reverse split of our common stock . all share and per share amounts have been retroactively restated in the accompanying financial statements and notes for all periods presented . initial public offering and subsequent equity offerings on november 16 , 2011 , we completed our initial public offering , or ipo , raising a total of $ 37.6 million in net proceeds after deducting underwriting discounts and commissions of $ 3.0 million and offering expenses of $ 2.9 million . on february 4 , 2013 , we completed a follow-on public offering , raising a total of $ 49.0 million after deducting $ 3.1 million in underwriter discounts and commissions and offering expenses of $ 300,000 . 67 we entered into a sales agreement , with cantor fitzgerald & co. , dated as of september 5 , 2013 , under which we may sell up to $ 60.0 million in shares of our common stock in one or more placements at prevailing market prices for our common stock , or the atm offering . any such sales would be effected pursuant to our registration statement on form s-3 ( 333-185721 ) , declared effective by the securities and exchange commission , or sec , on january 4 , 2013. as of december 31 , 2014 , we had sold 1,833,838 shares of common stock raising a total of $ 45.2 million in net proceeds under the atm offering . subsequent to december 31 , 2014 and through march 4 , 2015 , we sold an additional 329,402 shares of common stock under the atm offering raising an additional $ 13.6 million in net proceeds . financial overview revenues we have never earned revenue from commercial sales of any drugs . story_separator_special_tag the net change in the total valuation allowance for the years ended december 31 , 2014 and 2013 was a decrease of $ 18.1 and an increase of $ 2.0 million , respectively . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected taxable income , and tax planning strategies in making this assessment . valuation allowances have been established for the entire amount of the net deferred tax assets as of december 31 , 2014 and 2013 , due to the uncertainty of future recoverability . as of december 31 , 2014 and december 31 , 2013 , we had federal net operating loss carryforwards of $ 2.3 million and $ 88.4 million and federal research credit carryforwards of $ 120,000 and $ 4.3 million , respectively , that expire at various dates from 2026 through 2031. we used $ 89.1 million in net operating loss and federal research credit carryforwards in 2014. sections 382 and 383 of the internal revenue code limit a corporation 's ability to utilize its net operating loss carryforwards and certain other tax attributes ( including research credits ) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50 % over any rolling three year period . state net operating loss carryforwards ( and certain other tax attributes ) may be similarly limited . an ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation 's business , results of operations , financial condition and cash flow . based on analysis , we believe that , from our inception through december 31 , 2014 , we experienced section 382 ownership changes in september 2001 and march 2003 and our subsidiary experienced section 382 ownership changes in january 2006 and january 2011. these ownership changes limited our ability to utilize federal net operating loss carryforwards ( and certain other tax attributes ) that accrued prior to the respective ownership changes of us and our subsidiary . even if another ownership change has not occurred , additional ownership changes may occur in the future as a result of events over which we will have little or no control , including purchases and sales of our equity by our 5 % stockholders , the emergence of new 5 % stockholders , additional equity offerings or redemptions of our stock or certain changes in the ownership of any of our 5 % stockholders . income tax expense was $ 14.8 million , $ 130,000 , and $ 0 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . income tax expense differs from the amount that would be expected after applying the statutory u.s. federal income tax rate primarily due to changes in the valuation allowance for deferred taxes . critical accounting policies and significant judgments and estimates we have prepared our consolidated financial statements in accordance with united states generally accepted accounting principles , or gaap . our preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , expenses and related disclosures at the date of the financial statements , as well as revenues and expenses during the reporting periods . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results could therefore differ materially from these estimates under different assumptions or conditions . we have reviewed our critical accounting policies and estimates with the audit committee of our board of directors . 70 while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements included later in this annual report , we believe the following accounting policies to be critical in the preparation of our financial statements . expenses accrued under contractual arrangements with third parties ; accrued clinical expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued clinical expenses include : fees paid to contract research organizations in connection with clinical trials ; fees paid to investigator sites in connection with clinical trials ; fees paid to contract manufacturers in connection with the production of clinical trial materials ; and fees paid to vendors in connection with preclinical development activities . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf .
| results of operations comparison of the years ended december 31 , 2014 and 2013 revenues . revenues for the year ended december 31 , 2014 were $ 172.6 million , increasing from $ 1.1 million for the same period in 2013 . the increase in revenue of $ 171.5 million was due to an increase of $ 166.0 million in licensing revenue , and a $ 5.5 million increase in grant revenue under various government contracts . research and development expenses . research and development expenses for the year ended december 31 , 2014 were $ 35.7 million , increasing from $ 22.7 million for the same period in 2013 . the $ 13.0 million increase was due to an $ 8.3 million increase in outside clinical and other expenses including contract development costs for nlg919 , contract manufacturing costs for indoximod and the ebola vaccine product candidate , consulting fees , and direct development expenses for our clinical trial activities , accompanied by a $ 4.7 million increase in personnel-related expenses due to increased staffing levels and compensation increases . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2014 were $ 19.3 million , increasing from $ 9.5 million for the same period in 2013 . the $ 9.8 million increase was due to a $ 5.8 million increase in other costs including legal and consulting fees , travel , and licensing expense , accompanied by a $ 4.0 million increase in personnel-related expenses due to increased staffing levels and compensation increases , which includes $ 1.7 million in share- 73 based compensation resulting from the vesting in full of one employee 's options upon the employee 's termination during the year ended december 31 , 2014. income tax expense .
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the pivotal studies for empagliflozin completed in 2012 , and we and boehringer ingelheim anticipate filing for regulatory review in the u.s. , europe , and japan in 2013. evacetrapib —in october 2012 , we initiated phase iii clinical trial testing . florbetapir —on april 6 , 2012 , the fda approved amyvid ( florbetapir ) , a radioactive diagnostic agent indicated for brain imaging of beta-amyloid plaques in patients with cognitive impairment who are being evaluated for alzheimer 's disease and other causes of cognitive decline . in june 2012 , amyvid became available to a limited number of imaging centers . in january 2013 , amyvid was also approved by the european commission , which has the authority to approve medicines for the european union . 25 ixekizumab —in january 2013 , we initiated phase iii clinical trial testing for ixekizumab as a potential treatment for psoriatic arthritis . liprotamase —we continue to engage in discussions with the fda regarding future clinical trial requirements for liprotamase . see note 7 to the consolidated financial statements for additional information . necitumumab —we will assume sole worldwide development and commercialization rights to necitumumab following notice in the fourth quarter of 2012 from bms to terminate the collaboration for necitumumab in north america and japan . novel basal insulin analog —in january 2013 , we announced that we and boehringer ingelheim adjusted the scope of our collaboration , resulting in our reassuming the sole worldwide development and commercialization rights for the novel basal insulin analog . we also announced plans for the 2013 and 2014 initiation of the remainder of the pre-planned clinical trials for the molecule . these studies will be conducted to support regulatory submissions and evaluate safety , efficacy , and differentiation of the molecule . these studies are in addition to the five ongoing imagine clinical trials . pomaglumetad methionil —in august 2012 , we announced the decision to stop ongoing phase iii clinical studies investigating pomaglumetad methionil for the treatment of patients suffering from schizophrenia . the decision was based on a lack of efficacy in two registration trials . the decision was not based on any safety signals . ramucirumab —in october 2012 , we announced that the regard trial , a phase iii study of ramucirumab as a second-line treatment in patients with metastatic gastric cancer , met its primary endpoint of improved overall survival and its secondary endpoint of increased progression-free survival . we anticipate filing for regulatory review in the u.s. and europe in 2013. solanezumab —in august 2012 , we announced that the primary endpoints , both cognitive and functional , were not met in either of the two phase iii , double-blind , placebo-controlled expedition trials in patients with mild-to-moderate alzheimer 's disease . however , a pre-specified secondary analysis of pooled data across both trials showed a 34 percent reduction of cognitive decline in patients with mild alzheimer 's disease . we plan to conduct an additional phase iii study of solanezumab in patients with mild alzheimer 's disease . enrollment is expected to begin no later than the third quarter of 2013. tabalumab —in february 2013 , we announced our decision to discontinue the phase iii rheumatoid arthritis program for tabalumab due to lack of efficacy . the decision was not based on safety concerns . the tabalumab phase iii program for lupus is ongoing and will continue as planned . there are many difficulties and uncertainties inherent in pharmaceutical research and development ( r & d ) and the introduction of new products . a high rate of failure is inherent in new drug discovery and development . the process to bring a drug from the discovery phase to regulatory approval can take 12 to 15 years or longer and cost more than $ 1 billion . failure can occur at any point in the process , including late in the process after substantial investment . as a result , most research programs will not generate financial returns . new product candidates that appear promising in development may fail to reach the market or may have only limited commercial success . delays and uncertainties in the fda approval process and the approval processes in other countries can result in delays in product launches and lost market opportunities . consequently , it is very difficult to predict which products will ultimately be approved and the sales growth of those products . we manage r & d spending across our portfolio of molecules , and a delay in , or termination of , any one project will not necessarily cause a significant change in our total r & d spending . due to the risks and uncertainties involved in the r & d process , we can not reliably estimate the nature , timing , completion dates , and costs of the efforts necessary to complete the development of our r & d projects , nor can we reliably estimate the future potential revenue that will be generated from a successful r & d project . each project represents only a portion of the overall pipeline , and none is individually material to our consolidated r & d expense . while we do accumulate certain r & d costs on a project level for internal reporting purposes , we must make significant cost estimations and allocations , some of which rely on data that are neither reproducible nor validated through accepted control mechanisms . therefore , we do not have sufficiently reliable data to report on total r & d costs by project , by preclinical versus clinical spend , or by therapeutic category . 26 legal , regulatory , and other matters we will lose u.s. patent protection for cymbalta in december 2013 and for evista in march 2014. see `` financial condition '' for additional information . story_separator_special_tag sales of humalog , our injectable human insulin analog for the treatment of diabetes , decreased 2 percent in the u.s. , due to increased government and commercial rebates as well as the product 's removal from a large formulary in 2012. sales outside the u.s. increased 6 percent , due to increased demand , partially offset by the unfavorable impact of foreign exchange rates . sales of cialis , a treatment for erectile dysfunction and benign prostatic hyperplasia ( bph ) , increased 11 percent in the u.s. , driven by increased demand and higher prices . sales outside the u.s. decreased 2 percent , driven by the unfavorable impact of foreign exchange rates , partially offset by increased demand and higher prices . sales of zyprexa , a treatment for schizophrenia , acute mixed or manic episodes associated with bipolar i disorder , and bipolar maintenance , decreased 83 percent in the united states . sales outside the u.s. decreased 45 percent . the decreases were due to the loss of patent exclusivity in the u.s. and most major international markets outside of japan , partially offset by growth in japan . zyprexa sales in japan were approximately $ 585 million in 2012 , compared to approximately $ 540 million in 2011 . 28 sales of humulin , an injectable human insulin for the treatment of diabetes , increased 1 percent in the u.s. , driven by higher prices , largely offset by decreased demand . u.s. sales of humulin were negatively affected by the product 's removal from a large formulary in 2012 , as well as the continued decline in the market for human insulin and the termination of the humulin relion agreement with walmart . sales outside the u.s. decreased 2 percent , driven by the unfavorable impact of foreign exchange rates , partially offset by increased volume . sales of forteo , an injectable treatment for osteoporosis in postmenopausal women and men at high risk for fracture and for glucocorticoid-induced osteoporosis in postmenopausal women and men , increased 8 percent in the u.s. , driven by higher prices , partially offset by decreased volume . sales outside the u.s. increased 33 percent , primarily due to the increased demand in japan . sales of evista , a product for the prevention and treatment of osteoporosis in postmenopausal women and for reduction of risk of invasive breast cancer in postmenopausal women with osteoporosis and postmenopausal women at high risk for invasive breast cancer , decreased 1 percent in the u.s. , driven by decreased demand , largely offset by higher prices . sales outside the u.s. decreased 14 percent , driven by decreased volume and , to a lesser extent , the unfavorable impact of foreign exchange rates . sales of strattera , a treatment for attention-deficit hyperactivity disorder in children , adolescents , and in the u.s. in adults , decreased 2 percent in the u.s. , due to decreased demand , partially offset by higher prices . sales outside the u.s. increased 4 percent , driven by increased demand in japan , partially offset by lower prices and the unfavorable impact of foreign exchange rates . sales of effient , a product for the reduction of thrombotic cardiovascular events ( including stent thrombosis ) in patients with acute coronary syndrome who are managed with an artery-opening procedure known as percutaneous coronary intervention , including patients undergoing angioplasty , atherectomy , or stent placement , increased 52 percent in the u.s. , driven by increased demand and , to a lesser extent , higher prices . sales outside the u.s. increased 47 percent , due to increased demand , partially offset by the unfavorable impact of foreign exchange rates . animal health product sales in the u.s. increased 30 percent , primarily due to increased demand for companion animal products . sales outside the u.s. increased 12 percent , driven primarily by the impact of the acquisition of certain janssen animal health assets in europe ( see note 3 to the consolidated financial statements ) , and the growth of other products , partially offset by the unfavorable impact of foreign exchange rates . gross margin , costs , and expenses gross margin as a percent of total revenue decreased by 0.3 percentage points in 2012 to 78.8 percent . this decrease was primarily due to lower sales of zyprexa and , to a lesser extent , higher miscellaneous manufacturing costs , partially offset by the impact of foreign exchange rates on international inventories sold , which decreased cost of sales in 2012 and increased cost of sales in 2011 . marketing , selling , and administrative expenses decreased 5 percent in 2012 to $ 7.51 billion , driven by lower marketing expense resulting from our cost-containment efforts . research and development expenses increased 5 percent to $ 5.28 billion , due to higher late-stage clinical trial costs . no acquired ipr & d charges were incurred in 2012 , compared with $ 388.0 million in 2011 , all of which was associated with the diabetes collaboration with boehringer ingelheim . we recognized asset impairments , restructuring , and other special charges of $ 281.1 million in 2012 . these charges comprised $ 122.6 million related to an intangible asset impairment for liprotamase , $ 74.5 million related to restructuring to reduce our cost structure and global workforce , $ 64.0 million related to the asset impairment of a product delivery device platform , and $ 20.0 million related to the withdrawal of xigris . in 2011 , we recognized asset impairments , restructuring , and other special charges of $ 401.4 million , of which $ 316.4 million primarily related to severance costs from strategic actions and $ 85.0 million related to the withdrawal of xigris . see notes 4 and 5 to the consolidated financial statements for additional information . other—net , ( income ) expense was income of $ 674.0 million
| financial results we achieved revenue growth of 5 percent to $ 24.29 billion in 2011 , primarily driven by the collective growth of cymbalta , insulin products , animal health products , alimta , effient , and cialis , partially offset by the decline in gemzar and zyprexa revenue due to the loss of patent exclusivity . this revenue growth , as well as a lower effective tax rate , was more than offset by lower gross margin percentage ; increased marketing , selling , and administrative costs ; higher other expense ; and the increased impact in 2011 of the items noted below . as a result , net income decreased 14 percent to $ 4.35 billion , and eps decreased 15 percent to $ 3.90 per share , in 2011 as compared to $ 5.07 billion , or $ 4.58 per share , in 2010 . in addition to the highlighted items summarized in the `` executive overview , '' 2011 results also included the following items that affect comparisons : u.s. health care reform as a result of higher rebates and subsidies included in health care reform enacted in the u.s. during 2010 , total revenue in 2011 was reduced by $ 408.8 million ( pretax ) , or $ 0.29 per share . also , marketing , selling , and administrative expenses increased by $ 178.0 million ( pretax ) , or $ 0.16 per share , as a result of the mandatory pharmaceutical manufacturers ' fee . the 2010 highlighted items are summarized as follows : u.s. health care reform as a result of higher rebates included in health care reform enacted in the u.s. during 2010 , total revenue in 2010 was reduced by $ 229.0 million ( pretax ) , or $ 0.16 per share . we also recorded a one-time non-cash deferred income tax charge of $ 85.1 million , or $ 0.08 per share , associated with the imposition of tax on the prescription drug subsidy of our u.s. retiree health plan .
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